Question(s) / Instruction(s):
FOR BUSINESS TUTOR
1. A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n) (Points: 4)
a. agreeable combination.
b. friendly combination.
c. hostile combination.
d. unfriendly combination.
2. A potential offering price for a company is computed by adding the estimated goodwill to the (Points: 4)
a. book value of the company?s net assets.
b. book value of the company?s net identifiable assets.
c. fair value of the company?s net assets.
d. fair value of the company?s net identifiable assets.
3. The parent company concept adjusts subsidiary net asset values for the (Points: 4)
a. differences between cost and fair value.
b. differences between cost and book value.
c. total fair value implied by the price paid by the parent.
d. total cost implied by the price paid by the parent.
4. P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company?s assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as: (Points: 4)
5. The fair value of net identifiable assets exclusive of goodwill of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, including $60,000 goodwill. If the fair value of the reporting unit is $335,000, what amount of goodwill impairment will be recognized for this unit? (Points: 4)
6. The fair value of net identifiable assets of a reporting unit exclusive of goodwill of Y Company is $270,000. The carrying value of the reporting unit's net assets on Y Company's books is $320,000, including $50,000 goodwill. If the reported goodwill impairment for the unit is $10,000, what would be the fair value of the reporting unit? (Points: 4)
7. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2011. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination? (Points: 4)
8. Pine Corp. owns 60% of Sage Corp.'s outstanding common stock. On May 1, 2011, Pine advanced Sage $90,000 in cash, which was still outstanding at December 31, 2011. What portion of this advance should be eliminated in the preparation of the December 31, 2011 consolidated balance sheet? (Points: 4)
9. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the: (Points: 4)
books of the parent company.
books of the subsidiary company.
work paper only.
books of both the parent company and the subsidiary.
10. What is the method of presentation required by SFAS 160 of "non-controlling interest" on a consolidated balance sheet? (Points: 4)
As a deduction from goodwill from consolidation.
As a separate item within the long-term liabilities section.
As a part of stockholders' equity.
As a separate item between liabilities and stockholders' equity.
11. On January 1, 2011, Pena Company and Shelby Company had a condensed balanced sheets as follows:
On January 2, 2011 Pena borrowed $180,000 and used the proceeds to purchase 90% of the outstanding common stock of Shelby. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land. On Pena's January 2, 2011 consolidated balance sheet, Noncurrent assets should be:
12. On January 1, 2011, Potter Company purchased 25 % of Smith Company's common stock; no goodwill resulted from the acquisition. Potter Company appropriately carries the investment using the equity method of accounting and the balance in Potter's investment account was $190,000 on December 31, 2011. Smith reported net income of $120,000 for the year ended December 31, 2011 and paid dividends on its common stock totaling $48,000 during 2011. How much did Potter pay for its 25% interest in Smith? (Points: 4)
13. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $318,000. S Company's December 31, 2010 balance sheet reported common stock of $200,000 and retained earnings of $180,000. During the calendar year 2011, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated work paper on December 31, 2011? (Points: 4)
14. Hall, Inc., owns 40% of the outstanding stock of Gloom Company. During 2011, Hall received a $4,000 cash dividend from Gloom. What effect did this dividend have on Hall's 2011 financial statements? (Points: 4)
Increased total assets.
Decreased total assets.
Decreased investment account.
15. Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company's: (Points: 4)
recorded net income.
recorded net income plus the subsidiary's recorded net income.
recorded net income plus the its share of the subsidiary's recorded net income.
income from independent operations plus subsidiary's income resulting from transactions with outside parties.
16. Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to: (Points: 4)
Dividends Declared - S Company.
Equity in Subsidiary Income.
Retained Earnings - S Company.
17. Porter Company acquired an 80% interest in Strumble Company on January 1, 2010, for $270,000 cash when Strumble Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strumble Company made $30,000 in 2010 and paid no dividends. Porter Company's separate income in 2010 was $375,000. Controlling interest in consolidated net income for 2010 is: (Points: 4)
18. On November 30, 2010, Pulse Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2010, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2010, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2010, consolidated balance sheet of Pulse Incorporated, and its wholly owned subsidiary, Surge Company? (Points: 4)
19. The excess of fair value over implied value must be allocated to reduce proportionally the fair values initially assigned to: (Points: 4)
both current and noncurrent assets.
none of the above.
20. Long-term debt and other obligations of an acquired company should be valued for consolidation purposes at their: (Points: 4)
21. When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as: (Points: 4)
excess of implied over fair value.
a deferred credit.
difference between implied and fair value.
22. Failure to eliminate intercompany sales would result in an overstatement of consolidated (Points: 4)
cost of sales.
all of these.
23. Perez Company acquired an 80% interest in Seaman Company in 2010. In 2011 and 2012, Sutton reported net income of $400,000 and $480,000, respectively. During 2011, Seaman sold $80,000 of merchandise to Perez for a $20,000 profit. Perez sold the merchandise to outsiders during 2012 for $140,000. For consolidation purposes, what is the non-controlling interest's share of Seaman's 2011 and 2012 net income? (Points: 4)
$90,000 and $96,000.
$100,000 and $76,000.
$84,000 and $92,000.
$76,000 and $100,000.
24. In determining controlling interest in consolidated income in the consolidated financial statements, unrealized intercompany profit on inventory acquired by a parent from its subsidiary should: (Points: 4)
not be eliminated.
be eliminated in full.
be eliminated to the extent of the parent company's controlling interest in the subsidiary.
be eliminated to the extent of the non-controlling interest in the subsidiary.
25. P Company sold merchandise costing $240,000 to S Company (90% owned) for $300,000. At the end of the current year, one-third of the merchandise remains in S Company's inventory. Applying the lower-of- cost-or-market rule, S Company wrote this inventory down to $92,000. What amount of intercompany profit should be eliminated on the consolidated statements work paper? (Points: 4)
26. A parent company regularly sells merchandise to its 80%-owned subsidiary. Which of the following statements describes the computation of non-controlling interest income? (Points: 4)
the subsidiary's net income times 20%.
(the subsidiary's net income x 20%) + unrealized profits in the beginning inventory - unrealized profits in the ending inventory.