ch03Student: ___________________________________________________________________________ 1. 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. 2. Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo. Company Esstwo owns 100 percent of Company Essthree. Consolidated financial statements should be prepared to report the financial status and results of operations for: A. Pea. B. Pea plus Essone. C. Pea plus Essone plus Esstwo. D. Pea plus Essone plus Esstwo plus Essthree. 3. 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's nonvoting . preferred stock is held by a single investor. D. Subsidiary is foreign. 4. On January 1, 20X8, Zeta Company acquired 85 percent of Theta Company's common stock for $100,000 cash. The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Theta at that date. What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest? A. None B. 15 percent C. 100 percent D. Cannot be determined 5. On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets 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 two companies at the acquisition date are: Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9. Based on the preceding information, what amount will be assigned to the noncontrolling interest on January 3, 20X9, in the consolidated balance sheet? A. $86,000 B. $44,000 C. $68,800 D. $50,000 6. On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets 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 two companies at the acquisition date are: Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9. Based on the preceding information, what is the total stockholders' equity in the consolidated balance sheet as of January 3, 20X9? A. $1,580,000 B. $1,064,000 C. $1,150,000 D. $1,236,000 7. On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets 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 two companies at the acquisition date are: Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9. Based on the preceding information, what will be the amount of net income reported by Frazer Corporation in 20X9? A. $44,000 B. $55,000 C. $66,000 D. $36,000 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.000 C.000 .000 C. 20X9. Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash.000 B.000 C.000 11. $150. 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. 20X9. $120.000 D.8.000 B. What is the amount of separate operating income reported by Zeta for the year? A. what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31. $180.000 B. Noncontrolling interest was assigned $24. what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31. Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.000 C. On January 3.000 B.000 10. 20X9. Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. $156.000 of income in the 20X9 consolidated income statement. $120. consolidated balance sheet? A. What amount of net income did Adams Corporation report for the year? A. $264.000 D. $120. Selected balance sheet data at December 31. 20X9. acquired at book value.000 D. $36. are as follows: Based on the preceding information. $90. Noncontrolling interest was assigned income of $30. $150. 20X9? A. 20X8. $170.000 in the consolidated income statement for 20X8. $30.000 for the year ended December 31. Zeta owns 80 percent of the common shares of its subsidiary. $96. On January 3. Selected balance sheet data at December 31.000 D. are as follows: Based on the preceding information. $200. $0 9. 20X9. Zeta Corporation and its subsidiary reported consolidated net income of $320. $54. the trial balances of the two companies are as follows: Based on the preceding information. 20X9. at underlying book value. Wilhelm uses the equity method in accounting for its ownership of Kaiser. $318.12. 20X9? A. On December 31. $130. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. 20X9? A.000 D. at underlying book value. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock.000 B.102. $330. On December 31. 20X9.000 C. $712. the trial balances of the two companies are as follows: Based on the preceding information. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock.000 C. what amount would be reported as total liabilities in the consolidated balance sheet at December 31.000 13. what amount would be reported as total assets in the consolidated balance sheet at December 31.000 B. $712. On January 1. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. On January 1. 20X8. 20X8.000 D. $1.000 . $742. Wilhelm uses the equity method in accounting for its ownership of Kaiser. $805. 14.000 C.000 B. On December 31. 20X9. Wilhelm uses the equity method in accounting for its ownership of Kaiser. $4.000 . 294. $18. 424. 20X9. On January 1. On January 1. 20X8. On December 31. 20X8. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock. at underlying book value.000 15. the trial balances of the two companies are as follows: Based on the preceding information. 20X9? A.000 D. 150.000 C. 314. $27. Wilhelm uses the equity method in accounting for its ownership of Kaiser. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. 20X9? A.000 D. the trial balances of the two companies are as follows: Based on the preceding information.000 B. what amount would be reported as noncontrolling interest in the consolidated balance sheet at December 31. at underlying book value. $15. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock. what amount would be reported as retained earnings in the consolidated balance sheet prepared at December 31. Wilhelm uses the equity method in accounting for its ownership of Kaiser. $542. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date.000 C.000 17. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock. 20X9. On December 31. On December 31.000 B. what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9? A.16. 20X8. $150. 20X8.000 D. 20X9? A. On January 1. 20X9.000 . the trial balances of the two companies are as follows: Based on the preceding information. $168. Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock.000 D. at underlying book value. what amount would be reported as total stockholder's equity in the consolidated balance sheet at December 31. $164. at underlying book value. $394. the trial balances of the two companies are as follows: Based on the preceding information. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. $348.000 B. $412. On January 1.000 C. $138. Wilhelm uses the equity method in accounting for its ownership of Kaiser. Several corporations with related operations with some common individual owners.300. Parent company C. On December 31. Which of the following usually does not represent a variable interest? A.000 and fair value of $500. B.000. Common stock. trust or partnerships created for a single specified purpose.000. Blue reported sales of $1. risk sharing and taking advantage of tax statues. Rudd held land with a book value of $100. Note: This is a Kaplan CPA Review Question For which of the following reporting units is the preparation of combined financial statements most appropriate? A.000 and a fair value of $300. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31. Several corporations with related operations owned by one individual.000.000 24. 19. B.18.000. D. The amount of sales that should be reported in the consolidated income statement for the year is: A. At the time. $550. A corporation and a foreign subsidiary with nonintegrated homogeneous operations. 22. Rudd Company acquired 80 percent of the common stock of Wilton Company. $550. On the date of acquisition.000 and fair value of $600.000 C. Using the parent company theory. $860. and White reported sales of $500. C. SPEs usually have no substantive operations and are used for financing operations.000. SPEs are corporations. with no special features or provisions B.420. consolidation follows largely which theory approach? A. Variable . $590.000.000. Wilton held land with a book value of $50. 20X9. $700. including sales to Blue of $80. Blue Company owns 80 percent of the common stock of White Corporation. Entity D.000. $650. B. Sheffield held land with a book value of $100. Using the entity theory. 20X9.000 C. Proprietary B. Loan or asset guarantees 21.000 D. SPEs are used for asset securitization.000 and a fair value of $260. $1. C.000. $1. D. at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. Princeton held land with a book value of $150. Senior debt C.000 23. 20. Subordinated debt D. A corporation and a majority-owned subsidiary with nonhomogeneous operations.000. $1.000 B. at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. All of the following statements accurately describe Special Purpose Entities (SPEs) except for: A. During the year.500. C. D. $500. A variable interest entity (VIE) is a type of SPE with a limited number of equity investors. $500.000 D.000. $375. Under ASC 805.000.000 B. $100.000 and $300.000 28. Goodwill (attributable to Quid's acquisition of Pro shares) of $150. what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach? A.000 D.000 D. Quid Corporation acquired 75 percent of Pro Company's common stock on December 31.25.000 C. Based on the preceding information.000 . is less than goodwill under the entity theory.000 and expenses of $290. $200. Parent company approach was used in determining this amount. $160. What is the amount of goodwill that should be reported under entity theory approach? A.000 and $300.000 C. 20X6.000 C. $202.000 B. $300.000 and $240. $202. respectively. Small-Town and Supplier reported sales of $450. For a less-than-wholly-owned subsidiary. $150. Small-Town Retail owns 70 percent of Supplier Corporation's common stock. respectively. Goodwill (attributable to Quid's acquisition of Pro shares) of $300. $200.000.000 C. For the current financial year. $210. For the current financial year. $210.000 and $240. exceeds goodwill under the entity theory. $220. B. What is the amount of goodwill to be reported under proprietary theory approach? A.000 B. 26. $100. 20X4. Small-Town and Supplier reported sales of $450. $250.000 and $240.000. $220. $160. what is the amount of net income to be reported in the consolidated income statement for the year under the parent company theory approach? A. what is the amount of net income to be reported in the consolidated income statement for the year under the proprietary theory approach? A. $200. Quid Corporation acquired 60 percent of Pro Company's common stock on December 31. goodwill under the parent theory: A. For the current financial year. Based on the preceding information.000 and expenses of $290. $150.000 30.000. 20X6. $202.000 B.000 C. $400.000 was calculated under the proprietary theory approach. exceeds goodwill under the proprietary theory. Small-Town Retail owns 70 percent of Supplier Corporation's common stock. $160.000 27.000 was reported in the consolidated financial statements at December 31.000 D. Based on the preceding information.000 D. Small-Town Retail owns 70 percent of Supplier Corporation's common stock.000 B. respectively. C.000 D. Small-Town and Supplier reported sales of $450. is less than goodwill under the proprietary theory.000 and expenses of $290.000 B.000 and $300.000 29. D. Garfield's buildings and equipment had a book value of $300.000 32. 20X9. What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice? A. Required: a. $340. Based on the preceding information. On January 1. $300. This information can be very useful to stockholders and creditors. What are at least three (3) limitations of consolidated financial statements? 35.000 and fair value of $230.000 D.000. Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. $280. Consolidated financial statements are required by GAAP in certain circumstances. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice? A. $280.000 and a fair value of $350.31.000 B.000 C.000 at the time of acquisition.000 D. Garfield's buildings and equipment had a book value of $300. excluding its investment in California. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company approach? A. Why must it be reported in the financial statements as an element of equity rather than a liability? .000 B. $20. In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet. On January 1. Gold Rush Company reports net assets with a book value of $600. 20X9. What is a non-controlling interest? b.000 34. $340.000. $50. It reports net assets with a book value of $200.000 and a fair value of $650. The fair value of the noncontrolling interest at that time is determined to be $50. Gold Rush Company acquires 80 percent ownership in California Corporation for $200. $40.000 and a fair value of $350.000 at that time. $350. there are limitations to these financial statements for which the users must be aware.000 33.000 B. $300. On January 1.000. $30.000 at the time of acquisition. Yet.000 D. 20X9.000 C. $350. Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. Based on the preceding information.000 C. Parent accounts for their investment using the equity method. reported $310.000 in dividends. Son reported the following: During the year Son Inc. Parent Company acquired 90% of Son Inc. 20X2? . On the date of acquisition.36.000 in net income and declared $15. Required: 1) What journal entry will Parent make on the date of acquisition to record the investment in Son Inc. on January 31.000 in net income and declared $25. 20X2? 4) What is the basic elimination entry Parent would use in the consolidation worksheet on December 31. 20X2). Parent Company reported $520. what is the basic elimination entry Parent would use in the consolidation worksheet? 3) What is Parent's balance in "Investment in Son Inc.? 2) If Parent were to prepare a consolidated balance sheet on the acquisition date (January 31. 20X2 in exchange for cash.000 in dividends." prior to consolidation on December 31. The book value of Son's individual assets and liabilities approximated their acquisition-date fair values. Gregory Corporation acquired 90 percent of Nova Company's voting stock.37. . 2) Prepare a three-part consolidation worksheet. 20X8. 20X8. the trial balances of the two companies are as follows: Required: 1) Provide all eliminating entries required as of December 31. Gregory uses the equity method in accounting for its ownership of Nova. to prepare consolidated financial statements. On January 1. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Nova at that date. at underlying book value. On December 31. 20X8. the trial balances of the two companies are as follows: Required: 1) Give all eliminating entries required on December 31. Gregory uses the equity method in accounting for its ownership of Nova.38. On January 1. 20X8. at underlying book value. 39. 20X8. On December 31. Describe what a Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when these entities are consolidated? . Gregory Corporation acquired 90 percent of Nova Company's voting stock. ASC 805 is related to the Consolidation of Variable Interest Entities. to prepare consolidated financial statements. 20X9. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Nova at that date. 2) Prepare a three-part consolidation worksheet as of December 31. 20X8. C 18. C 9. B 15. B 27. C 11. C 31. C 26. C 19. C 7. B 32. D 29. B 28. D 16. B 17. A 30. C 13. A 5. C 25. A 10. A 4. B 2. A 12. A 6. A 14. B 21. C 20. B 23. A 33.ch03 Key 1. B 8. D 3. D 22. D . A 24. not a liability. the poor performance or position of one or more companies may be hidden by the good performance and position of others. 2). The noncontrolling shareholders have a claim on the subsidiary's assets and earnings through their percentage ownership of the stock. 4). Therefore. these ratios may not be representative of any single company in the consolidation. ASC 810 makes clear that the noncontrolling interest's claim on net assets is an element of equity. It represents the fact that the parent may control but not own the entire subsidiary. Noncontrolling interest clearly does not meet the definition of a liability. Limitations to consolidated financial statements include: b. For example. Additional information about individual companies or groups of companies that have been consolidated may be necessary for fair presentation. 34. The operating results and financial position of individual companies included in the consolidation are not disclosed. . not all assets shown are available to dividend distributions of the parent company. The consolidated statements include the subsidiary's assets. Noncontrolling interest occurs when less than 100 percent equity is acquired in a subsidiary. including the parent. a. the length of operating cycles of different subsidiaries may vary.5). Financial ratios are based upon the aggregated consolidated information. resulting in voluminous footnote disclosures. 3). It requires reporting the noncontrolling interest in equity. therefore. causing receivables of similar length to be classified differently. 35. 1). Similar accounts of different companies that are consolidated may not be entirely comparable. 500 2) 36.300. 1) .4) (T-Account not required): 3) $1. 2) (T-Accounts not required) 37. 1) . . 1) .2) (T-Accounts not required) 38. have voting rights or 1. FASB has been trying to define the Primary Beneficiary and from this lead to consolidation not just control as presumed under ASC 805. 2.Therefore. Does not have equity investors that: 39. b. a. doesn't share in all of the entity's profits or losses. Has equity investors that do not provide sufficient financial resources to support the entity's activities. A Variable Interest Entity (VIE) is a legal structure used for business purposes that either: . 1 Learning Objective: 03-05 Prepare a consolidation worksheet for a less-than-wholly-owned subsidiary. Learning Objective: 03-04 Make calculations and prepare basic elimination entries for the consolidation of a less-than-wholly6 owned subsidiary.Chapter 03 39 Difficulty: 1 Easy 6 Difficulty: 2 Medium 18 Difficulty: 3 Hard 15 Learning Objective: 03-01 Understand and explain the usefulness and limitations of consolidated financial statements.ch03 Summary Category # of Questions AACSB: Analytic 28 AACSB: Communication 3 AACSB: Reflective Thinking 8 AICPA FN: Decision Making 2 AICPA FN: Measurement 27 AICPA FN: Reporting 10 Blooms: Apply 15 Blooms: Remember 5 Blooms: Understand 19 Christensen . 2 Learning Objective: 034 03 Understand and explain differences in the consolidation process when the subsidiary is not wholly owned. 9 Learning Objective: 031 06 Understand and explain the purpose of combined financial statements and how they differ from consolidated financial statement s. Learning Objective: 03-05 Prepare a consolidation worksheet for a less-than-wholly-owned consolidation. Learning Objective: 03-07 Understand and explain rules related to the consolidation of variable interest entities. 2 Learning Objective: 03-02 Understand and explain how direct and indirect control influence the consolidation of a subsidiary. 3 Section: Appendix 3B 12 Topic: Basic Elimination Entry 1 Topic: Combined Financial Statements 1 Topic: Direct and Indirect Control 2 Topic: Noncontrolling interest 4 Topic: Off-Balance Sheet Financing 1 Topic: Prepare a Consolidated Worksheet 8 Topic: Second and Subsequent Year Worksheet 1 Topic: The Effect of Noncontrolling Interest (NI and RE) 5 Topic: The Usefulness and Limitations of Consolidated Financial Statements 2 Topic: Theories of Consolidation 12 Topic: Variable Interest Entities 2 .