Chapter 03 - The Reporting Entity and Consolidated Financial Statements

Chapter 03 The Reporting Entity and Consolidated Financial Statements
Multiple Choice Questions

On January 3, 2009, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 2009, are as follows:

1. Based on the preceding information, what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31, 2009, consolidated balance sheet? A. $90,000 B. $54,000 C. $36,000 D. $0

2. Based on the preceding information, what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31, 2009? A. $120,000 B. $180,000 C. $156,000 D. $264,000

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Chapter 03 - The Reporting Entity and Consolidated Financial Statements

Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000. Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable.

3. Based on the preceding information, what amount of total assets did Beta report in its balance sheet immediately after the acquisition? A. $500,000 B. $650,000 C. $750,000 D. $900,000

4. Based on the preceding information, what amount of total assets was reported in the consolidated balance sheet immediately after acquisition? A. $650,000 B. $880,000 C. $920,000 D. $750,000

5. Based on the preceding information, what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition? A. $500,000 B. $530,000 C. $280,000 D. $660,000

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Chapter 03 - The Reporting Entity and Consolidated Financial Statements

6. Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition? A. $220,000 B. $150,000 C. $370,000 D. $350,000

7. 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.

8. Xing Corporation owns 80 percent of the voting common shares of Adams Corporation. Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated income statement. What amount of net income did Adams Corporation report for the year? A. $150,000 B. $96,000 C. $120,000 D. $30,000

9. On December 31, 2009, Rudd Company acquired 80 percent of the common stock of Wilton Company. At the time, Rudd held land with a book value of $100,000 and a fair value of $260,000; Wilton held land with a book value of $50,000 and fair value of $600,000. Using the parent company theory, at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. $550,000 B. $590,000 C. $700,000 D. $860,000

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000 C. Parent company C. 2009.000. $650. Consolidation C. Equity method D. Cost method B. Princeton held land with a book value of $150. On the date of acquisition.000.Chapter 03 . $500. Sheffield held land with a book value of $100. Entity D. Under FASB 141R.000 and fair value of $500.The Reporting Entity and Consolidated Financial Statements 10. Proprietary B.000 D. Merger method 12. at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. Variable 3-4 .000 B. which reporting method would be appropriate? A. consolidation follows largely which theory approach? A.000 11. $375. If Push Company owned 51 percent of the outstanding common stock of Shove Company. $550.000 and a fair value of $300. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31. Using the entity theory.

what amount will be assigned to the noncontrolling interest on January 3.064.000 in Redding's consolidated income statement for 2009. At the acquisition date. $1. 2009? A. $1. $86.800 D. $1. The stockholders' equity accounts of the two companies at the acquisition date are: Noncontrolling interest was assigned income of $11. the book values and fair values of Frazer's assets and liabilities were equal. Based on the preceding information.000 14. and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer.Chapter 03 . what will be the total stockholders' equity in the consolidated balance sheet as of January 3. $50.000 B. in the consolidated balance sheet? A.000 in cash.000 3-5 . 2009. 2009.236. Based on the preceding information.The Reporting Entity and Consolidated Financial Statements On January 3.000 D.150. $1.000 C.580. $68. Redding Company acquired 80 percent of Frazer Corporation's common stock for $344.000 B. $44. 13.000 C.

000 3-6 .000 D.000 and $300. exceeds goodwill under the proprietary theory. $36.000 C. $200.000 and expenses of $290.000 16.The Reporting Entity and Consolidated Financial Statements 15. C.000 B.000. Goodwill under the parent theory: A. respectively. Based on the preceding information. exceeds goodwill under the entity theory. $66. D.000 C. For the current financial year. B.000 C.Chapter 03 .000 and $240. $210. $55. $200. $220. Based on the preceding information. $202.000 18. what will be the amount of net income reported by Frazer Corporation in 2009? A. $160. $44.000 D. $160. 17. $202. is less than goodwill under the proprietary theory. Based on the preceding information. what is the amount of net income to be reported in the consolidated income statement for the year under the proprietary theory approach? A.000 D. is less than goodwill under the entity theory.000 B. Small-Town Retail owns 70 percent of Supplier Corporation's common stock.000 B. Small-Town and Supplier reported sales of $450. 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.

000 C. $202.000 D. $300.000 22. $100.000.000 C.000. $150. Blue reported sales of $1. $250. Goodwill (attributable to Quid's acquisition of Pro shares) of $300. $100.000 was reported in the consolidated financial statements at December 31.000.000 C.000 21.000 D. what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach? A.300. $1.000. $220.000 B. Quid Corporation acquired 60 percent of Pro Company's common stock on December 31. Proprietary theory approach was used in determining this amount. $1. Goodwill (attributable to Quid's acquisition of Pro shares) of $150. $200. Based on the preceding information. $500. During the year. C.000 D.500. What is the amount of goodwill to be reported under entity theory approach? A.000.000 20. The amount of sales that should be reported in the consolidated income statement for the year is: A.000. 2004. 3-7 . including sales to Blue of $80. $1. 2006. Blue Company owns 80 percent of the common stock of White Corporation.The Reporting Entity and Consolidated Financial Statements 19.000 B.000.000. B. 2006. and White reported sales of $500. D. Quid Corporation acquired 75 percent of Pro Company's common stock on December 31. $160.000 B. $210. 2004.420.Chapter 03 . $150. Parent company approach was used in determining this amount. What is the amount of goodwill to be reported under proprietary theory approach? A.000 was reported in the consolidated financial statements at December 31. $400.

Short-term creditors of the parent company. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company approach? A. $280. Stockholders of a consolidated subsidiary. C. 24.000 C.The Reporting Entity and Consolidated Financial Statements 23. B. Creditors of a consolidated subsidiary. 2009. Consolidated financial statements tend to be most useful for: A. Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. $300. Subsidiary is foreign.Chapter 03 . The subsidiary is in bankruptcy. D. 25. Garfield's buildings and equipment had a book value of $300. On January 1. Subsidiary's operations are dissimilar from those of the parent. $350.000 B. C. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice? A.000 D.000 at the time of acquisition. but all of the subsidiary's nonvoting preferred stock is held by a single investor. In which of the following cases would consolidation be inappropriate? A.000 and a fair value of $350. $280. The parent owns 90 percent of the subsidiary's common stock.000 D. Investors and long-term creditors of the parent company.000 26. $300. D. Based on the preceding information. $350.000 B. $340.000 3-8 . $340. Based on the preceding information.000 C. B.

000 and fair value of $230. During 2008.000 at that time. Cost of goods sold will be understated by $25. It reports net assets with a book value of $200.000 D. 2009. Garros purchased tennis equipment for $30. Zeta Corporation and its subsidiary reported consolidated net income of $320. $20.000 B. 2008. Roland continues to hold the items in inventory on December 31. 29.000 3-9 . What is the amount of separate operating income reported by Zeta for the year? A. D. Noncontrolling interest was assigned income of $30. $40.Chapter 03 .000 B.000 and sold them to Roland for $55. Zeta owns 80 percent of the common shares of its subsidiary. $150.000. 2008. Sales would be overstated by $30.000.000.000 in the consolidated income statement for 2008.000 C. Roland Company acquired 100 percent of Garros Company's voting shares in 2007.000 D. $170. What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice? A. excluding its investment in California. Which of the following observations will be true if no adjustment is made to eliminate the intercorporate sale when a consolidated income statement is prepared for 2008? A. C.000 for the year ended December 31. $120. Gold Rush Company acquires 80 percent ownership in California Corporation for $200. $50.000.000 C.000. acquired at book value. Net income will be overstated by $25. $200.000. B. $30.000 and a fair value of $650.000.000 28.The Reporting Entity and Consolidated Financial Statements 27.000. On January 1.000. The fair value of the noncontrolling interest at that time is determined to be $50. Sales for the two companies during 2008 totaled $655. Gold Rush Company reports net assets with a book value of $600. and total cost of goods sold was $420. Consolidated net income will be unaffected.

000 and a book value of $125. $39.000 D. $75. 2008.000 Elbonia Corporation. Assume that the companies had no other transactions during 2007 and 2008. $75. $36.000 to acquire 75 percent ownership in Rohan and goodwill of $20. During 2008.000 D.000 C.000 D. Based on the preceding information. $0 32. In 2007. $30. Based on the preceding information. what amount would be reported in the consolidated financial statements for cost of goods sold for 2007? A. Elbonia produced inventory at a cost of $36.000 C. Atomic sold all the units for $98.000 C. $39. a 100 percent subsidiary of Atomic Corporation. $50.000.000 B. What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90.000 B. Rohan Corporation holds assets with a fair value of $150. $0 3-10 . $40. Atomic held all the items in inventory on January 1. 2008? A. 31. $20.000 B.000.000 is reported? A.000 and liabilities with a book value and fair value of $50.000 and sold it to Atomic for $75. what amount would be reported in the consolidated financial statements for inventory on January 1.Chapter 03 . $36.The Reporting Entity and Consolidated Financial Statements 30.000. caters to its parent's entire inventory requirements.

$98. $39. Based on the preceding information.000 34. Fair values when the primary beneficiary relationship became established. $36. $0 B. I B.The Reporting Entity and Consolidated Financial Statements 33. $36. what amount would be reported in the consolidated financial statements for cost of goods sold for 2008? A. A. Common stock. what amount would be reported in the consolidated financial statements for sales for 2007? A. the amounts of the VIE to be consolidated are: I. Which of the following usually does not represent a variable interest? A. Based on the preceding information. Book values for assets and liabilities transferred by the primary beneficiary.000 D.000 C.Chapter 03 . $75.000 35. Subordinated debt D.000 D. $39. Loan or asset guarantees Essay Questions 3-11 . with no special features or provisions B. II. $0 B. Neither I nor II 36. Senior debt C. When a primary beneficiary's consolidation of a variable interest entity (VIE) is appropriate.000 C. II C. Both I and II D.

Chapter 03 . 46 R related to the Consolidation of Variable Interest Entities. What is a non-controlling interest? b. Consolidated financial statements are required by GAAP in certain circumstances. Yet. Why must it be reported in the financial statements as an element of equity rather than a liability? 39. a. This information can be very useful to stockholders and creditors.The Reporting Entity and Consolidated Financial Statements 37. FASB issued Interpretation No. Why does FASB have difficulty in prescribing when these entities are consolidated? 3-12 . there are limitations to these financial statements for which the users must be aware. In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Stockholders' Equity section of the Balance Sheet. What are at least three (3) limitations of consolidated financial statements? 38.

Dish Corporation acquired 100 percent of the common stock of Toll Company by issuing 10. 3-13 .Chapter 03 .The Reporting Entity and Consolidated Financial Statements 40. Summarized balance sheet data for the two companies immediately preceding the acquisition are as follows: Required: Determine the dollar amounts to be presented in the consolidated balance sheet for (1) total assets. and (3) total stockholders' equity.000 shares of $10 par common stock with a market value of $60 per share. (2) total liabilities.

The Reporting Entity and Consolidated Financial Statements 41. 2009. Required: Prepare a consolidated balance sheet immediately following the acquisition. Hudson owed Hamilton $14. Summarized balance sheet data for the companies on December 31.000 on account.000 cash. 2010. The Hamilton Company acquired 100 percent of the stock of Hudson Company on January 1. except as indicated. 2010. 3-14 . On January 1. for $308. are as follows: The book values of Hudson's assets and liabilities are equal to their fair values.Chapter 03 .

Required: Based on the above information.The Reporting Entity and Consolidated Financial Statements 42. and on its separate balance sheet reported total inventory at year end of $140. Dean Company reported total sales and cost of goods sold of $350.000. Barnes Company acquired 80 percent of the outstanding voting stock of Dean Company on January 1.000 to nonaffiliates for $600.Chapter 03 .000.000 to Barnes Company for $80. In its separate financial statements. 4) inventory. Dean Company. Barnes Company continued to hold the inventory at December 31. 2008. Also during 2008.000. respectively.000. 3-15 . 3) gross profit on sales. 2) cost of goods sold. for 2008 and ending inventory of $150. 2008. at year end for the following items: 1) sales. During 2008 Dean Company sold inventory costing $50. compute the amounts that should appear in the consolidated financial statements prepared for Barnes Company and it subsidiary.000 and $220.000. Barnes Company sold merchandise costing $400.

On January 1. Field owed Palouse $34. except for inventory (included in current assets).000 on the date of combination. Field Corporation.000 more than book value. 2008. 3-16 . 2008. and land. a retail outlet chain.Chapter 03 . The market price of Field's common stock was $20 per share on the eve of December 31. acquired 100 percent of the common stock of Palouse Company by issuing 14.000 on account. which had a fair value $20. Required: Prepare a consolidated balance sheet immediately following the acquisition. Summarized balance sheet data at December 31. At that date.000 shares of Field's $5 par value common stock. 2009.The Reporting Entity and Consolidated Financial Statements 43. which had a market value of $200. are as follows: Additional Information: The book values of Palouse's assets approximated their respective fair values.

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 B. what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31. consolidated balance sheet? A. $54. are as follows: 1.Chapter 03 . $36. 2009. 2009.000 C.000 D. Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. $90. 2009.The Reporting Entity and Consolidated Financial Statements Chapter 03 The Reporting Entity and Consolidated Financial Statements Answer Key Multiple Choice Questions On January 3. $0 AACSB: Analytic AICPA: Measurement 3-17 . Selected balance sheet data at December 31. Based on the preceding information.

Standard Video reported total assets of $400. $180.000. $880.The Reporting Entity and Consolidated Financial Statements 2. $264. Beta reported total assets of $500. $156.000 C. which Beta included in its accounts receivable.000. Immediately prior to the acquisition.000. its bitter rival.000 AACSB: Analytic AICPA: Measurement 3-18 .000 D. 3. Included in Standard's liabilities was an account payable to Beta in the amount of $20.000 B.000 AACSB: Analytic AICPA: Measurement 4. 2009? A.000 C.000 B. what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31. $500. what amount of total assets did Beta report in its balance sheet immediately after the acquisition? A. $920. Based on the preceding information.000 B. Based on the preceding information. $650. liabilities of $250. and stockholders' equity of $220.Chapter 03 . $120.000 D.000. what amount of total assets was reported in the consolidated balance sheet immediately after acquisition? A.000. $750. $900. At that date.000 AACSB: Analytic AICPA: Measurement Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation. Based on the preceding information. and stockholders' equity of $150. liabilities of $280.000 D.000.000. by issuing bonds with a par value and fair value of $150.000. $750.000 C. $650.

000 AACSB: Analytic AICPA: Measurement 7. Based on the preceding information.000 C. $500. $220. Pea plus Essone. Pea plus Essone plus Esstwo plus Essthree. Pea plus Essone plus Esstwo.000 D. D.000 C.000 B. $350. what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition? A. $150. C. what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition? A.000 AACSB: Analytic AICPA: Measurement 6. Consolidated financial statements should be prepared to report the financial status and results of operations for: A. Company Esstwo owns 100 percent of Company Essthree. $660. B. Based on the preceding information. $370. AACSB: Analytic AICPA: Decision Making 3-19 .The Reporting Entity and Consolidated Financial Statements 5.000 D. Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo.Chapter 03 . $530. Pea.000 B. $280.

Using the entity theory. $860.000 D. 2009. Xing Corporation owns 80 percent of the voting common shares of Adams Corporation. Noncontrolling interest was assigned $24.000.000 C. $96. at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A.000 B. $550.000 C.000 B.000 D.000 of income in the 2009 consolidated income statement. At the time. On the date of acquisition.Chapter 03 .The Reporting Entity and Consolidated Financial Statements 8. $590. at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination? A. $30. $700.000 and fair value of $500. On December 31. $120. Rudd Company acquired 80 percent of the common stock of Wilton Company.000.000 B.000 AACSB: Analytic AICPA: Measurement 3-20 . $500. $650. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31. Using the parent company theory.000 and a fair value of $260. What amount of net income did Adams Corporation report for the year? A. Wilton held land with a book value of $50.000 and a fair value of $300. Princeton held land with a book value of $150.000 AACSB: Analytic AICPA: Measurement 9.000 C. $150.000. Sheffield held land with a book value of $100. Rudd held land with a book value of $100.000 AACSB: Analytic AICPA: Measurement 10. 2009. $375.000 D.000 and fair value of $600.000. $550.

At the acquisition date. and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer.The Reporting Entity and Consolidated Financial Statements 11. Proprietary B. the book values and fair values of Frazer's assets and liabilities were equal. 3-21 . Equity method D. 2009. Redding Company acquired 80 percent of Frazer Corporation's common stock for $344. consolidation follows largely which theory approach? A. Variable AACSB: Reflective Thinking AICPA: Reporting On January 3.000 in cash. Parent company C. Under FASB 141R. Consolidation C.Chapter 03 . If Push Company owned 51 percent of the outstanding common stock of Shove Company. Cost method B. Merger method AACSB: Reflective Thinking AICPA: Reporting 12.000 in Redding's consolidated income statement for 2009. Entity D. which reporting method would be appropriate? A. The stockholders' equity accounts of the two companies at the acquisition date are: Noncontrolling interest was assigned income of $11.

000 AACSB: Analytic AICPA: Measurement 15.800 D. $1. $86.150. 2009? A.064.000 C. in the consolidated balance sheet? A.000 C.580.000 B.Chapter 03 .000 B. $66. Based on the preceding information. $68. $1. Based on the preceding information.000 C. what amount will be assigned to the noncontrolling interest on January 3. $1. $50.236. $55. 2009.000 AACSB: Analytic AICPA: Measurement 14. $1.000 D. $44.000 D. $36.The Reporting Entity and Consolidated Financial Statements 13. Based on the preceding information. $44. what will be the total stockholders' equity in the consolidated balance sheet as of January 3. what will be the amount of net income reported by Frazer Corporation in 2009? A.000 B.000 AACSB: Analytic AICPA: Measurement 3-22 .

Goodwill under the parent theory: A. D. exceeds goodwill under the proprietary theory.Chapter 03 . Based on the preceding information.000 C.000 AACSB: Analytic AICPA: Measurement 3-23 . $200.000 AACSB: Analytic AICPA: Measurement 18.000 D.000 D. AACSB: Reflective Thinking AICPA: Reporting Small-Town Retail owns 70 percent of Supplier Corporation's common stock. $160. Based on the preceding information.000 and $300. C. 17. respectively.000 and expenses of $290. exceeds goodwill under the entity theory. $200. $202. Small-Town and Supplier reported sales of $450. is less than goodwill under the proprietary theory. is less than goodwill under the entity theory. $220.000 B. For the current financial year.000 and $240.000 B.000. $210. what is the amount of net income to be reported in the consolidated income statement for the year under the proprietary theory approach? A. $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.The Reporting Entity and Consolidated Financial Statements 16. $202. B.000 C.

000 AACSB: Analytic AICPA: Measurement 3-24 . What is the amount of goodwill to be reported under proprietary theory approach? A.000 B. $210.000 C. $200.000 C. $150. Goodwill (attributable to Quid's acquisition of Pro shares) of $150.000 C.Chapter 03 . $150.000 was reported in the consolidated financial statements at December 31. 2004. what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach? A. Proprietary theory approach was used in determining this amount. Goodwill (attributable to Quid's acquisition of Pro shares) of $300. $160.000 D.000 was reported in the consolidated financial statements at December 31. What is the amount of goodwill to be reported under entity theory approach? A. Quid Corporation acquired 75 percent of Pro Company's common stock on December 31. 2004. $100. $400.000 D.The Reporting Entity and Consolidated Financial Statements 19. $250.000 AACSB: Analytic AICPA: Measurement 20. 2006.000 B. $202.000 B.000 D. Parent company approach was used in determining this amount. $220.000 AACSB: Analytic AICPA: Measurement 21. $300. Based on the preceding information. $100. Quid Corporation acquired 60 percent of Pro Company's common stock on December 31. 2006.

Short-term creditors of the parent company. $1. AACSB: Reflective Thinking AICPA: Reporting On January 1. Blue reported sales of $1. $1.420. D. 2009.500. AACSB: Reflective Thinking AICPA: Reporting 24. Consolidated financial statements tend to be most useful for: A.000.000.000. During the year.The Reporting Entity and Consolidated Financial Statements 22. D. including sales to Blue of $80. C. $1. $500. C.000. The subsidiary is in bankruptcy.000. Stockholders of a consolidated subsidiary. Garfield's buildings and equipment had a book value of $300.000. Investors and long-term creditors of the parent company. Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. Subsidiary's operations are dissimilar from those of the parent. C. 3-25 . and White reported sales of $500. B.000 at the time of acquisition. The parent owns 90 percent of the subsidiary's common stock. B. Blue Company owns 80 percent of the common stock of White Corporation. B.000. Creditors of a consolidated subsidiary.000 and a fair value of $350. In which of the following cases would consolidation be inappropriate? A. The amount of sales that should be reported in the consolidated income statement for the year is: A. AACSB: Analytic AICPA: Measurement 23.000.300. Subsidiary is foreign. D.Chapter 03 . but all of the subsidiary's nonvoting preferred stock is held by a single investor.

000 at that time. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company approach? A. On January 1.000 AACSB: Analytic AICPA: Measurement 26.000.000 C.000 D. $280.000 AACSB: Analytic AICPA: Measurement 27. It reports net assets with a book value of $200.000. what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice? A. Gold Rush Company acquires 80 percent ownership in California Corporation for $200. excluding its investment in California. $20. $40. $350.000 D. 2009.000 C. $340.000. $50.000 AACSB: Analytic AICPA: Measurement 3-26 .000 B. Gold Rush Company reports net assets with a book value of $600. The fair value of the noncontrolling interest at that time is determined to be $50.000 C. $300. Based on the preceding information.000 D.The Reporting Entity and Consolidated Financial Statements 25.000 B. $350.000 B.000 and a fair value of $650. $280. $30. What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice? A. $300. Based on the preceding information.000 and fair value of $230. $340.Chapter 03 .

000 D.000 and liabilities with a book value and fair value of $50.000 in the consolidated income statement for 2008. $120. What is the amount of separate operating income reported by Zeta for the year? A. D. Noncontrolling interest was assigned income of $30. $150. C.000 B. $20.000 and sold them to Roland for $55. $170. 2008. B.000. $200. $40. Net income will be overstated by $25. During 2008. Rohan Corporation holds assets with a fair value of $150.000 AACSB: Analytic AICPA: Measurement 30.000 and a book value of $125. Sales for the two companies during 2008 totaled $655. $30.000 is reported? A.000 D. $50. Roland continues to hold the items in inventory on December 31.000 for the year ended December 31.Chapter 03 .000 B. Cost of goods sold will be understated by $25. Zeta owns 80 percent of the common shares of its subsidiary.000.000 C.000.000 to acquire 75 percent ownership in Rohan and goodwill of $20. 2008. Roland Company acquired 100 percent of Garros Company's voting shares in 2007.000. Sales would be overstated by $30.000. What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90.000 C. Which of the following observations will be true if no adjustment is made to eliminate the intercorporate sale when a consolidated income statement is prepared for 2008? A.000 AACSB: Analytic AICPA: Measurement 3-27 . and total cost of goods sold was $420.000. Zeta Corporation and its subsidiary reported consolidated net income of $320. Garros purchased tennis equipment for $30. acquired at book value. AACSB: Analytic AICPA: Measurement 29.The Reporting Entity and Consolidated Financial Statements 28.000. Consolidated net income will be unaffected.

$39. Elbonia produced inventory at a cost of $36. 31. Atomic held all the items in inventory on January 1. $0 AACSB: Analytic AICPA: Measurement 33.Chapter 03 . $98. $39. caters to its parent's entire inventory requirements. 2008.000 D. Assume that the companies had no other transactions during 2007 and 2008.000.000 and sold it to Atomic for $75. In 2007. $0 B.000 C. Based on the preceding information. what amount would be reported in the consolidated financial statements for inventory on January 1. $75. $39. Based on the preceding information.000 D.000 B.000. $75.000 AACSB: Analytic AICPA: Measurement 3-28 . a 100 percent subsidiary of Atomic Corporation.000 D. 2008? A. $36.000 C. what amount would be reported in the consolidated financial statements for cost of goods sold for 2007? A. $0 AACSB: Analytic AICPA: Measurement 32.000 B. Based on the preceding information.The Reporting Entity and Consolidated Financial Statements Elbonia Corporation. what amount would be reported in the consolidated financial statements for cost of goods sold for 2008? A.000 C. $36. Atomic sold all the units for $98. During 2008. $36.

I B.000 AACSB: Analytic AICPA: Measurement 35. Loan or asset guarantees AACSB: Reflective Thinking AICPA: Reporting Essay Questions 3-29 .000 C.The Reporting Entity and Consolidated Financial Statements 34. II C. A. Neither I nor II AACSB: Analytic AICPA: Reporting 36. Common stock. $75. II.Chapter 03 . Which of the following usually does not represent a variable interest? A. Book values for assets and liabilities transferred by the primary beneficiary. $0 B. $39. the amounts of the VIE to be consolidated are: I. Subordinated debt D. When a primary beneficiary's consolidation of a variable interest entity (VIE) is appropriate. Both I and II D. $36. what amount would be reported in the consolidated financial statements for sales for 2007? A. Senior debt C. with no special features or provisions B. Based on the preceding information.000 D. Fair values when the primary beneficiary relationship became established.

not all assets shown are available to dividend distributions of the parent company.The Reporting Entity and Consolidated Financial Statements 37. 5) Additional information about individual companies or groups of companies that have been consolidated may be necessary for fair presentation. therefore. 4) Similar accounts of different companies that are consolidated may not be entirely comparable.Chapter 03 . Consolidated financial statements are required by GAAP in certain circumstances. Therefore. 2) The consolidated statements include the subsidiary's assets. This information can be very useful to stockholders and creditors. there are limitations to these financial statements for which the users must be aware. AACSB: Communication AICPA: Reporting 3-30 . resulting in voluminous footnote disclosures. For example. the poor performance or position of one or more companies may be hidden by the good performance and position of others. What are at least three (3) limitations of consolidated financial statements? Limitations to consolidated financial statements include: 1) The operating results and financial position of individual companies included in the consolidation are not disclosed. 3) Financial ratios are based upon the aggregated consolidated information. causing receivables of similar length to be classified differently. these ratios may not be representative of any single company in the consolidation. Yet. the length of operating cycles of different subsidiaries may vary. including the parent.

46 R related to the Consolidation of Variable Interest Entities. What is a non-controlling interest? b. 2. Therefore. AACSB: Communication AICPA: Reporting 3-31 . a. Does not have equity investors that: a. b. It represents the fact that the parent may control but not own the entire subsidiary.Chapter 03 . not a liability. Why must it be reported in the financial statements as an element of equity rather than a liability? a. Noncontrolling interest clearly does not meet the definition of a liability. AACSB: Communication AICPA: Reporting 39. Noncontrolling interest occurs when less than 100 percent equity is acquired in a subsidiary. FASB 160 makes clear that the noncontrolling interest's claim on net assets is an element of equity. FASB has been trying to define the Primary Beneficiary and from this lead to consolidation not just control as presumed under FASB 141. It requires reporting the noncontrolling interest in equity. have voting rights or b. In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Stockholders' Equity section of the Balance Sheet. Why does FASB have difficulty in prescribing when these entities are consolidated? A Variable Interest Entity (VIE) is a legal structure used for business purposes that either: 1.The Reporting Entity and Consolidated Financial Statements 38. FASB issued Interpretation No. doesn't share in all of the entity's profits or losses. The noncontrolling shareholders have a claim on the subsidiary's assets and earnings through their percentage ownership of the stock. Has equity investors that do not provide sufficient financial resources to support the entity's activities.

000 + $750.300.000.000 GW) Total liabilities = $1.000) Total stockholders' equity = $1.000 [$400.000 ($800. and (3) total stockholders' equity.000 shares)] AACSB: Analytic AICPA: Measurement 3-32 .000 + $1.000 + ($60 x 10.200. Total assets = $2. (2) total liabilities.550.550.The Reporting Entity and Consolidated Financial Statements 40. Dish Corporation acquired 100 percent of the common stock of Toll Company by issuing 10.000 ($1.000 + $50. Summarized balance sheet data for the two companies immediately preceding the acquisition are as follows: Required: Determine the dollar amounts to be presented in the consolidated balance sheet for (1) total assets.000 shares of $10 par common stock with a market value of $60 per share.Chapter 03 .

The Hamilton Company acquired 100 percent of the stock of Hudson Company on January 1. Required: Prepare a consolidated balance sheet immediately following the acquisition.The Reporting Entity and Consolidated Financial Statements 41. On January 1. Hudson owed Hamilton $14. 3-33 . 2010. for $308. Summarized balance sheet data for the companies on December 31.000 on account. are as follows: The book values of Hudson's assets and liabilities are equal to their fair values.Chapter 03 . 2010. 2009.000 cash. except as indicated.

Chapter 03 .The Reporting Entity and Consolidated Financial Statements AACSB: Analytic AICPA: Measurement 3-34 .

000.$570.000 ($600.000 + $150.The Reporting Entity and Consolidated Financial Statements 42. Dean Company.$50.000 + $350. 4) inventory.000 ($870. Also during 2008. 2008.$80. Required: Based on the above information.000 + $220. for 2008 and ending inventory of $150. Dean Company reported total sales and cost of goods sold of $350.000) 2) Cost of Goods Sold = $570. Barnes Company acquired 80 percent of the outstanding voting stock of Dean Company on January 1. Barnes Company continued to hold the inventory at December 31. During 2008 Dean Company sold inventory costing $50. compute the amounts that should appear in the consolidated financial statements prepared for Barnes Company and it subsidiary. 1) Sales = $870.000) AACSB: Analytic AICPA: Measurement 3-35 .000. respectively.Chapter 03 .000 to Barnes Company for $80.000) 4) Inventory = $260. In its separate financial statements.000.000 .000 . and on its separate balance sheet reported total inventory at year end of $140.$30. 3) gross profit on sales. Barnes Company sold merchandise costing $400.000 to nonaffiliates for $600.000. 2) cost of goods sold. at year end for the following items: 1) sales.000) 3) Gross Profit on Sales = $300. 2008.000 and $220.000 .000 ($140.000 ($400.000 .000.

000 more than book value. Required: Prepare a consolidated balance sheet immediately following the acquisition. which had a fair value $20. 3-36 . a retail outlet chain. 2008. Summarized balance sheet data at December 31.000 shares of Field's $5 par value common stock. which had a market value of $200.The Reporting Entity and Consolidated Financial Statements 43. are as follows: Additional Information: The book values of Palouse's assets approximated their respective fair values. Field Corporation. and land.000 on account. On January 1. The market price of Field's common stock was $20 per share on the eve of December 31.000 on the date of combination.Chapter 03 . At that date. 2009. except for inventory (included in current assets). Field owed Palouse $34. 2008. acquired 100 percent of the common stock of Palouse Company by issuing 14.

The Reporting Entity and Consolidated Financial Statements AACSB: Analytic AICPA: Measurement 3-37 .Chapter 03 .

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