21 May WHAT IS THE AMOUNT OF EXCESS LAND ALLOCATION ATTRIBUTED TO THE CONTROLLING INTEREST AT THE ACQUISITION DATE?
company A should always use the equity method to account for its investment in
Company B if
a) Company A has the ability to exercise significant influence over the operating
policies of Company B.
b) Company A owns 30% of Company B’s stock
c) Company A made the investment primarily to earn a return on excess cash
d) Company A does not have the ability to exercise significant influence over the operating policies of Company B.
Smith Company owns 15% of the common stock of Wesson Corporation and used
the fair value method to account for this investment. Wesson reported net income
of $110,000 for 2013 and paid dividends of $60,000 on October 1, 2013. How
much income should Smith Company recognize on this Investment in 2013?
a) $16,500
b) $9,000
c) $25,000
d) $7,500
e) $50,000
If Black Company acquired White Company and achieved control, how would the
land accounts of White and Black be combined?
a) Book value of Black would be combined with the book value of White
b) Book value of Black would be combined with the fair value of White
c) Fair value of Black would be combined with the fair value of White
d) Fair value of Black would be combined with the book value of While
e) Cost of Black would be combined with the cost of While
Using the acquisition method for a business combination, goodwill is generally
defined as
a) Cost of the investment minus the subsidiary’s book value at the beginning of
the year
b) Cost of the investment minus the subsidiary’s fair value at the beginning of
the year
c) Cost of the investment minus the subsidiary’s fair value at the acquisition date
d) Cost of the purchase consideration minus the subsidiary’s fair value at end of
the year
Bloomberg Company acquired 100% of BusinessWeek Company on January 1,
2009 at a price in excess of the subsidiary’s fair value. On that date, Bloomberg’s
equipment (10-year life) had a book value of $360,000 but a fair value of $480,000.
BusinessWeek had equipment (10-year life) with a book value of $240,000 and a
fair value of $350,000. Bloomberg used the partial equity to record its investment in
BusinessWeek. On December 31, 2011, Bloomberg had equipment with a book value
of $250,000 and a fair value of $400,000. BusinessWeek had equipment with a book
value of $170,000 and a fair value of $320,000. What was the consolidated balance
for the Equipment account as of December 31, 2011?
a) $387,000
b) $497,000
c) $508,000
d) $537,000
e) $570,000
Sugar Company acquired 100% of Spice Company on January 1, 2011. Sugar paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Spice Company reported net income of $400 in 2011 and paid dividends of $100.
Assume the equity method is applied. How much will Sugar Company’s income or
decrease as a result of Spice Company’s operations in 2011?
a) $400 increase
b) $300 increase
c) $380 increase
d) $280 increase
e) $480 increase
Assume that K-Mart acquired Sears on a date other than the first day of the fiscal year.
When K-Mart is consolidating Sears, which of the following statements is true in the
presentation of consolidated financial statements?
a)Preacquisition earnings are deducted from consolidated revenues and expenses
b) Preacquisiton earnings are added to consolidated revenues and expenses
c) Preacquisition earnings are deducted from the beginning consolidated
stockholders’ equity
d) Preacquisiton earnings are added to the beginning consolidated stockholders’
equity
e) Preacquisition earnings are ignored in the consolidated income statement
When S-Mart acquired 75% of the common stock of Kears Corporation, Kears
owned land with a book value of $70,000 and a fair value of $100,000. What is the
amount of excess land allocation attributed to the controlling interest at the acquisition
date?
a) $0
b) $30,000
c) $35,000
d) $22,500
e) $17,500
Jaison Company sells inventory to its parent, Oliver Company, at a profit during 2010.
One-third (1/3) of the inventory is sold by Oliver in 2010. In the consolidation work-
sheet for 2010, which of the following choices would be a debit entry to eliminate the
intra-entity transfer of inventory?
a) Retained Earnings
b) Cost of Goods Sold
c) Inventory
d) Investment in Jaison Company
e) Sales
Which of the following statements is TRUE concerning an intra-entity transfer of a
depreciable asset?
a) Non-controlling Interest [NCI] in subsidiary’s net income is never affected by a
gain on the transfer
b) NCI in subsidiary’s net income is always affected by a gain on the transfer
c) NCI in subsidiary’s net income is affected only when the transfer is upstream
d) NCI in subsidiary’s net income is increased by an upstream gain in the year of
transfer.
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