Chapter 03 The Reporting Entity and Consolidated Financial StatementsMultiple Choice QuestionsOn January 3, 2009, Jane Company acquired 75 percent of Miller Company's outstandingcommon s
Trang 1Chapter 03 The Reporting Entity and Consolidated Financial StatementsMultiple Choice Questions
On January 3, 2009, Jane Company acquired 75 percent of Miller Company's outstandingcommon stock for cash The fair value of the noncontrolling interest was equal to a
proportionate share of the book value of Miller Company's net assets at the date of
acquisition Selected balance sheet data at December 31, 2009, are as follows:
1 Based on the preceding information, what amount should be reported as noncontrollinginterest in net assets in Jane Company's December 31, 2009, consolidated balance sheet?
Trang 2Beta Company acquired 100 percent of the voting common shares of Standard VideoCorporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000.Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of
$280,000, and stockholders' equity of $220,000 At that date, Standard Video reported totalassets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000 Included inStandard's liabilities was an account payable to Beta in the amount of $20,000, which Betaincluded in its accounts receivable
3 Based on the preceding information, what amount of total assets did Beta report in itsbalance sheet immediately after the acquisition?
Trang 36 Based on the preceding information, what amount of stockholders' equity was reported inthe consolidated balance sheet immediately after acquisition?
A Pea
B Pea plus Essone
C Pea plus Essone plus Esstwo
D Pea plus Essone plus Esstwo plus Essthree
8 Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated incomestatement What amount of net income did Adams Corporation report for the year?
A $550,000
B $590,000
C $700,000
D $860,000
Trang 410 Princeton Company acquired 75 percent of the common stock of Sheffield Corporation onDecember 31, 2009 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 andfair value of $500,000 Using the entity theory, at what amount would land be reported in aconsolidated balance sheet prepared immediately after the combination?
Trang 5On January 3, 2009, Redding Company acquired 80 percent of Frazer Corporation's commonstock for $344,000 in cash At the acquisition date, the book values and fair values of Frazer'sassets and liabilities were equal, and the fair value of the noncontrolling interest was equal to
20 percent of the total book value of Frazer The stockholders' equity accounts of the twocompanies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated incomestatement for 2009
13 Based on the preceding information, what amount will be assigned to the noncontrollinginterest on January 3, 2009, in the consolidated balance sheet?
Trang 615 Based on the preceding information, what will be the amount of net income reported byFrazer Corporation in 2009?
A $44,000
B $55,000
C $66,000
D $36,000
16 Goodwill under the parent theory:
A exceeds goodwill under the proprietary theory
B exceeds goodwill under the entity theory
C is less than goodwill under the entity theory
D is less than goodwill under the proprietary theory
Small-Town Retail owns 70 percent of Supplier Corporation's common stock For the currentfinancial year, Small-Town and Supplier reported sales of $450,000 and $300,000 and
expenses of $290,000 and $240,000, respectively
17 Based on the preceding information, what is the amount of net income to be reported inthe consolidated income statement for the year under the parent company theory approach?
Trang 719 Based on the preceding information, what is the amount of net income to be reported inthe consolidated income statement for the year under the entity theory approach?
A $210,000
B $202,000
C $160,000
D $220,000
20 Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,
2006 Goodwill (attributable to Quid's acquisition of Pro shares) of $300,000 was reported inthe consolidated financial statements at December 31, 2006 Parent company approach wasused in determining this amount What is the amount of goodwill to be reported under
proprietary theory approach?
A $300,000
B $400,000
C $150,000
D $100,000
21 Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,
2004 Goodwill (attributable to Quid's acquisition of Pro shares) of $150,000 was reported inthe consolidated financial statements at December 31, 2004 Proprietary theory approach wasused in determining this amount What is the amount of goodwill to be reported under entitytheory approach?
Trang 823 In which of the following cases would consolidation be inappropriate?
A The subsidiary is in bankruptcy
B Subsidiary's operations are dissimilar from those of the parent
C The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary'snonvoting preferred stock is held by a single investor
D Subsidiary is foreign
24 Consolidated financial statements tend to be most useful for:
A Creditors of a consolidated subsidiary
B Investors and long-term creditors of the parent company
C Short-term creditors of the parent company
D Stockholders of a consolidated subsidiary
On January 1, 2009, Heathcliff Corporation acquired 80 percent of Garfield Corporation'svoting common stock Garfield's buildings and equipment had a book value of $300,000 and afair value of $350,000 at the time of acquisition
25 Based on the preceding information, what will be the amount at which Garfield's buildingsand equipment will be reported in consolidated statements using the parent company
Trang 927 On January 1, 2009, Gold Rush Company acquires 80 percent ownership in CaliforniaCorporation for $200,000 The fair value of the noncontrolling interest at that time is
determined to be $50,000 It reports net assets with a book value of $200,000 and fair value of
$230,000 Gold Rush Company reports net assets with a book value of $600,000 and a fairvalue of $650,000 at that time, excluding its investment in California What will be the
amount of goodwill that would be reported immediately after the combination under currentaccounting practice?
A Sales would be overstated by $30,000
B Cost of goods sold will be understated by $25,000
C Net income will be overstated by $25,000
D Consolidated net income will be unaffected
29 Zeta Corporation and its subsidiary reported consolidated net income of $320,000 for theyear ended December 31, 2008 Zeta owns 80 percent of the common shares of its subsidiary,acquired at book value Noncontrolling interest was assigned income of $30,000 in the
consolidated income statement for 2008 What is the amount of separate operating incomereported by Zeta for the year?
A $170,000
B $150,000
C $120,000
D $200,000
Trang 1030 Rohan Corporation holds assets with a fair value of $150,000 and a book value of
$125,000 and liabilities with a book value and fair value of $50,000 What balance will beassigned to the noncontrolling interest in the consolidated balance sheet if Helms Companypays $90,000 to acquire 75 percent ownership in Rohan and goodwill of $20,000 is reported?
31 Based on the preceding information, what amount would be reported in the consolidatedfinancial statements for inventory on January 1, 2008?
Trang 1133 Based on the preceding information, what amount would be reported in the consolidatedfinancial statements for cost of goods sold for 2008?
35 When a primary beneficiary's consolidation of a variable interest entity (VIE) is
appropriate, the amounts of the VIE to be consolidated are:
I Book values for assets and liabilities transferred by the primary beneficiary
II Fair values when the primary beneficiary relationship became established
A I
B II
C Both I and II
D Neither I nor II
36 Which of the following usually does not represent a variable interest?
A Common stock, with no special features or provisions
B Senior debt
C Subordinated debt
D Loan or asset guarantees
Essay Questions
Trang 1237 Consolidated financial statements are required by GAAP in certain circumstances Thisinformation can be very useful to stockholders and creditors Yet, there are limitations tothese financial statements for which the users must be aware What are at least three (3)limitations of consolidated financial statements?
38 In reading a set of consolidated financial statements you are surprised to see the termnoncontrolling interest not reported under the Stockholders' Equity section of the BalanceSheet
a What is a non-controlling interest?
b Why must it be reported in the financial statements as an element of equity rather than aliability?
39 FASB issued Interpretation No 46 R related to the Consolidation of Variable InterestEntities Why does FASB have difficulty in prescribing when these entities are consolidated?
Trang 1340 Dish Corporation acquired 100 percent of the common stock of Toll Company by issuing10,000 shares of $10 par common stock with a market value of $60 per share Summarizedbalance sheet data for the two companies immediately preceding the acquisition are asfollows:
Required: Determine the dollar amounts to be presented in the consolidated balance sheet for(1) total assets, (2) total liabilities, and (3) total stockholders' equity
Trang 1441 The Hamilton Company acquired 100 percent of the stock of Hudson Company onJanuary 1, 2010, for $308,000 cash Summarized balance sheet data for the companies onDecember 31, 2009, are as follows:
The book values of Hudson's assets and liabilities are equal to their fair values, except asindicated On January 1, 2010, Hudson owed Hamilton $14,000 on account
Required: Prepare a consolidated balance sheet immediately following the acquisition
Trang 1542 Barnes Company acquired 80 percent of the outstanding voting stock of Dean Company
on January 1, 2008 During 2008 Dean Company sold inventory costing $50,000 to BarnesCompany for $80,000 Barnes Company continued to hold the inventory at December 31,
2008 Also during 2008, Barnes Company sold merchandise costing $400,000 to nonaffiliatesfor $600,000, and on its separate balance sheet reported total inventory at year end of
$140,000 In its separate financial statements, Dean Company reported total sales and cost ofgoods sold of $350,000 and $220,000, respectively, for 2008 and ending inventory of
$150,000
Required: Based on the above information, compute the amounts that should appear in theconsolidated financial statements prepared for Barnes Company and it subsidiary, DeanCompany, at year end for the following items: 1) sales; 2) cost of goods sold; 3) gross profit
on sales; 4) inventory
Trang 1643 On January 1, 2009, Field Corporation, a retail outlet chain, acquired 100 percent of thecommon stock of Palouse Company by issuing 14,000 shares of Field's $5 par value commonstock The market price of Field's common stock was $20 per share on the eve of December
31, 2008 Summarized balance sheet data at December 31, 2008, are as follows:
Additional Information:
The book values of Palouse's assets approximated their respective fair values, except forinventory (included in current assets), which had a fair value $20,000 more than book value,and land, which had a market value of $200,000 on the date of combination At that date,Field owed Palouse $34,000 on account
Required: Prepare a consolidated balance sheet immediately following the acquisition
Trang 17Chapter 03 The Reporting Entity and Consolidated Financial Statements Answer Key
Multiple Choice Questions
On January 3, 2009, Jane Company acquired 75 percent of Miller Company's outstandingcommon stock for cash The fair value of the noncontrolling interest was equal to a
proportionate share of the book value of Miller Company's net assets at the date of
acquisition Selected balance sheet data at December 31, 2009, are as follows:
1 Based on the preceding information, what amount should be reported as noncontrollinginterest in net assets in Jane Company's December 31, 2009, consolidated balance sheet?
Trang 182 Based on the preceding information, what amount will Jane Company report as commonstock outstanding in its consolidated balance sheet at December 31, 2009?
$280,000, and stockholders' equity of $220,000 At that date, Standard Video reported totalassets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000 Included inStandard's liabilities was an account payable to Beta in the amount of $20,000, which Betaincluded in its accounts receivable
3 Based on the preceding information, what amount of total assets did Beta report in itsbalance sheet immediately after the acquisition?
Trang 195 Based on the preceding information, what amount of total liabilities was reported in theconsolidated balance sheet immediately after acquisition?
A.Pea
B.Pea plus Essone
C.Pea plus Essone plus Esstwo
D Pea plus Essone plus Esstwo plus Essthree.
AACSB: Analytic
AICPA: Decision Making
Trang 208 Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated incomestatement What amount of net income did Adams Corporation report for the year?
A $650,000
B.$500,000
C.$550,000
Trang 2111 If Push Company owned 51 percent of the outstanding common stock of Shove Company,which reporting method would be appropriate?
20 percent of the total book value of Frazer The stockholders' equity accounts of the twocompanies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income
Trang 2213 Based on the preceding information, what amount will be assigned to the noncontrollinginterest on January 3, 2009, in the consolidated balance sheet?
Trang 2316 Goodwill under the parent theory:
A.exceeds goodwill under the proprietary theory
B.exceeds goodwill under the entity theory
C is less than goodwill under the entity theory.
D.is less than goodwill under the proprietary theory
AACSB: Reflective Thinking
AICPA: Reporting
Small-Town Retail owns 70 percent of Supplier Corporation's common stock For the currentfinancial year, Small-Town and Supplier reported sales of $450,000 and $300,000 and
expenses of $290,000 and $240,000, respectively
17 Based on the preceding information, what is the amount of net income to be reported inthe consolidated income statement for the year under the parent company theory approach?
Trang 2419 Based on the preceding information, what is the amount of net income to be reported inthe consolidated income statement for the year under the entity theory approach?
20 Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,
2006 Goodwill (attributable to Quid's acquisition of Pro shares) of $300,000 was reported inthe consolidated financial statements at December 31, 2006 Parent company approach wasused in determining this amount What is the amount of goodwill to be reported under
proprietary theory approach?
21 Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,
2004 Goodwill (attributable to Quid's acquisition of Pro shares) of $150,000 was reported inthe consolidated financial statements at December 31, 2004 Proprietary theory approach wasused in determining this amount What is the amount of goodwill to be reported under entitytheory approach?
A.$150,000
B.$200,000
C $250,000
D.$100,000