Ch4 Test Bank

ch4
Student: ___________________________________________________________________________
1. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controlling
interest is most likely to be shown as part of equity under the
A. Partial equity concept
B. Proportionate consolidation concept
C. Economic unit concept
D. Parent company concept
E. Proprietary concept
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of
$70,000 and a fair value of $100,000.
2. What amount should have been reported for the land on a consolidated balance sheet, according to SFAS
141(R), assuming the economic unit concept was used?
A. $70,000
B. $75,000
C. $85,000
D. $92,500
E. $100,000
3. What amount of excess land allocation would be included for the calculation of non-controlling interest,
according to SFAS 141(R)?
A. $0
B. $7,500
C. $17,500
D. $25,000
E. $70,000
4. What amount should have been reported for the land on a consolidated balance sheet, assuming the
investment was obtained prior to SFAS 141(R) and the parent company concept was used?
A. $70,000
B. $75,000
C. $85,000
D. $92,500
E. $100,000
Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets
was $1,850,000 and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not
actively traded.
5. What is the total amount of goodwill recognized according to the economic unit concept per SFAS 141 (R)?
A. $150,000
B. $250,000
C. $0
D. $120,000
E. $170,000
6. What amount of goodwill should be attributed to Perch according to the economic unit concept per SFAS
141(R)?
A. $150,000
B. $250,000
C. $0
D. $120,000
E. $170,000
7. What amount of goodwill should be attributed to the non-controlling interest according to the economic unit
concept per SFAS 141(R)?
A. $0
B. $20,000
C. $30,000
D. $100,000
E. $120,000
8. What is the dollar amount of non-controlling interest which should appear on a balance sheet prepared
immediately after consolidation according to the economic unit concept per SFAS 141(R)?
A. $350,000
B. $300,000
C. $400,000
D. $370,000
E. $0
9. What is the dollar amount of Float Corp.'s net assets that would be represented on a balance sheet prepared
A. $1,600,000
B. $1,480,000
C. $1,200,000
D. $1,780,000
E. $1,850,000
immediately after consolidation according to the parent company concept?
A. $350,000
B. $300,000
C. $400,000
D. $250,000
E. $0
Femur Co. owns 70% of the voting common stock of Harbor Corp. During 2009, Harbor had revenues of
$2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2009.
Femur Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.
11. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be
A. $132,000
B. $150,000
C. $168,000
D. $160,000
E. $0
12. What is the net effect of the inclusion of Harbor on consolidated net income for 2009?
A. $350,000
B. $308,000
C. $500,000
D. $440,000
E. $290,000
Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2009. For 2009, Kailey
reported revenues of $800,000 and expenses of $620,000. The annual amount of amortization related to this
acquisition was $15,000. Denber Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.
13. In consolidation, the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for
2009 is determined to be
A. $206,667
B. $211,667
C. $221,667
D. $620,000
E. $635,000
14. The impact of the consolidation on consolidated net income for 2009 is determined to be
A. $31,000
B. $33,000
C. $55,000
D. $60,000
E. $39,000
15. The non-controlling interest's share of Denber's income for 2009 is calculated to be
A. $22,000
B. $24,000
C. $48,000
D. $66,000
E. $72,000
16. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a business combination that
resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth
$600,000 at the date of purchase. What value would be attributed to this land in a consolidated balance sheet at
the date of takeover, according to the economic unit concept per SFAS 141(R) and the parent company concept
per SFAS 141?
A. Entry A
B. Entry B
C. Entry C
D. Entry D
E. Entry E
17. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel
$500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what
amount of this debt should be eliminated?
A. $375,000
B. $125,000
C. $300,000
D. $500,000
E. $0
Royce Co. acquired 60% of Park Co. for $420,000 when Park's book value was $560,000. On that date, Park
had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. Two years later,
the following figures were reported by the two companies (stockholders' equity accounts have been omitted
from their separate operations). Royce accounts for its consolidations according to SFAS 141(R) and SFAS
160.
18. What is consolidated net income that is attributable to Royce's controlling interest?
A. $686,000
B. $560,000
C. $644,000
D. $635,600
E. $691,600
19. What is the non-controlling interest's share of the subsidiary's net income and what is the ending balance of
the non-controlling interest in the subsidiary?
A. $50,400 and $324,800
B. $53,648 and $304,500
C. $56,000 and $296,800
D. $52,640 and $313,600
E. $55,270 and $297,300
20. What is the consolidated balance of the Equipment account?

A. $666,400
B. $604,000
C. $756,000
D. $711,200
E. $764,000
On January 1, 2009, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:
On January 2, 2009, Palk borrowed $84,000 to acquire 90% of the outstanding common shares of Spraz. This
was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2009. The excess
consideration transferred over the underlying book value of the acquired net assets was allocated 60% to
inventory and 40% to goodwill. Palk accounts for its consolidations according to SFAS 141(R) and SFAS 160.
21. What is consolidated current assets as of January 2, 2009?

A. $138,600
B. $134,400
C. $126,000
D. $140,000
E. $127,400
22. What is consolidated noncurrent assets as of January 2, 2009?

A. $182,000
B. $190,400
C. $187,600
D. $191,333
E. $189,000
23. What is consolidated current liabilities as of January 2, 2009?

A. $70,000
B. $56,000
C. $64,400
D. $42,000
E. $58,100
24. Under the economic unit concept, which of the following statements is true about consolidated financial
statements?
A. The accounting emphasis in preparing consolidated financial statements is placed on the business
combination being formed
B. The accounting emphasis in preparing consolidated financial statements is placed on the parent's investment
C. The objective of consolidated financial statements is to serve as a report to the stockholders of the parent
company
D. The economic unit concept is a hybrid of the proportionate consolidation concept and the parent company
concept
E. The economic unit concept is no longer allowed according to SFAS 141(R)
25. Under the proportionate consolidation concept, which of the following statements is true about consolidated
financial statements?
B. Holding control of a subsidiary provides the parent with an indivisible interest in that company
company
D. The proportionate consolidation concept is a hybrid of the economic unit concept and the parent company
concept
E. The proportionate consolidation concept is no longer allowed according to SFAS 141(R)
26. Under the parent company concept, which of the following statements is false about consolidated financial
statements?
A. Holding control of a subsidiary provides the parent with an indivisible interest in that company
B. Consolidated financial statements are produced primarily for the benefit of the parent company stockholders
C. The non-controlling interest is calculated at book value amounts
D. A portion of the subsidiary net assets is valued at book value and a portion is valued at fair value
E. All of the subsidiary net assets are valued at fair value
27. When a parent uses the equity method throughout the year to account for investment in a subsidiary, which
of the following statements is false before making adjustments on the consolidated worksheet?
A. Parent company net income equals controlling interest in consolidated net income
B. Parent company retained earnings equals consolidated retained earnings
C. Parent company total assets equals consolidated total assets
D. Parent company dividends equals consolidated dividends
E. Goodwill may need to be recorded
28. When a parent uses the initial value method throughout the year to account for investment in a subsidiary,
which of the following statements is true before making adjustments on the consolidated worksheet?
A. Parent company net income equals consolidated net income
E. Goodwill is never recognized
29. When a parent uses the partial equity method throughout the year to account for investment in a subsidiary,
which of the following statements is false before making adjustments on the consolidated worksheet?
A. Parent company net income will equal controlling interest in consolidated net income when initial value,
book value and fair value of the investment are equal
B. Parent company net income will exceed controlling interest in consolidated net income when fair value
acquired exceeds book value
C. Parent company net income will be less than controlling interest in consolidated net income when fair value
D. Goodwill will be recognized if acquisition value exceeds fair value
E. Subsidiary net assets are valued at their book values
30. In a step acquisition, using the economic unit concept per SFAS 141(R), which of the following statements
is false?
A. The acquisition method views a step acquisition essentially the same as a single step acquisition
B. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year
C. Income from subsidiary is computed for the entire year for a new purchase acquired during the year
D. Obtaining control through a step acquisition is a significant re-measurement event
E. Pre-acquisition earnings are not included on the consolidated income statement
31. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common
stock and using the economic unit concept?
A. The parent recognizes a larger percent of income from subsidiary
B. A step acquisition resulting in control may result in a parent recognizing a gain on revaluation
C. The book value of the subsidiary will increase
D. The parent's percent ownership in subsidiary will increase
E. Non-controlling interest in subsidiary's net income will decrease
32. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following
statements is true?
A. Income from subsidiary is not recognized until there is an entire year of consolidated operations
B. Income from subsidiary is recognized from date of acquisition to year-end
C. Excess cost over acquisition value is recognized at the beginning of the fiscal year
D. No goodwill can be recognized
E. Income from subsidiary is recognized for the entire year
33. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which
of the following statements is true in the presentation of consolidated financial statements?
A. Purchased pre-acquisition earnings are deducted from combined revenues and expenses
B. Purchased pre-acquisition earnings are added to combined revenues and expenses
C. Purchased pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity
D. Purchased pre-acquisition earnings are added to the beginning consolidated stockholders' equity
E. Purchased pre-acquisition earnings are ignored on the consolidated income statement
34. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary,
which of the following statements is false?
A. If majority control is still maintained, consolidated financial statements are still required
B. If majority control is not maintained but significant influence exists, the equity method to account for the
investment is still used but consolidated financial statements are not required
C. If majority control is not maintained but significant influence exists, the equity method is still used to
account for the investment and consolidated financial statements are still required
D. If majority control is not maintained and significant influence no longer exists, a prospective change in
accounting principle to the fair value method is required
E. A gain or loss calculation must be prepared if control is lost
35. All of the following statements regarding the sale of subsidiary shares are true except which of the
following?
A. The use of specific identification based on serial number is acceptable
B. The use of the FIFO assumption is acceptable
C. The use of the averaging assumption is acceptable
D. The use of specific LIFO assumption is acceptable
E. The parent company must determine whether consolidation is still appropriate for the remaining shares
owned
36. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition
method for accounting for business combinations?
A. If control continues, the difference between selling price and acquisition value is recorded as a realized gain
or loss
B. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss
C. If control continues, the difference between selling price and carrying value is recorded as an adjustment to
additional paid-in capital
D. If control continues, the difference between selling price and carrying value is recorded as a realized gain or
loss
E. If control continues, the difference between selling price and carrying value is recorded as an adjustment to
retained earnings
37. When using the acquisition method for accounting for business combinations, all of the following
statements are false regarding the sale of subsidiary shares except:
A. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
acquisition value is recorded as a realized gain or loss
B. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
acquisition value is recorded as an unrealized gain or loss
C. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as a realized gain or loss
D. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as an unrealized gain or loss
E. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as an adjustment to retained earnings
38. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2009 and an
additional 10% on April 1, 2010. Total annual amortization of $6,000 relates to the first acquisition. George
reports the following figures for 2010:
Without regard for this investment, Keefe earns $300,000 in net income during 2010.
All net income is earned evenly throughout the year.
What is the controlling interest in consolidated net income for 2010?
A. $373,300
B. $372,850
C. $371,500
D. $376,000
E. $372,805
McGuire company acquired 90 percent of Hogan Company on January 1, 2009, for $234,000 cash. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of
Hogan's net assets revealed the following:
Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of
5 years.
39. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Buildings account?
A. $2,000 increase
B. $2,000 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
40. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Buildings account?
A. $1,620 increase
B. $1,620 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
A. $1,440 increase
B. $1,440 decrease
C. $1,600 increase
D. $1,600 decrease
E. No change
42. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Equipment account?
A. $4,000 increase
B. $4,000 decrease
C. $3,600 increase
D. $3,600 decrease
E. No change
43. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Equipment account?
A. $3,000 increase
B. $3,000 decrease
C. $2,700 increase
D. $2,700 decrease
E. No change
A. $2,000 increase
B. $2,000 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
45. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Land account?
A. $7,000 increase
B. $7,000 decrease
C. $6,300 increase
D. $6,300 decrease
E. No change
46. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Land account?
A. $0
B. $7,000 increase
C. $6,300 increase
D. $6,300 decrease
E. $8,000 decrease
A. $0
B. $7,000 increase
C. $6,300 increase
D. $6,300 decrease
E. $7,000 decrease
48. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Patent account?
A. $7,000
B. $6,300
C. $0
D. $11,000
E. $9,900
49. In consolidation at December 31, 2009, what net adjustment is necessary for Hogan's Patent account?
A. $5,600
B. $8,800
C. $0
D. $7,700
E. $7,000
A. $4,200
B. $5,500
C. $0
D. $6,600
E. $88,000
Bell Company acquires 80% of Demers Company for $500,000 on January 1, 2009. Demers reported common
stock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 and
buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration
transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review,
goodwill has not been impaired.
Demers earns income and pays dividends as follows:
Assume the equity method is applied.
51. Compute Bell's investment in Demers at December 31, 2009.

A. $580,000
B. $574,400
C. $548,000
D. $542,400
E. $541,000

A. $577,200
B. $664,800
C. $592,800
D. $580,000
E. $572,000

A. $639,000
B. $643,200
C. $763,200
D. $676,000
E. $620,000
54. Compute Bell's income from Demers for the year ended December 31, 2009.
A. $74,400
B. $73,000
C. $42,400
D. $41,000
E. $80,000
A. $90,400
B. $89,000
C. $50,400
D. $56,000
E. $96,000
A. $50,400
B. $56,000
C. $98,400
D. $97,000
E. $104,000
57. Compute the non-controlling interest in the net income of Demers at December 31, 2009.
A. $20,000
B. $12,000
C. $18,600
D. $10,600
E. $14,400
A. $18,400
B. $14,400
C. $22,600
D. $24,000
E. $12,600
A. $20,400
B. $26,000
C. $24,600
D. $14,000
E. $12,600
60. Compute the non-controlling interest of Demers at December 31, 2009.

A. $135,600
B. $117,000
C. $112,000
D. $100,000
E. $110,600

A. $107,000
B. $126,000
C. $109,200
D. $149,600
E. $148,200

A. $107,800
B. $140,000
C. $165,200
D. $160,800
E. $146,800
Assume the initial value method is applied.

A. $500,000
B. $574,400
C. $625,000
D. $542,400
E. $532,000

A. $625,000
B. $664,800
C. $592,400
D. $500,000
E. $572,000

A. $592,400
B. $500,000
C. $625,000
D. $676,000
E. $620,000
66. How much does Bell report as Income from Demers for the year ended December 31, 2009?
A. $32,000
B. $74,400
C. $73,000
D. $42,400
E. $41,000
A. $90,400
B. $40,000
C. $89,000
D. $50,400
E. $56,000
A. $48,000
B. $56,000
C. $98,400
D. $97,000
E. $50,400
A. $12,000
B. $10,600
C. $18,600
D. $20,000
E. $14,400
A. $18,400
B. $14,000
C. $22,600
D. $24,000
E. $12,600
A. $24,600
B. $14,000
C. $26,000
D. $20,400
E. $12,600

A. $135,600
B. $80,000
C. $117,000
D. $100,000
E. $110,600

A. $126,000
B. $106,000
C. $109,200
D. $149,600
E. $148,200

A. $107,800
B. $140,000
C. $80,000
D. $50,000
E. $160,800
transferred over fair value was attributed to goodwill with an indefinite life.
Assume the partial equity method is applied.

A. $625,000
B. $574,400
C. $548,000
D. $542,400
E. $532,000

A. $676,000
B. $629,000
C. $580,000
D. $604,000
E. $572,000

A. $780,000
B. $660,000
C. $785,000
D. $676,000
E. $620,000
A. $80,000
B. $74,400
C. $73,000
D. $42,400
E. $41,000
79. How much does Bell report as income from Demers for the year ended December 31, 2010?
A. $90,400
B. $89,000
C. $50,400
D. $96,000
E. $56,000
A. $98,400
B. $56,000
C. $104,000
D. $97,000
E. $50,400
A. $20,000
B. $12,000
C. $18,600
D. $10,600
E. $14,400
A. $18,400
B. $14,000
C. $22,600
D. $24,000
E. $12,600
A. $20,400
B. $26,000
C. $24,600
D. $14,000
E. $12,600

A. $135,600
B. $114,000
C. $112,000
D. $100,000
E. $110,600

A. $124,000
B. $126,000
C. $109,200
D. $149,600
E. $148,200

A. $107,800
B. $140,000
C. $80,000
D. $160,800
E. $146,800
Ross Company acquired 90% of Parsons Company several years ago and recorded goodwill of $200,000 at that
date. During 2009 an analysis of the fair market value of Parson's assets determined an impairment of goodwill
in the amount of $50,000.
87. At what amount would consolidated goodwill be reported for 2009?

A. $150,000
B. $200,000
C. $50,000
D. $0
E. $135,000
88. What journal entry would be made by Ross regarding its investment in Parsons impairment of goodwill?
A. Journal entry A
B. Journal entry B
C. Journal entry C
D. Journal entry D
E. Journal entry E
89. Under the economic unit concept and according to SFAS 160, where would the non-controlling interest
appear on the consolidated balance sheet?
90. What is pre-acquisition income?
91. Shedds Corp. owns less than one hundred percent of the voting common stock of Beta Co. Under what
conditions will Shedds be required to prepare consolidated financial statements?
92. Where may a non-controlling interest be presented on a consolidated balance sheet?
93. A theory related to consolidation of a subsidiary is the economic unit concept. What are the theoretical
arguments on which the economic unit concept is based?
94. How would you determine the amount of goodwill to be recognized at date of acquisition when there is a
non-controlling interest present and the economic unit concept is used?
95. How is a non-controlling interest in the net income of an entry reported in the income statement under the
economic unit concept?
96. One company buys a controlling interest in another company on April 1. How should the pre-acquisition
subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?
97. Franklin, Inc. owns 80% of Prevatt Company. During the current year, a portion of the investment in Prevatt
is sold. Prior to recording the sale, Franklin adjusts the book value of its investment. What is the purpose of the
adjustment?
98. How does a parent corporation account for the sale of a portion of an investment in a subsidiary?
99. Alonzo Co. acquired 60% of Beazley Corp. at a purchase price of $240,000. At the time of the acquisition,
the book value of Beazley's net assets was $300,000.
Required: Under the economic unit concept, what amount should have been assigned to the non-controlling
interest immediately after the combination?
100. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz's net assets was
$600,000. For all of Martz's assets and liabilities, book value and fair value were approximately equal.
Required: Under the economic unit concept using the acquisition method, what amount of goodwill should
appear on a consolidated balance sheet prepared immediately after the combination?
101. On January 1, 2009, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net
assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000.
Required: At what amount would the building appear on a consolidated balance sheet prepared immediately
after the combination, assuming Elva used the acquisition method?
102. Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens' revenues for 2009 totaled
$200,000.
Required: What amount of Scarvens' revenues would be included in the consolidated total under the economic
unit concept?
Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-year
useful lives. The book value of these assets was $830,000 and the fair value was $950,000. For Club's other
assets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was
$3,500,000.
103. Using the economic unit concept and acquisition method, determine the amount of goodwill associated
with Caldwell's purchase of Club.
104. Using the economic unit concept, determine the amount of the non-controlling interest as of the date of the
acquisition.
On January 1, 2009, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. The fair value of
Acron's net assets was $600,000 and Glenville will account for its interest using the acquisition method.
105. Determine the amount of goodwill to be recognized in this acquisition.
106. Determine the value assigned to the non-controlling interest as of the date of the acquisition.
On January 1, 2008, prior to the effective date of SFAS 141(R), Cranston Inc. reported net assets of
$1,064,000, although equipment (with a four-year life) with a book value of $616,000 was worth $700,000.
Peak Corp. paid $969,000 on that date for an 80% ownership interest in Cranston.
Peak still owns its 80% interest in 2009.
107. What is the annual excess amortization using the parent company concept?
108. What is the consolidated goodwill balance on January 1, 2009, assuming the parent company concept is
used?
On January 1, 2009, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. Techron Co.
reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair
value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this
transaction. The subsidiary earned $98,000 in 2009 and $126,000 in 2010 with dividend payments of $42,000
each year. Without regard for this investment, Jannison had income of $308,000 in 2009 and $364,000 in 2010.
Use the economic unit concept to account for this acquisition.
109. Prepare a proper presentation of consolidated net income for 2009.
111. What is the non-controlling interest balance as of December 31, 2010?
112. On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000
control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000.
A building was undervalued in the company's financial records by $28,000. This building had a ten-year
remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years.
Carper earned income and paid cash dividends as follows:
On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's common
stock account since the acquisition.
Required: If the equity method had been applied by Vacker for this acquisition, what were the consolidation
entries needed as of December 31, 2011?
On January 1, 2009, John Doe Enterprises (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI).
JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00
per share). At the time of the acquisition, BMI's book value was $16,970,000.
On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this
transaction. Any consideration transferred over book value is assigned to goodwill. BMI had the following
balances on January 1, 2009.
For internal reporting purposes, JDE employed the equity method to account for this investment.
113. Prepare a schedule to determine goodwill and the amortization and allocation amounts.
114. The following account balances are for the year ending December 31, 2009 for both companies.
Required: Prepare a consolidation worksheet for this business combination. Assume goodwill has been
reviewed and there is no goodwill impairment.
115. McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2009 and an additional 10
percent on November 1, 2010. Annual amortization of $8,400 attributed to the controlling interest relates to the
first acquisition. Ellis reports the following figures for 2010:
Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less
$360,000 expenses earned and incurred evenly through the year) during 2010.
Required: Prepare a proper schedule of consolidated net income and apportionment to non-controlling and
controlling interests for 2010.
116. For each of the following situations, select the best answer concerning consolidating financial information
where there is a non-controlling interest in the subsidiary:
(A) Economic unit concept.
(B) Parent company concept.
(C) Economic unit concept and parent company concept.
_____ 1. Reflects the cost principle, but also assigns a value to the non-controlling interest shares at book value.
_____ 2. Recognizes the non-controlling interest has a value to be reported, but since it is not a part of the
exchange transaction, no new basis of accountability arises.
_____ 3. Recognizes that management effectively controls 100% of the net assets acquired and is thus
accountable for the entire fair value.
_____ 4. The vast majority of consolidated financial statements in the U.S. are prepared under this concept for
purchase business combinations.
_____ 5. Requires the computation of an implied value.
_____ 6. Recognizes the full fair value of partially owned acquisitions.
_____ 7. Non-controlling interest is reported at an implied fair value.
_____ 8. Non-controlling interest is reported at book value.
_____ 9. Required by SFAS 141(R) Business Combinations.
ch4 Key
1. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controlling
interest is most likely to be shown as part of equity under the
A. Partial equity concept
B. Proportionate consolidation concept
C. Economic unit concept
D. Parent company concept
E. Proprietary concept
Difficulty: Easy
Hoyle - Chapter 04 #1
When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of
$70,000 and a fair value of $100,000.
Hoyle - Chapter 04
2. What amount should have been reported for the land on a consolidated balance sheet, according to SFAS
141(R), assuming the economic unit concept was used?
A. $70,000
B. $75,000
C. $85,000
D. $92,500
E. $100,000
Difficulty: Easy
3. What amount of excess land allocation would be included for the calculation of non-controlling interest,
according to SFAS 141(R)?
A. $0
B. $7,500
C. $17,500
D. $25,000
E. $70,000
Difficulty: Easy
4. What amount should have been reported for the land on a consolidated balance sheet, assuming the
investment was obtained prior to SFAS 141(R) and the parent company concept was used?
A. $70,000
B. $75,000
C. $85,000
D. $92,500
E. $100,000
Difficulty: Medium
Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets
was $1,850,000 and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not
actively traded.
Hoyle - Chapter 04
5. What is the total amount of goodwill recognized according to the economic unit concept per SFAS 141 (R)?
A. $150,000
B. $250,000
C. $0
D. $120,000
E. $170,000
Difficulty: Medium
6. What amount of goodwill should be attributed to Perch according to the economic unit concept per SFAS
141(R)?
A. $150,000
B. $250,000
C. $0
D. $120,000
E. $170,000
Difficulty: Medium
7. What amount of goodwill should be attributed to the non-controlling interest according to the economic unit
concept per SFAS 141(R)?
A. $0
B. $20,000
C. $30,000
D. $100,000
E. $120,000
Difficulty: Medium
A. $350,000
B. $300,000
C. $400,000
D. $370,000
E. $0
Difficulty: Medium
9. What is the dollar amount of Float Corp.'s net assets that would be represented on a balance sheet prepared
A. $1,600,000
B. $1,480,000
C. $1,200,000
D. $1,780,000
E. $1,850,000
Difficulty: Medium
immediately after consolidation according to the parent company concept?
A. $350,000
B. $300,000
C. $400,000
D. $250,000
E. $0
Difficulty: Medium
Femur Co. owns 70% of the voting common stock of Harbor Corp. During 2009, Harbor had revenues of
$2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2009.
Femur Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.
Hoyle - Chapter 04
11. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be
A. $132,000
B. $150,000
C. $168,000
D. $160,000
E. $0
Difficulty: Medium
12. What is the net effect of the inclusion of Harbor on consolidated net income for 2009?
A. $350,000
B. $308,000
C. $500,000
D. $440,000
E. $290,000
Difficulty: Medium
Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2009. For 2009, Kailey
reported revenues of $800,000 and expenses of $620,000. The annual amount of amortization related to this
acquisition was $15,000. Denber Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.
Hoyle - Chapter 04
13. In consolidation, the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for
2009 is determined to be
A. $206,667
B. $211,667
C. $221,667
D. $620,000
E. $635,000
Difficulty: Medium
14. The impact of the consolidation on consolidated net income for 2009 is determined to be
A. $31,000
B. $33,000
C. $55,000
D. $60,000
E. $39,000
Difficulty: Medium
15. The non-controlling interest's share of Denber's income for 2009 is calculated to be
A. $22,000
B. $24,000
C. $48,000
D. $66,000
E. $72,000
Difficulty: Medium
16. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a business combination that
resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth
$600,000 at the date of purchase. What value would be attributed to this land in a consolidated balance sheet at
the date of takeover, according to the economic unit concept per SFAS 141(R) and the parent company concept
per SFAS 141?
A. Entry A
B. Entry B
C. Entry C
D. Entry D
E. Entry E
Difficulty: Medium
17. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel
$500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what
amount of this debt should be eliminated?
A. $375,000
B. $125,000
C. $300,000
D. $500,000
E. $0
Difficulty: Easy
Royce Co. acquired 60% of Park Co. for $420,000 when Park's book value was $560,000. On that date, Park
had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. Two years later,
the following figures were reported by the two companies (stockholders' equity accounts have been omitted
from their separate operations). Royce accounts for its consolidations according to SFAS 141(R) and SFAS
160.
Hoyle - Chapter 04
18. What is consolidated net income that is attributable to Royce's controlling interest?
A. $686,000
B. $560,000
C. $644,000
D. $635,600
E. $691,600
Difficulty: Medium
19. What is the non-controlling interest's share of the subsidiary's net income and what is the ending balance of
the non-controlling interest in the subsidiary?
A. $50,400 and $324,800
B. $53,648 and $304,500
C. $56,000 and $296,800
D. $52,640 and $313,600
E. $55,270 and $297,300
Difficulty: Hard
20. What is the consolidated balance of the Equipment account?

A. $666,400
B. $604,000
C. $756,000
D. $711,200
E. $764,000
Difficulty: Medium
On January 1, 2009, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:
On January 2, 2009, Palk borrowed $84,000 to acquire 90% of the outstanding common shares of Spraz. This
was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2009. The excess
consideration transferred over the underlying book value of the acquired net assets was allocated 60% to
inventory and 40% to goodwill. Palk accounts for its consolidations according to SFAS 141(R) and SFAS 160.
Hoyle - Chapter 04
21. What is consolidated current assets as of January 2, 2009?

A. $138,600
B. $134,400
C. $126,000
D. $140,000
E. $127,400
Difficulty: Medium
22. What is consolidated noncurrent assets as of January 2, 2009?

A. $182,000
B. $190,400
C. $187,600
D. $191,333
E. $189,000
Difficulty: Medium
23. What is consolidated current liabilities as of January 2, 2009?

A. $70,000
B. $56,000
C. $64,400
D. $42,000
E. $58,100
Difficulty: Medium
24. Under the economic unit concept, which of the following statements is true about consolidated financial
statements?
B. The accounting emphasis in preparing consolidated financial statements is placed on the parent's investment
company
D. The economic unit concept is a hybrid of the proportionate consolidation concept and the parent company
concept
E. The economic unit concept is no longer allowed according to SFAS 141(R)
Difficulty: Medium
25. Under the proportionate consolidation concept, which of the following statements is true about consolidated
financial statements?
B. Holding control of a subsidiary provides the parent with an indivisible interest in that company
company
D. The proportionate consolidation concept is a hybrid of the economic unit concept and the parent company
concept
E. The proportionate consolidation concept is no longer allowed according to SFAS 141(R)
Difficulty: Medium
26. Under the parent company concept, which of the following statements is false about consolidated financial
statements?
A. Holding control of a subsidiary provides the parent with an indivisible interest in that company
B. Consolidated financial statements are produced primarily for the benefit of the parent company stockholders
C. The non-controlling interest is calculated at book value amounts
D. A portion of the subsidiary net assets is valued at book value and a portion is valued at fair value
E. All of the subsidiary net assets are valued at fair value
Difficulty: Medium
27. When a parent uses the equity method throughout the year to account for investment in a subsidiary, which
of the following statements is false before making adjustments on the consolidated worksheet?
A. Parent company net income equals controlling interest in consolidated net income
E. Goodwill may need to be recorded
Difficulty: Medium
28. When a parent uses the initial value method throughout the year to account for investment in a subsidiary,
which of the following statements is true before making adjustments on the consolidated worksheet?
A. Parent company net income equals consolidated net income
E. Goodwill is never recognized
Difficulty: Medium
29. When a parent uses the partial equity method throughout the year to account for investment in a subsidiary,
which of the following statements is false before making adjustments on the consolidated worksheet?
A. Parent company net income will equal controlling interest in consolidated net income when initial value,
book value and fair value of the investment are equal
B. Parent company net income will exceed controlling interest in consolidated net income when fair value
C. Parent company net income will be less than controlling interest in consolidated net income when fair value
D. Goodwill will be recognized if acquisition value exceeds fair value
E. Subsidiary net assets are valued at their book values
Difficulty: Hard
30. In a step acquisition, using the economic unit concept per SFAS 141(R), which of the following statements
is false?
A. The acquisition method views a step acquisition essentially the same as a single step acquisition
B. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year
C. Income from subsidiary is computed for the entire year for a new purchase acquired during the year
D. Obtaining control through a step acquisition is a significant re-measurement event
E. Pre-acquisition earnings are not included on the consolidated income statement
Difficulty: Medium
31. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common
stock and using the economic unit concept?
A. The parent recognizes a larger percent of income from subsidiary
B. A step acquisition resulting in control may result in a parent recognizing a gain on revaluation
C. The book value of the subsidiary will increase
D. The parent's percent ownership in subsidiary will increase
E. Non-controlling interest in subsidiary's net income will decrease
Difficulty: Medium
32. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following
statements is true?
A. Income from subsidiary is not recognized until there is an entire year of consolidated operations
B. Income from subsidiary is recognized from date of acquisition to year-end
C. Excess cost over acquisition value is recognized at the beginning of the fiscal year
D. No goodwill can be recognized
E. Income from subsidiary is recognized for the entire year
Difficulty: Easy
33. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which
of the following statements is true in the presentation of consolidated financial statements?
A. Purchased pre-acquisition earnings are deducted from combined revenues and expenses
B. Purchased pre-acquisition earnings are added to combined revenues and expenses
C. Purchased pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity
D. Purchased pre-acquisition earnings are added to the beginning consolidated stockholders' equity
E. Purchased pre-acquisition earnings are ignored on the consolidated income statement
Difficulty: Medium
34. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary,
which of the following statements is false?
A. If majority control is still maintained, consolidated financial statements are still required
B. If majority control is not maintained but significant influence exists, the equity method to account for the
investment is still used but consolidated financial statements are not required
C. If majority control is not maintained but significant influence exists, the equity method is still used to
account for the investment and consolidated financial statements are still required
D. If majority control is not maintained and significant influence no longer exists, a prospective change in
accounting principle to the fair value method is required
E. A gain or loss calculation must be prepared if control is lost
Difficulty: Medium
35. All of the following statements regarding the sale of subsidiary shares are true except which of the
following?
A. The use of specific identification based on serial number is acceptable
B. The use of the FIFO assumption is acceptable
C. The use of the averaging assumption is acceptable
D. The use of specific LIFO assumption is acceptable
E. The parent company must determine whether consolidation is still appropriate for the remaining shares
owned
Difficulty: Medium
36. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition
method for accounting for business combinations?
A. If control continues, the difference between selling price and acquisition value is recorded as a realized gain
or loss
B. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss
C. If control continues, the difference between selling price and carrying value is recorded as an adjustment to
additional paid-in capital
D. If control continues, the difference between selling price and carrying value is recorded as a realized gain or
loss
E. If control continues, the difference between selling price and carrying value is recorded as an adjustment to
retained earnings
Difficulty: Medium
37. When using the acquisition method for accounting for business combinations, all of the following
statements are false regarding the sale of subsidiary shares except:
A. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
acquisition value is recorded as a realized gain or loss
B. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
acquisition value is recorded as an unrealized gain or loss
C. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as a realized gain or loss
D. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as an unrealized gain or loss
E. If control ceases to exist and significant influence ceases to exist, the difference between selling price and
carrying value is recorded as an adjustment to retained earnings
Difficulty: Medium
38. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2009 and an
additional 10% on April 1, 2010. Total annual amortization of $6,000 relates to the first acquisition. George
reports the following figures for 2010:
Without regard for this investment, Keefe earns $300,000 in net income during 2010.
All net income is earned evenly throughout the year.
What is the controlling interest in consolidated net income for 2010?
A. $373,300
B. $372,850
C. $371,500
D. $376,000
E. $372,805
Difficulty: Medium
McGuire company acquired 90 percent of Hogan Company on January 1, 2009, for $234,000 cash. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of
Hogan's net assets revealed the following:
Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of
5 years.
Hoyle - Chapter 04
39. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Buildings account?
A. $2,000 increase
B. $2,000 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
Difficulty: Medium
A. $1,620 increase
B. $1,620 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
Difficulty: Medium
A. $1,440 increase
B. $1,440 decrease
C. $1,600 increase
D. $1,600 decrease
E. No change
Difficulty: Medium
42. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Equipment account?
A. $4,000 increase
B. $4,000 decrease
C. $3,600 increase
D. $3,600 decrease
E. No change
Difficulty: Easy
A. $3,000 increase
B. $3,000 decrease
C. $2,700 increase
D. $2,700 decrease
E. No change
Difficulty: Medium
A. $2,000 increase
B. $2,000 decrease
C. $1,800 increase
D. $1,800 decrease
E. No change
Difficulty: Medium
45. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Land account?
A. $7,000 increase
B. $7,000 decrease
C. $6,300 increase
D. $6,300 decrease
E. No change
Difficulty: Medium
A. $0
B. $7,000 increase
C. $6,300 increase
D. $6,300 decrease
E. $8,000 decrease
Difficulty: Medium
A. $0
B. $7,000 increase
C. $6,300 increase
D. $6,300 decrease
E. $7,000 decrease
Difficulty: Medium
48. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Patent account?
A. $7,000
B. $6,300
C. $0
D. $11,000
E. $9,900
Difficulty: Medium
A. $5,600
B. $8,800
C. $0
D. $7,700
E. $7,000
Difficulty: Medium
A. $4,200
B. $5,500
C. $0
D. $6,600
E. $88,000
Difficulty: Medium
Assume the equity method is applied.
Hoyle - Chapter 04

A. $580,000
B. $574,400
C. $548,000
D. $542,400
E. $541,000
Difficulty: Medium

A. $577,200
B. $664,800
C. $592,800
D. $580,000
E. $572,000
Difficulty: Medium

A. $639,000
B. $643,200
C. $763,200
D. $676,000
E. $620,000
Difficulty: Medium
A. $74,400
B. $73,000
C. $42,400
D. $41,000
E. $80,000
Difficulty: Medium
A. $90,400
B. $89,000
C. $50,400
D. $56,000
E. $96,000
Difficulty: Medium
A. $50,400
B. $56,000
C. $98,400
D. $97,000
E. $104,000
Difficulty: Medium
A. $20,000
B. $12,000
C. $18,600
D. $10,600
E. $14,400
Difficulty: Medium
A. $18,400
B. $14,400
C. $22,600
D. $24,000
E. $12,600
Difficulty: Medium
A. $20,400
B. $26,000
C. $24,600
D. $14,000
E. $12,600
Difficulty: Medium

A. $135,600
B. $117,000
C. $112,000
D. $100,000
E. $110,600
Difficulty: Medium

A. $107,000
B. $126,000
C. $109,200
D. $149,600
E. $148,200
Difficulty: Medium

A. $107,800
B. $140,000
C. $165,200
D. $160,800
E. $146,800
Difficulty: Medium
Assume the initial value method is applied.
Hoyle - Chapter 04

A. $500,000
B. $574,400
C. $625,000
D. $542,400
E. $532,000
Difficulty: Easy

A. $625,000
B. $664,800
C. $592,400
D. $500,000
E. $572,000
Difficulty: Easy

A. $592,400
B. $500,000
C. $625,000
D. $676,000
E. $620,000
Difficulty: Easy
A. $32,000
B. $74,400
C. $73,000
D. $42,400
E. $41,000
Difficulty: Medium
A. $90,400
B. $40,000
C. $89,000
D. $50,400
E. $56,000
Difficulty: Medium
A. $48,000
B. $56,000
C. $98,400
D. $97,000
E. $50,400
Difficulty: Medium
A. $12,000
B. $10,600
C. $18,600
D. $20,000
E. $14,400
Difficulty: Easy
A. $18,400
B. $14,000
C. $22,600
D. $24,000
E. $12,600
Difficulty: Medium
A. $24,600
B. $14,000
C. $26,000
D. $20,400
E. $12,600
Difficulty: Medium

A. $135,600
B. $80,000
C. $117,000
D. $100,000
E. $110,600
Difficulty: Medium

A. $126,000
B. $106,000
C. $109,200
D. $149,600
E. $148,200
Difficulty: Medium

A. $107,800
B. $140,000
C. $80,000
D. $50,000
E. $160,800
Difficulty: Medium
transferred over fair value was attributed to goodwill with an indefinite life.
Assume the partial equity method is applied.
Hoyle - Chapter 04

A. $625,000
B. $574,400
C. $548,000
D. $542,400
E. $532,000
Difficulty: Medium

A. $676,000
B. $629,000
C. $580,000
D. $604,000
E. $572,000
Difficulty: Medium

A. $780,000
B. $660,000
C. $785,000
D. $676,000
E. $620,000
Difficulty: Medium
A. $80,000
B. $74,400
C. $73,000
D. $42,400
E. $41,000
Difficulty: Easy
A. $90,400
B. $89,000
C. $50,400
D. $96,000
E. $56,000
Difficulty: Easy
A. $98,400
B. $56,000
C. $104,000
D. $97,000
E. $50,400
Difficulty: Easy
A. $20,000
B. $12,000
C. $18,600
D. $10,600
E. $14,400
Difficulty: Easy
A. $18,400
B. $14,000
C. $22,600
D. $24,000
E. $12,600
Difficulty: Medium
A. $20,400
B. $26,000
C. $24,600
D. $14,000
E. $12,600
Difficulty: Medium

A. $135,600
B. $114,000
C. $112,000
D. $100,000
E. $110,600
Difficulty: Medium

A. $124,000
B. $126,000
C. $109,200
D. $149,600
E. $148,200
Difficulty: Medium

A. $107,800
B. $140,000
C. $80,000
D. $160,800
E. $146,800
Difficulty: Medium
Ross Company acquired 90% of Parsons Company several years ago and recorded goodwill of $200,000 at that
date. During 2009 an analysis of the fair market value of Parson's assets determined an impairment of goodwill
in the amount of $50,000.
Hoyle - Chapter 04
87. At what amount would consolidated goodwill be reported for 2009?

A. $150,000
B. $200,000
C. $50,000
D. $0
E. $135,000
Difficulty: Easy
88. What journal entry would be made by Ross regarding its investment in Parsons impairment of goodwill?
A. Journal entry A
B. Journal entry B
C. Journal entry C
D. Journal entry D
E. Journal entry E
Difficulty: Medium
89. Under the economic unit concept and according to SFAS 160, where would the non-controlling interest
appear on the consolidated balance sheet?
The non-controlling interest would appear as a part of stockholders' equity where it would be clearly identified,
labeled and distinguished from the parent's controlling interest in subsidiaries.
Difficulty: Easy
90. What is pre-acquisition income?

When a company acquires control of a subsidiary during a fiscal year, pre-acquisition income is the income
attributed to the previous owners of the shares of the common stock for the portion of the year before the
acquisition.
Difficulty: Easy
91. Shedds Corp. owns less than one hundred percent of the voting common stock of Beta Co. Under what
conditions will Shedds be required to prepare consolidated financial statements?
Shedds will be required to prepare consolidated financial statements if it has control of Beta. If Shedds has more
than 50% of the voting common stock of Beta, it has control and must prepare consolidated financial
statements. Occasionally, ownership of less than 50% of the voting common stock can confer control. In this
situation, an argument can be made that the company with control should prepare consolidated financial
statements, although not required currently.
Difficulty: Medium
92. Where may a non-controlling interest be presented on a consolidated balance sheet?

According to SFAS 160, a non-controlling interest must be shown on the balance sheet as a part of stockholders'
equity. It may no longer be shown between liabilities and stockholders' equity or classified as neither.
Difficulty: Medium
93. A theory related to consolidation of a subsidiary is the economic unit concept. What are the theoretical
arguments on which the economic unit concept is based?
The economic unit concept emphasizes the business combination being formed, rather than the parent
company's investment. The subsidiary and its accounts cannot be divided along ownership lines. The controlled
company must be consolidated as a whole. The subsidiary is perceived as an indivisible part of the consolidated
entity. The income statement will show all the income that is generated by the net assets under the control of the
parent company.
Difficulty: Medium
94. How would you determine the amount of goodwill to be recognized at date of acquisition when there is a
non-controlling interest present and the economic unit concept is used?
The amount of goodwill to be recognized is calculated by subtracting the non-controlling interest's
proportionate fair value of the net assets of the acquired entity from the fair value of the non-controlling interest
as evidenced by the parent's consideration transferred for its own share of ownership.
Difficulty: Medium
95. How is a non-controlling interest in the net income of an entry reported in the income statement under the
economic unit concept?
The non-controlling interest would appear as a clearly identifiable portion of consolidated net income such that
the controlling portion plus the non-controlling portion equals the consolidated net income presented.
Difficulty: Medium
96. One company buys a controlling interest in another company on April 1. How should the pre-acquisition
subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?
Only post-acquisition revenues and expenses are included in consolidated totals. The non-controlling interest is
thereby viewed as beginning as of the acquisition date.
Difficulty: Medium
97. Franklin, Inc. owns 80% of Prevatt Company. During the current year, a portion of the investment in Prevatt
is sold. Prior to recording the sale, Franklin adjusts the book value of its investment. What is the purpose of the
adjustment?
If control is maintained after the sale, then the difference between the sales proceeds and the book value is an
adjustment to the parent's owners' equity. If control is not maintained, then such difference is a gain or loss on
sale of investment. In either situation, the book value of the investment should be on the equity method basis in
order to calculate the proper entry for the sale. Therefore, if Franklin adjusts the book value of its investment, it
is in order to bring an initial value method or partial equity method investment basis to an equity method basis.
Difficulty: Medium
98. How does a parent corporation account for the sale of a portion of an investment in a subsidiary?
If control is maintained after the sale, then the difference between the sales proceeds and the book value is an
adjustment to the parent's owners' equity (APIC). If control is not maintained, then such difference is a gain or
loss on sale of investment. In either situation, the book value of the investment should be on the equity method
basis in order to calculate the proper entry for the sale. Therefore, if the investment has been kept under the
initial value or the partial equity method, the investor adjusts the book value of its investment in order to bring
an initial value method or partial equity method investment basis to an equity method basis.
Difficulty: Medium
99. Alonzo Co. acquired 60% of Beazley Corp. at a purchase price of $240,000. At the time of the acquisition,
the book value of Beazley's net assets was $300,000.
Required: Under the economic unit concept, what amount should have been assigned to the non-controlling
interest immediately after the combination?
Difficulty: Medium
100. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz's net assets was
$600,000. For all of Martz's assets and liabilities, book value and fair value were approximately equal.
Required: Under the economic unit concept using the acquisition method, what amount of goodwill should
appear on a consolidated balance sheet prepared immediately after the combination?
Difficulty: Medium
101. On January 1, 2009, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net
assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000.
Required: At what amount would the building appear on a consolidated balance sheet prepared immediately
after the combination, assuming Elva used the acquisition method?
Difficulty: Medium
102. Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens' revenues for 2009 totaled
$200,000.
Required: What amount of Scarvens' revenues would be included in the consolidated total under the economic
unit concept?
Difficulty: Medium
Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-year
useful lives. The book value of these assets was $830,000 and the fair value was $950,000. For Club's other
assets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was
$3,500,000.
Hoyle - Chapter 04
103. Using the economic unit concept and acquisition method, determine the amount of goodwill associated
with Caldwell's purchase of Club.
Difficulty: Medium
104. Using the economic unit concept, determine the amount of the non-controlling interest as of the date of the
acquisition.
Difficulty: Medium
On January 1, 2009, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. The fair value of
Acron's net assets was $600,000 and Glenville will account for its interest using the acquisition method.
Hoyle - Chapter 04
105. Determine the amount of goodwill to be recognized in this acquisition.
Difficulty: Medium
106. Determine the value assigned to the non-controlling interest as of the date of the acquisition.
Difficulty: Easy
On January 1, 2008, prior to the effective date of SFAS 141(R), Cranston Inc. reported net assets of
$1,064,000, although equipment (with a four-year life) with a book value of $616,000 was worth $700,000.
Peak Corp. paid $969,000 on that date for an 80% ownership interest in Cranston.
Peak still owns its 80% interest in 2009.
Hoyle - Chapter 04
107. What is the annual excess amortization using the parent company concept?
Difficulty: Medium
108. What is the consolidated goodwill balance on January 1, 2009, assuming the parent company concept is
used?
Difficulty: Medium
On January 1, 2009, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. Techron Co.
reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair
value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this
transaction. The subsidiary earned $98,000 in 2009 and $126,000 in 2010 with dividend payments of $42,000
each year. Without regard for this investment, Jannison had income of $308,000 in 2009 and $364,000 in 2010.
Use the economic unit concept to account for this acquisition.
Hoyle - Chapter 04
Difficulty: Medium
Difficulty: Medium
111. What is the non-controlling interest balance as of December 31, 2010?
Difficulty: Medium
112. On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000
control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000.
A building was undervalued in the company's financial records by $28,000. This building had a ten-year
remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years.
Carper earned income and paid cash dividends as follows:
On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's common
stock account since the acquisition.
Required: If the equity method had been applied by Vacker for this acquisition, what were the consolidation
entries needed as of December 31, 2011?
From the acquisition value, $28,000 was allocated based on the fair value of the building. With a ten-year
remaining life, amortization will be $2,800 per year of which $1,960 is attributed to the controlling interest.
Copyright amortization would have been $4,000 per year of which $2,800 is attributed to the controlling
interest.
Difficulty: Hard
On January 1, 2009, John Doe Enterprises (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI).
JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00
per share). At the time of the acquisition, BMI's book value was $16,970,000.
On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this
transaction. Any consideration transferred over book value is assigned to goodwill. BMI had the following
balances on January 1, 2009.
For internal reporting purposes, JDE employed the equity method to account for this investment.
Hoyle - Chapter 04
113. Prepare a schedule to determine goodwill and the amortization and allocation amounts.
Difficulty: Medium
114. The following account balances are for the year ending December 31, 2009 for both companies.
Required: Prepare a consolidation worksheet for this business combination. Assume goodwill has been
reviewed and there is no goodwill impairment.
Consolidation Worksheet for John Doe Enterprises and Bubba Manufacturing at 12/31/09.
CONSOLIDATED WORKSHEET Acquisition
For the year ended 12/31/2009
Difficulty: Medium
115. McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2009 and an additional 10
percent on November 1, 2010. Annual amortization of $8,400 attributed to the controlling interest relates to the
first acquisition. Ellis reports the following figures for 2010:
Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less
$360,000 expenses earned and incurred evenly through the year) during 2010.
Required: Prepare a proper schedule of consolidated net income and apportionment to non-controlling and
controlling interests for 2010.
* Amortization of $12,000 = original $8,400 for 70% grossed up to the 100% amount of $12,000.
Difficulty: Medium
116. For each of the following situations, select the best answer concerning consolidating financial information
where there is a non-controlling interest in the subsidiary:
(A) Economic unit concept.
(B) Parent company concept.
(C) Economic unit concept and parent company concept.
_____ 1. Reflects the cost principle, but also assigns a value to the non-controlling interest shares at book value.
_____ 2. Recognizes the non-controlling interest has a value to be reported, but since it is not a part of the
exchange transaction, no new basis of accountability arises.
_____ 3. Recognizes that management effectively controls 100% of the net assets acquired and is thus
accountable for the entire fair value.
_____ 4. The vast majority of consolidated financial statements in the U.S. are prepared under this concept for
purchase business combinations.
_____ 5. Requires the computation of an implied value.
_____ 6. Recognizes the full fair value of partially owned acquisitions.
_____ 7. Non-controlling interest is reported at an implied fair value.
_____ 8. Non-controlling interest is reported at book value.
_____ 9. Required by SFAS 141(R) Business Combinations.
(1) B; (2) B; (3) A; (4) B; (5) A; (6) A; (7) A; (8) B; (9) A
Difficulty: Medium
ch4 Summary
Category
# of Questions
Difficulty: Easy
18
Difficulty: Hard
Difficulty: Medium
95
Hoyle - Chapter 04
132

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20. What is the consolidated balance of the Equipment account?

21. What is consolidated current assets as of January 2, 2009?

22. What is consolidated noncurrent assets as of January 2, 2009?

23. What is consolidated current liabilities as of January 2, 2009?

Assume the equity method is applied.

51. Compute Bell's investment in Demers at December 31, 2009.

52. Compute Bell's investment in Demers at December 31, 2010.

53. Compute Bell's investment in Demers at December 31, 2011.

60. Compute the non-controlling interest of Demers at December 31, 2009.

61. Compute the non-controlling interest of Demers at December 31, 2010.

62. Compute the non-controlling interest of Demers at December 31, 2011.

Assume the initial value method is applied.

63. Compute Bell's investment in Demers at December 31, 2009.

64. Compute Bell's investment in Demers at December 31, 2010.

65. Compute Bell's investment in Demers at December 31, 2011.

72. Compute the non-controlling interest of Demers at December 31, 2009.

73. Compute the non-controlling interest of Demers at December 31, 2010.

74. Compute the non-controlling interest of Demers at December 31, 2011.

Assume the partial equity method is applied.

75. Compute Bell's investment in Demers at December 31, 2009.

76. Compute Bell's investment in Demers at December 31, 2010.

77. Compute Bell's investment in Demers at December 31, 2011.

84. Compute the non-controlling interest of Demers at December 31, 2009.

85. Compute the non-controlling interest of Demers at December 31, 20010.

86. Compute the non-controlling interest of Demers at December 31, 2011.

87. At what amount would consolidated goodwill be reported for 2009?

90. What is pre-acquisition income?

92. Where may a non-controlling interest be presented on a consolidated balance sheet?

105. Determine the amount of goodwill to be recognized in this acquisition.

109. Prepare a proper presentation of consolidated net income for 2009.

110. Prepare a proper presentation of consolidated net income for 2010.

111. What is the non-controlling interest balance as of December 31, 2010?

20. What is the consolidated balance of the Equipment account?

21. What is consolidated current assets as of January 2, 2009?

22. What is consolidated noncurrent assets as of January 2, 2009?

23. What is consolidated current liabilities as of January 2, 2009?

Assume the equity method is applied.

51. Compute Bell's investment in Demers at December 31, 2009.

52. Compute Bell's investment in Demers at December 31, 2010.

53. Compute Bell's investment in Demers at December 31, 2011.

60. Compute the non-controlling interest of Demers at December 31, 2009.

61. Compute the non-controlling interest of Demers at December 31, 2010.

62. Compute the non-controlling interest of Demers at December 31, 2011.

Assume the initial value method is applied.

63. Compute Bell's investment in Demers at December 31, 2009.

64. Compute Bell's investment in Demers at December 31, 2010.

65. Compute Bell's investment in Demers at December 31, 2011.

72. Compute the non-controlling interest of Demers at December 31, 2009.

73. Compute the non-controlling interest of Demers at December 31, 2010.

74. Compute the non-controlling interest of Demers at December 31, 2011.

Assume the partial equity method is applied.

75. Compute Bell's investment in Demers at December 31, 2009.

76. Compute Bell's investment in Demers at December 31, 2010.

77. Compute Bell's investment in Demers at December 31, 2011.

84. Compute the non-controlling interest of Demers at December 31, 2009.

85. Compute the non-controlling interest of Demers at December 31, 20010.

86. Compute the non-controlling interest of Demers at December 31, 2011.

87. At what amount would consolidated goodwill be reported for 2009?

90. What is pre-acquisition income?

92. Where may a non-controlling interest be presented on a consolidated balance sheet?

105. Determine the amount of goodwill to be recognized in this acquisition.

109. Prepare a proper presentation of consolidated net income for 2009.

110. Prepare a proper presentation of consolidated net income for 2010.