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Chapter 02 - Consolidation of Financial Information

Chapter02
ConsolidationofFinancialInformation

MultipleChoiceQuestions

1.Atthedateofanacquisitionwhichisnotabargainpurchase,theacquisitionmethod
A.Consolidatesthesubsidiary'sassetsatfairvalueandtheliabilitiesatbookvalue
B.Consolidatesallsubsidiaryassetsandliabilitiesatbookvalue
C.Consolidatesallsubsidiaryassetsandliabilitiesatfairvalue
D.Consolidatescurrentassetsandliabilitiesatbookvalue,longtermassetsandliabilitiesat
fairvalue
E.Consolidatesthesubsidiary'sassetsatbookvalueandtheliabilitiesatfairvalue

Difficulty:Easy

2.Inapurchaseoracquisitionwherecontrolisachieved,howwouldthelandaccountsofthe
parentandthelandaccountsofthesubsidiarybecombined?

A.EntryA
B.EntryB
C.EntryC
D.EntryD
E.EntryE

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

3.LisaCo.paidcashforallofthevotingcommonstockofVictoriaCorp.Victoriawill
continuetoexistasaseparatecorporation.EntriesfortheconsolidationofLisaandVictoria
wouldberecordedin
A.Aworksheet
B.Lisa'sgeneraljournal
C.Victoria'sgeneraljournal
D.Victoria'ssecretconsolidationjournal
E.Thegeneraljournalsofbothcompanies

Difficulty:Easy

4.Usingthepurchasemethod,goodwillisgenerallydefinedas:
A.Costoftheinvestmentlessthesubsidiary'sbookvalueatthebeginningoftheyear
B.Costoftheinvestmentlessthesubsidiary'sbookvalueattheacquisitiondate
C.Costoftheinvestmentlessthesubsidiary'sFairValueatthebeginningoftheyear
D.Costoftheinvestmentlessthesubsidiary'sFairValueatacquisitiondate
E.Isnolongerallowedunderfederallaw

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

5.Directcombinationcostsandstockissuancecostsareoftenincurredintheprocessof
makingacontrollinginvestmentinanothercompany.Howshouldthosecostsbeaccounted
forinaPurchasetransaction?

A.EntryA
B.EntryB
C.EntryC
D.EntryD
E.EntryE

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

6.Directcombinationcostsandstockissuancecostsareoftenincurredintheprocessof
makingacontrollinginvestmentinanothercompany.Howshouldthosecostsbeaccounted
forinanAcquisitiontransaction?

A.EntryA
B.EntryB
C.EntryC
D.EntryD
E.EntryE

Difficulty:Medium

7.Whatistheprimaryaccountingdifferencebetweenaccountingforwhenthesubsidiaryis
dissolvedandwhenthesubsidiaryretainsitsincorporation?
A.Ifthesubsidiaryisdissolved,itwillnotbeoperatedasaseparatedivision
B.Ifthesubsidiaryisdissolved,assetsandliabilitiesareconsolidatedattheirbookvalues
C.Ifthesubsidiaryretainsitsincorporation,therewillbenogoodwillassociatedwiththe
acquisition
D.Ifthesubsidiaryretainsitsincorporation,assetsandliabilitiesareconsolidatedattheir
bookvalues
E.Ifthesubsidiaryretainsitsincorporation,theconsolidationisnotformallyrecordedinthe
accountingrecordsoftheacquiringcompany

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

8.AccordingtoSFASNo.141,thepoolingofinterestmethodforbusinesscombinations
A.Ispreferredtothepurchasemethod
B.Isallowedforallnewacquisitions
C.IsnolongerallowedforbusinesscombinationsafterJune30,2001
D.IsnolongerallowedforbusinesscombinationsafterDecember31,2001
E.IsonlyallowedforlargecorporatemergerslikeExxonandMobil

Difficulty:Easy

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Chapter 02 - Consolidation of Financial Information

9.Inapoolingofinterests,
A.Revenuesandexpensesareconsolidatedfortheentirefiscalyear,evenifthecombination
occurredlateintheyear
B.Goodwillmayberecognized
C.Consolidationisaccomplishedusingthefairvaluesofbothcompanies
D.Thetransactionsmayinvolvetheexchangeofpreferredstockordebtsecuritiesaswellas
commonstock
E.Thetransactionisproperlyregardedasanacquisitionofonecompanybyanother

Difficulty:Easy

10.Acompanyisnotrequiredtoconsolidateasubsidiaryinwhichitholdsmorethan50%of
thevotingstockwhen
A.Thesubsidiaryislocatedinaforeigncountry
B.Thesubsidiaryinquestionisafinancesubsidiary
C.Thecompanyholdsmorethan50%butlessthan60%ofthesubsidiary'svotingstock
D.Thecompanyholdslessthan75%ofthesubsidiary'svotingstock
E.Thesubsidiaryisinbankruptcy

Difficulty:Medium

11.Whichoneofthefollowingisacharacteristicofabusinesscombinationthatshouldbe
accountedforasanacquisition?
A.Thecombinationmustinvolvetheexchangeofequitysecuritiesonly
B.Thetransactionestablishesanacquisitionfairvaluebasisforthecompanybeingacquired
C.Thetwocompaniesmaybeaboutthesamesizeanditisdifficulttodeterminetheacquired
companyandtheacquiringcompany
D.Thetransactionmaybeconsideredtobetheunitingoftheownershipinterestsofthe
companiesinvolved
E.Theacquiredsubsidiarymustbesmallerinsizethantheacquiringparent

Difficulty:Easy

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Chapter 02 - Consolidation of Financial Information

12.Whichoneofthefollowingisacharacteristicofabusinesscombinationthatshouldbe
accountedforasapurchase?
A.Thecombinationmustinvolvetheexchangeofequitysecuritiesonly
B.Thetransactionclearlyestablishesanacquisitionpriceforthecompanybeingacquired
C.Thetwocompaniesmaybeaboutthesamesizeanditisdifficulttodeterminetheacquired
companyandtheacquiringcompany
D.Thetransactionmaybeconsideredtobetheunitingoftheownershipinterestsofthe
companiesinvolved
E.Theacquiredsubsidiarymustbesmallerinsizethantheacquiringparent

Difficulty:Easy

13.Astatutorymergerisa(n)
A.Businesscombinationinwhichonlyoneofthetwocompaniescontinuestoexistasalegal
corporation
B.Businesscombinationinwhichbothcompaniescontinuestoexist
C.Acquisitionofacompetitor
D.Acquisitionofasupplieroracustomer
E.Legalproposaltoacquireoutstandingsharesofthetarget'sstock

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

14.Howarestockissuancecostsanddirectcombinationcoststreatedinabusiness
combinationwhichisaccountedforasanacquisitionwhenthesubsidiarywillretainits
incorporation?
A.Stockissuancecostsareapartoftheacquisitioncostsandthedirectcombinationcostsare
expensed
B.Directcombinationcostsareapartoftheacquisitioncostsandthestockissuancecostsare
areductiontoadditionalpaidincapital
C.Directcombinationcostsareexpensedandstockissuancecostsareareductionto
additionalpaidincapital
D.Botharetreatedaspartoftheacquisitionprice
E.Botharetreatedasareductiontoadditionalpaidincapital

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

BullenInc.assumed100%controloverVickerInc.onJanuary1,20X1.Thebookvalueand
fairvalueofVicker'saccountsonthatdate(priortocreatingthecombination)follow,along
withthebookvalueofBullen'saccounts:

15.AssumethatBullenissued12,000sharesofcommonstockwitha$5parvalueanda$47
fairvaluetoobtainallofVicker'soutstandingstock.Inthistransaction(whichisnota
poolingofinterests),howmuchgoodwillshouldberecognized?
A.$144,000
B.$104,000
C.$64,000
D.$60,000
E.$0

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

16.AssumethatBullenissued12,000sharesofcommonstockwitha$5parvalueanda$42
fairvalueforalloftheoutstandingstockofVicker.WhatistheconsolidatedLandasaresult
ofthistransaction(whichisnotapoolingofinterests)?
A.$460,000
B.$510,000
C.$500,000
D.$520,000
E.$490,000

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

17.AssumethatBullenissued12,000sharesofcommonstockwitha$5parvalueanda$42
fairvalueforalloftheoutstandingsharesofVicker.WhatwillbetheconsolidatedAdditional
PaidInCapitalandRetainedEarnings(January1,20X1balances)asaresultofthis
transaction(whichisnotapoolingofinterests)?
A.$20,000and$160,000
B.$20,000and$260,000
C.$380,000and$160,000
D.$464,000and$160,000
E.$380,000and$260,000

Difficulty:Hard

18.AssumethatBullenissuedpreferredstockwithaparvalueof$240,000andafairvalueof
$500,000foralloftheoutstandingsharesofVickerinabusinesscombination(whichisnota
poolingofinterests).WhatwillbethebalanceintheconsolidatedInventoryandLand
accounts?
A.$440,000,$496,000
B.$440,000,$520,000
C.$425,000,$505,000
D.$402,000,$520,000
E.$427,000,$510,000

Difficulty:Hard

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19.AssumethatBullenpaidatotalof$480,000incashforallofthesharesofVicker.In
addition,Bullenpaid$35,000toagroupofattorneysfortheirworkinarrangingthe
combinationtobeaccountedforasapurchase.Whatwillbethebalanceinconsolidated
goodwill?
A.$0
B.$20,000
C.$35,000
D.$55,000

Difficulty:Medium

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20.AssumethatBullenpaidatotalof$480,000incashforallofthesharesofVicker.In
addition,Bullenpaid$35,000toagroupofattorneysfortheirworkinarrangingthe
combinationtobeaccountedforasanacquisition.Whatwillbethebalanceinconsolidated
goodwill?
A.$0
B.$20,000
C.$35,000
D.$55,000

Difficulty:Medium

Priortobeingunitedinabusinesscombination,BotkinsInc.andVolkersonCorp.hadthe
followingstockholders'equityfigures:

Botkinsissued56,000newsharesofitscommonstockvaluedat$3.25pershareforallofthe
outstandingstockofVolkerson.

21.AssumethatBotkinsacquiredVolkersonasapurchasecombination.Immediately
afterwards,whatareconsolidatedAdditionalPaidInCapitalandRetainedEarnings,
respectively?
A.$133,000
and$360,000
B.$236,000and$360,000
C.$130,000and$360,000
D.$236,000and$490,000
E.$133,000and$490,000

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

22.AssumethatBotkinsandVolkersonwerebeingjoinedinapoolingofinterestsandthis
occurredonJanuary1,2000,usingthesamevaluesgiven.Immediatelyafterwards,whatis
consolidatedAdditionalPaidInCapital?
A.$138,000
B.$266,000
C.$130,000
D.$236,000
E.$133,000

Difficulty:Hard

23.ChapelHillCompanyhadcommonstockof$350,000andretainedearningsof$490,000.
BlueTownInc.hadcommonstockof$700,000andretainedearningsof$980,000.On
January1,2009,BlueTownissued34,000sharesofcommonstockwitha$12parvalueand
a$35fairvalueforallofChapelHillCompany'soutstandingcommonstock.This
combinationwasaccountedforasanacquisition.Immediatelyafterthecombination,what
wastheconsolidatednetassets?
A.$2,520,000
B.$1,190,000
C.$1,680,000
D.$2,870,000
E.$2,030,000

Difficulty:Medium

24.Whichofthefollowingisanotareasonforabusinesscombinationtotakeplace?
A.Costsavingsthrougheliminationofduplicatefacilities
B.Quickentryfornewandexistingproductsintodomesticandforeignmarkets
C.Diversificationofbusinessrisk
D.Verticalintegration
E.Costsynergiesthroughouttheorganizations

Difficulty:Easy

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25.Whichofthefollowingstatementsistrueregardingastatutorymerger?
A.Theoriginalcompaniesdissolvewhileremainingasseparatedivisionsofanewlycreated
company
B.Bothcompaniesremaininexistenceaslegalcorporationswithonecorporationnowa
subsidiaryoftheacquiringcompany
C.Theacquiredcompanydissolvesasaseparatecorporationandbecomesadivisionofthe
acquiringcompany
D.Theacquiringcompanyacquiresthestockoftheacquiredcompanyasaninvestment
E.Astatutorymergerisnolongeralegaloption

Difficulty:Medium

26.Whichofthefollowingstatementsistrueregardingastatutoryconsolidation?
A.Theoriginalcompaniesdissolvewhileremainingasseparatedivisionsofanewlycreated
company
B.Bothcompaniesremaininexistenceaslegalcorporationswithonecorporationnowa
subsidiaryoftheacquiringcompany
C.Theacquiredcompanydissolvesasaseparatecorporationandbecomesadivisionofthe
acquiringcompany
D.Theacquiringcompanyacquiresthestockoftheacquiredcompanyasaninvestment
E.Astatutoryconsolidationisnolongeralegaloption

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

27.Inatransactionaccountedforusingthepurchasemethodwherecostexceedsbookvalue,
whichstatementistruefortheacquiringcompanywithregardtoitsinvestment?
A.Netassetsoftheacquiredcompanyarerevaluedtotheirfairvaluesandanyexcessofcost
overfairvalueisallocatedtogoodwill
B.Netassetsoftheacquiredcompanyaremaintainedatbookvalueandanyexcessofcost
overbookvalueisallocatedtogoodwill
C.Assetsarerevaluedtotheirfairvalues.Liabilitiesaremaintainedatbookvalues.Any
excessisallocatedtogoodwill
D.Longtermassetsarerevaluedtotheirfairvalues.Anyexcessisallocatedtogoodwill

Difficulty:Medium

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28.Inatransactionaccountedforusingthepurchasemethodwherecostislessthanfair
value,whichstatementistrue?
A.Negativegoodwillisrecorded
B.Adeferredcreditisrecorded
C.Longtermassetsoftheacquiredcompanyarereducedinproportiontotheirfairvalues.
Anyexcessisrecordedasadeferredcredit
D.Longtermassetsoftheacquiredcompanyarereducedinproportiontotheirfairvalues.
Anyexcessisrecordedasanextraordinarygain
E.Longtermassetsandliabilitiesoftheacquiredcompanyarereducedinproportiontotheir
fairvalues.Anyexcessisrecordedasanextraordinarygain

Difficulty:Hard

29.Whichofthefollowingstatementsistrueregardingthepoolingofinterestsmethodof
accountingforabusinesscombination?
A.Netassetsoftheacquiredcompanyarereportedattheirbookvalues
B.Netassetsoftheacquiredcompanyarereportedattheirfairvalues
C.Anygoodwillassociatedwiththeacquisitionhasanindefinitelife
D.Subsequentamountsofcostinexcessoffairvalueofnetassetsareamortizedovertheir
usefullives
E.Indirectcostsreduceadditionalpaidincapital

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

30.Whichofthefollowingstatementsistrue?
A.PoolingofinterestsisacceptableprovidedthetwelvecriteriarequiredbytheAPBaremet
B.PoolingofinterestsisnolongeracceptablefornewcombinationsasstatedinSFASNo.
141,"BusinessCombinations"
C.Companiesthatusedpoolingofinterestsmethodinthepastmustmakearetrospective
accountingchangeinaccountingprinciple
D.Companiesthatusedpoolingofinterestsmethodinthepastmustmakeacumulativeeffect
accountingchangeinaccountingprinciple
E.Companiesthatusedpoolingofinterestsinthepastmustmakeaprospectivechangein
accountingprinciple

Difficulty:Easy

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Chapter 02 - Consolidation of Financial Information

ThefinancialstatementsforGoodwin,Inc.andCorrCompanyfortheyearendedDecember
31,20X1,priortoGoodwin'sbusinesscombinationtransactionregardingCorr,follow(in
thousands):

OnDecember31,20X1,Goodwinissued$600indebtand30sharesofits$10parvalue
commonstocktotheownersofCorrtopurchasealloftheoutstandingsharesofthat
company.Goodwinshareshadafairvalueof$40pershare.
Goodwinpaid$25toabrokerforarrangingthetransaction.Goodwinpaid$35instock
issuancecosts.Corr'sequipmentwasactuallyworth$1,400butitsbuildingswereonlyvalued
at$560.

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Chapter 02 - Consolidation of Financial Information

31.Ifthecombinationisaccountedforasapurchase,atwhatamountistheinvestment
recordedonGoodwin'sbooks?
A.$1,540
B.$1,800
C.$1,860
D.$1,825
E.$1,625

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

32.Ifthecombinationisaccountedforasanacquisition,atwhatamountistheinvestment
recordedonGoodwin'sbooks?
A.$1,540
B.$1,800
C.$1,860
D.$1,825
E.$1,625

Difficulty:Medium

33.Computetheconsolidatedrevenuesfor20X1.
A.$2,700
B.$720
C.$920
D.$3,300
E.$1,540

Difficulty:Easy

34.Assumingthecombinationisaccountedforasapurchase,computetheconsolidated
expensesfor20X1.
A.$1,980
B.$2,380
C.$2,040
D.$2,015
E.$2,005

Difficulty:Easy

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Chapter 02 - Consolidation of Financial Information

35.Assumingthecombinationisaccountedforasanacquisition,computetheconsolidated
expensesfor20X1.
A.$1,980
B.$2,380
C.$2,040
D.$2,015
E.$2,005

Difficulty:Easy

36.ComputetheconsolidatedcashaccountatDecember31,20X1.
A.$460
B.$425
C.$400
D.$435
E.$240

Difficulty:Medium

37.Computetheconsolidatedbuildings(net)accountatDecember31,20X1.
A.$2,700
B.$3,370
C.$3,300
D.$3,260
E.$3,340

Difficulty:Medium

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38.Computetheconsolidatedequipment(net)accountatDecember31,20X1.
A.$2,100
B.$3,500
C.$3,300
D.$3,000
E.$3,200

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

39.Assumingthecombinationisaccountedforasapurchase,computetheconsolidated
goodwillaccountatDecember31,20X1.
A.$0
B.$100
C.$125
D.$160
E.$45

Difficulty:Medium

40.Assumingthecombinationisaccountedforasanacquisition,computetheconsolidated
goodwillaccountatDecember31,20X1.
A.$0
B.$100
C.$125
D.$160
E.$45

Difficulty:Medium

41.ComputetheconsolidatedcommonstockaccountatDecember31,20X1.
A.$1,080
B.$1,480
C.$1,380
D.$2,280
E.$2,680

Difficulty:Medium

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42.ComputetheconsolidatedadditionalpaidincapitalatDecember31,20X1.
A.$810
B.$1,350
C.$1,675
D.$1,910
E.$1,875

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

43.Assumingthecombinationisaccountedforasapurchase,computetheconsolidated
retainedearningsatDecember31,20X1.
A.$2,850
B.$3,450
C.$2,400
D.$2,800
E.$2,810

Difficulty:Medium

44.Assumingthecombinationisaccountedforasanacquisition,computetheconsolidated
retainedearningsatDecember31,20X1.
A.$2,800
B.$2,825
C.$2,850
D.$3,425
E.$3,450

Difficulty:Medium

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OnJanuary1,20X1,theMoodycompanyenteredintoatransactionfor100%ofthe
outstandingcommonstockofOsorioCompany.Toacquiretheseshares,Moodyissued$400
inlongtermliabilitiesand40sharesofcommonstockhavingaparvalueof$1persharebut
afairvalueof$10pershare.Moodypaid$20tolawyers,accountantsandbrokersfor
assistanceinbringingaboutthispurchase.Another$15waspaidinconnectionwithstock
issuancecosts.Priortothesetransactions,thebalancesheetsforthetwocompanieswereas
follows:

Note:Parenthesesindicateacreditbalance.
InMoody'sappraisalofOsorio,threeassetsweredeemedtobeundervaluedonthe
subsidiary'sbooks:Inventoryby$10,Landby$40andBuildingsby$60.

45.Ifthetransactionisaccountedforasapurchase,whatamountwasrecordedasthe
investmentinOsorio?
A.$930
B.$820
C.$800
D.$835
E.$815

Difficulty:Medium

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46.Ifthetransactionisaccountedforasanacquisition,whatamountwasrecordedasthe
investmentinOsorio?
A.$930
B.$820
C.$800
D.$835
E.$815

Difficulty:Medium

47.Computetheamountofconsolidatedinventoriesatdateofcombination.
A.$1,080
B.$1,350
C.$1,360
D.$1,370
E.$290

Difficulty:Medium

48.Computetheamountofconsolidatedbuildings(net)atdateofcombination.
A.$1,700
B.$1,760
C.$1,655
D.$1,550
E.$1,660

Difficulty:Hard

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49.Computetheamountofconsolidatedlandatdateofcombination.
A.$1,000
B.$816
C.$940
D.$916
E.$920

Difficulty:Hard

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50.Computetheamountofconsolidatedequipmentatdateofcombination.
A.$580
B.$480
C.$559
D.$570
E.$560

Difficulty:Hard

51.Computetheamountofconsolidatedcommonstockatdateofacquisition.
A.$370
B.$570
C.$610
D.$330
E.$530

Difficulty:Medium

52.Computetheamountofconsolidatedadditionalpaidincapitalatdateofcombination.
A.$1,080
B.$1,420
C.$1,065
D.$1,425
E.$1,440

Difficulty:Hard

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53.Computetheamountofconsolidatedcashafterrecordingthetransaction.
A.$220
B.$185
C.$200
D.$205
E.$215

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

CarneshasthefollowingaccountbalancesasofMay1,2000beforeapoolingofinterests
transactiontakesplace.

ThefairvalueofCarnes'LandandBuildingsare$650,000and$550,000,respectively.On
May1,2000,RileyCompanyissues30,000sharesofits$10parvalue($25fairvalue)
commonstockinexchangeforallofthesharesofCarnes'commonstock.

54.OnMay1,2000,whatvalueisassignedtotheinvestmentaccount?
A.$300,000
B.$750,000
C.$800,000
D.$1,100,000
E.$1,300,000

Difficulty:Medium

55.Atthedateofpooling,byhowmuchdoesRiley'sretainedearningsincreaseordecrease?
A.$200,000increase
B.$200,000decrease
C.$700,000increase
D.$300,000increase
E.$300,000decrease

Difficulty:Medium

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56.AssumeRileyissues70,000sharesinsteadof30,000atdateofacquisition.Riley
currentlyhas$40,000ofadditionalpaidincapitalonitsbooks.ByhowmuchwillRiley's
retainedearningsincreaseordecreaseasaresultofthecombination?
A.$40,000increase
B.$200,000increase
C.$140,000increase
D.$160,000increase
E.$40,000decrease

Difficulty:Hard

57.AssumeRileyissues70,000sharesinsteadof30,000atdateofpooling.AssumeRileyhas
noadditionalpaidincapitalonitsbooks.ByhowmuchwillRiley'sretainedearnings
increaseordecreaseasaresultofthecombination?
A.$100,000increase
B.$200,000increase
C.$100,000decrease
D.$200,000decrease
E.Nochange

Difficulty:Hard

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ThefinancialbalancesfortheAtwoodCompanyandtheFranzCompanyasofDecember31,
20X1,arepresentedbelow.AlsoincludedarethefairvaluesforFranzCompany'snetassets.

Note:Parenthesisindicateacreditbalance
AssumeabusinesscombinationtookplaceatDecember31,20X1.Atwoodissued50shares
ofitscommonstockwithafairvalueof$35pershareforalloftheoutstandingcommon
sharesofFranz.Stockissuancecostsof$15(inthousands)anddirectcostsof$10(in
thousands)werepaid.

58.AssumingAtwoodaccountsforthecombinationasapurchase,computetheinvestmentto
berecordedatdateofacquisition.
A.$1,760
B.$1,750
C.$1,775
D.$1,765
E.$1,120

Difficulty:Medium

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59.AssumingAtwoodaccountsforthecombinationasanacquisition,computethe
investmenttoberecordedatdateofacquisition.
A.$1,760
B.$1,750
C.$1,775
D.$1,765
E.$1,120

Difficulty:Medium

60.Computeconsolidatedinventoryatthedateofthebusinesscombination.
A.$1,650
B.$1,810
C.$1,230
D.$580
E.$1,830

Difficulty:Medium

61.Computeconsolidatedlandatthedateofthebusinesscombination.
A.$2,060
B.$1,800
C.$260
D.$2,050
E.$2,070

Difficulty:Medium

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62.Computeconsolidatedbuildings(net)atthedateofthebusinesscombination.
A.$2,450
B.$2,340
C.$1,800
D.$650
E.$1,690

Difficulty:Medium

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63.AssumingAtwoodaccountsforthecombinationasapurchase,computeconsolidated
goodwillatthedateofthecombination.
A.$360
B.$450
C.$460
D.$440
E.$475

Difficulty:Medium

64.AssumingAtwoodaccountsforthecombinationasanacquisition,computeconsolidated
goodwillatthedateofthecombination.
A.$360
B.$450
C.$460
D.$440
E.$475

Difficulty:Medium

65.Computeconsolidatedequipment(net)atthedateofthecombination.
A.$400
B.$660
C.$1,060
D.$1,040
E.$1,050

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

66.Assumingthecombinationisaccountedforasapurchase,computeconsolidatedretained
earningsatthedateofthecombination.
A.$1,170
B.$1,650
C.$1,290
D.$1,810
E.$3,870

Difficulty:Medium

67.Assumingthecombinationisaccountedforasanacquisition,computeconsolidated
retainedearningsatthedateofthecombination.
A.$1,160
B.$1,170
C.$1,280
D.$1,290
E.$1,640

Difficulty:Medium

68.Computeconsolidatedrevenuesatthedateofthecombination.
A.$3,540
B.$2,880
C.$1,170
D.$1,650
E.$4,050

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

69.Assumingthecombinationisaccountedforasapurchase,computeconsolidatedexpenses
atthedateofthecombination.
A.$2,760
B.$3,380
C.$2,770
D.$2,735
E.$2,785

Difficulty:Medium

70.Assumingthecombinationisaccountedforasanacquisition,computeconsolidated
expensesatthedateofthecombination.
A.$2,760
B.$2,770
C.$2,785
D.$3,380
E.$3,390

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

PresentedbelowarethefinancialbalancesfortheAtwoodCompanyandtheFranzCompany
asofDecember31,2009,immediatelybeforeAtwoodacquiredFranz.Alsoincludedarethe
fairvaluesforFranzCompany'snetassetsatthatdate.

Note:Parenthesisindicateacreditbalance
AssumeabusinesscombinationtookplaceatDecember31,2009.Atwoodissued50shares
ofitscommonstockwithafairvalueof$35pershareforalloftheoutstandingcommon
sharesofFranz.Stockissuancecostsof$15(inthousands)anddirectcostsof$10(in
thousands)werepaid.AtwoodisapplyingtheacquisitionmethodinaccountingforFranz.
TosettleadifferenceofopinionregardingFranz'sfairvalue,Atwoodpromisestopayan
additional$5.2(inthousands)totheformerownersifFranz'searningsexceedacertainsum
duringthenextyear.Giventheprobabilityoftherequiredcontingencypaymentandutilizing
a4%discountrate,theexpectedpresentvalueofthecontingencyis$5(inthousands).

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Chapter 02 - Consolidation of Financial Information

71.Computetheinvestmentcostatdateofacquisition.
A.$1,760
B.$1,755
C.$1,750
D.$1,765
E.$1,120

Difficulty:Medium

72.Computeconsolidatedinventoryatdateofacquisition.
A.$1,650
B.$1,810
C.$1,230
D.$580
E.$1,830

Difficulty:Medium

73.Computeconsolidatedlandatdateofacquisition.
A.$2,060
B.$1,800
C.$260
D.$2,050
E.$2,070

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

74.Computeconsolidatedbuildings(net)atdateofacquisition.
A.$2,450
B.$2,340
C.$1,800
D.$650
E.$1,690

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

75.Computeconsolidatedgoodwillatdateofacquisition.
A.$455
B.$460
C.$450
D.$440
E.$465

Difficulty:Medium

76.Computeconsolidatedequipmentatdateofacquisition.
A.$400
B.$660
C.$1,060
D.$1,040
E.$1,050

Difficulty:Medium

77.Computeconsolidatedretainedearningsasaresultofthisacquisition.
A.$1,160
B.$1,170
C.$1,265
D.$1,280
E.$1,650

Difficulty:Hard

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Chapter 02 - Consolidation of Financial Information

78.Computeconsolidatedrevenuesatdateofacquisition.
A.$3,540
B.$2,880
C.$1,170
D.$1,650
E.$4,050

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

79.Computeconsolidatedexpensesatdateofacquisition.
A.$2,760
B.$3,380
C.$2,770
D.$2,735
E.$2,785

Difficulty:Medium

80.Computetheconsolidatedcashuponcompletionoftheacquisition.
A.$870
B.$1,110
C.$1,080
D.$1,085
E.$635

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

Flynnacquires100percentoftheoutstandingvotingsharesofMacekCompanyonJanuary
1,20X1.Toobtaintheseshares,Flynnpays$400(inthousands)andissues10,000sharesof
$20parvaluecommonstockonthisdate.Flynn'sstockhadafairvalueof$36pershareon
thatdate.Flynnalsopays$15(inthousands)toalocalinvestmentfirmforarrangingthe
transaction.Anadditional$10(inthousands)waspaidbyFlynninstockissuancecosts.
ThebookvaluesforbothFlynnandMacekasofJanuary1,20X1follow.Thefairvalueof
eachofFlynnandMacekaccountsisalsoincluded.Inaddition,Macekholdsafully
amortizedtrademarkthatstillretainsa$40(inthousands)value.Thefiguresbelowarein
thousands.Anyrelatedquestionalsoisinthousands.

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Chapter 02 - Consolidation of Financial Information

81.Assumingthecombinationisaccountedforasapurchase,whatamountwillbereported
forgoodwill?
A.$35
B.$5
C.$110
D.$70
E.$150

Difficulty:Hard

82.Assumingthecombinationisaccountedforasanacquisition,whatamountwillbe
reportedforgoodwill?
A.$55
B.$65
C.$70
D.$135
E.$175

Difficulty:Hard

83.Whatamountwillbereportedforconsolidatedreceivables?
A.$660
B.$640
C.$500
D.$460
E.$480

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

84.Whatamountwillbereportedforconsolidatedinventory?
A.$960
B.$920
C.$700
D.$620
E.$660

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

85.Whatamountwillbereportedforconsolidatedbuildings(net)?
A.$1,420
B.$1,260
C.$1,140
D.$1,480
E.$1,200

Difficulty:Medium

86.Whatamountwillbereportedforconsolidatedequipment(net)?
A.$385
B.$335
C.$435
D.$460
E.$360

Difficulty:Medium

87.Whatamountwillbereportedforconsolidatedlongtermliabilities?
A.$1,480
B.$1,440
C.$1,180
D.$1,100
E.$1,520

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

88.Whatamountwillbereportedforconsolidatedcommonstock?
A.$1,200
B.$1,280
C.$1,400
D.$1,480
E.$1,390

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

89.Assumingthecombinationisaccountedforasapurchase,whatamountwillbereported
forconsolidatedretainedearnings?
A.$1,830
B.$1,350
C.$1,080
D.$1,560
E.$1,535

Difficulty:Medium

90.Assumingthecombinationisaccountedforasanacquisition,whatamountwillbe
reportedforconsolidatedretainedearnings?
A.$1,065
B.$1,080
C.$1,525
D.$1,535
E.$1,560

Difficulty:Medium

91.Whatamountwillbereportedforconsolidatedadditionalpaidincapital?
A.$165
B.$150
C.$160
D.$175
E.$145

Difficulty:Hard

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Chapter 02 - Consolidation of Financial Information

92.Whatamountwillbereportedforconsolidatedcashafterthepurchasetransaction?
A.$900
B.$875
C.$955
D.$980
E.$555

Difficulty:Medium

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Chapter 02 - Consolidation of Financial Information

Chapter3
ConsolidationsSubsequenttotheDateofAcquisition
MultipleChoiceQuestions
1.Whichoneofthefollowingaccountswouldnotappearintheconsolidatedfinancial
statementsattheendofthefirstfiscalperiodofthecombination?
A.Goodwill.
B.Equipment.
C.InvestmentinSubsidiary.
D.CommonStock.
E.AdditionalPaidInCapital.
2.Whichofthefollowinginternalrecordkeepingmethodscanaparentchoosetoaccount
forasubsidiaryacquiredinabusinesscombination?
A.initialvalueorbookvalue.
B.initialvalue,lowerofcostormarketvalue,orequity.
C.initialvalue,equity,orpartialequity.
D.initialvalue,equity,orbookvalue.
E.initialvalue,lowerofcostormarketvalue,orpartialequity.
3.Whichoneofthefollowingvariesbetweentheequity,initialvalue,andpartialequity
methodsofaccountingforaninvestment?
A.theamountofconsolidatednetincome.
B.totalassetsontheconsolidatedbalancesheet.
C.totalliabilitiesontheconsolidatedbalancesheet.
D.thebalanceintheinvestmentaccountontheparent'sbooks.
E.theamountofconsolidatedcostofgoodssold.
4.Underthepartialequitymethod,theparentrecognizesincomewhen
A.dividendsarereceivedfromtheinvestee.
B.dividendsaredeclaredbytheinvestee.
C.therelatedexpensehasbeenincurred.
D.therelatedcontractissignedbythesubsidiary.
E.itisearnedbythesubsidiary.
5.Pushdownaccountingisconcernedwiththe
A.impactofthepurchaseonthesubsidiary'sfinancialstatements.
B.recognitionofgoodwillbytheparent.
C.correctconsolidationofthefinancialstatements.
D.impactofthepurchaseontheseparatefinancialstatementsoftheparent.
E.recognitionofdividendsreceivedfromthesubsidiary.
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Chapter 02 - Consolidation of Financial Information

6.RacerCorp.acquiredallofthecommonstockofTangiersCo.in2011.Tangiers
maintaineditsincorporation.WhichofRacer'saccountbalanceswouldvarybetweenthe
equitymethodandtheinitialvaluemethod?
A.Goodwill,InvestmentinTangiersCo.,andRetainedEarnings.
B.Expenses,InvestmentinTangiersCo.,andEquityinSubsidiaryEarnings.
C.InvestmentinTangiersCo.,EquityinSubsidiaryEarnings,andRetainedEarnings.
D.CommonStock,Goodwill,andInvestmentinTangiersCo.
E.Expenses,Goodwill,andInvestmentinTangiersCo.
7.Howdoesthepartialequitymethoddifferfromtheequitymethod?
A.Inthetotalassetsreportedontheconsolidatedbalancesheet.
B.Inthetreatmentofdividends.
C.Inthetotalliabilitiesreportedontheconsolidatedbalancesheet.
D.Underthepartialequitymethod,subsidiaryincomedoesnotincreasethebalanceinthe
parent'sinvestmentaccount.
E.Underthepartialequitymethod,thebalanceintheinvestmentaccountisnot
decreasedbyamortizationonallocationsmadeintheacquisitionofthesubsidiary.
8.JansenInc.acquiredalloftheoutstandingcommonstockofMerriamCo.onJanuary1,
2012,for$257,000.Annualamortizationof$19,000resultedfromthisacquisition.Jansen
reportednetincomeof$70,000in2012and$50,000in2013andpaid$22,000individends
eachyear.Merriamreportednetincomeof$40,000in2012and$47,000in2013andpaid
$10,000individendseachyear.WhatistheInvestmentinMerriamCo.balanceonJansen's
booksasofDecember31,2013,iftheequitymethodhasbeenapplied?
A.$286,000.
B.$295,000.
C.$276,000.
D.$344,000.
E.$324,000.
9.VelwayCorp.acquiredJokerInc.onJanuary1,2012.Theparentpaidmorethanthefair
valueofthesubsidiary'snetassets.Onthatdate,Velwayhadequipmentwithabookvalueof
$500,000andafairvalueof$640,000.Jokerhadequipmentwithabookvalueof$400,000
andafairvalueof$470,000.Jokerdecidedtousepushdownaccounting.Immediatelyafter
theacquisition,whatEquipmentamountwouldappearonJoker'sseparatebalancesheetand
onVelway'sconsolidatedbalancesheet,respectively?
A.$400,000and$900,000
B.$400,000and$970,000
C.$470,000and$900,000
D.$470,000and$970,000
E.$470,000and$1,040,000
10.ParrettCorp.acquiredonehundredpercentofJonesInc.onJanuary1,2011,atapricein
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Chapter 02 - Consolidation of Financial Information

excessofthesubsidiary'sfairvalue.Onthatdate,Parrett'sequipment(tenyearlife)hada
bookvalueof$360,000butafairvalueof$480,000.Joneshadequipment(tenyearlife)with
abookvalueof$240,000andafairvalueof$350,000.Parrettusedthepartialequitymethod
torecorditsinvestmentinJones.OnDecember31,2013,Parretthadequipmentwithabook
valueof$250,000andafairvalueof$400,000.Joneshadequipmentwithabookvalueof
$170,000andafairvalueof$320,000.WhatistheconsolidatedbalancefortheEquipment
accountasofDecember31,2013?
A.$387,000.
B.$497,000.
C.$508,000.
D.$537,000.
E.$570,000.
11.OnJanuary1,2012,CaleCorp.paid$1,020,000toacquireKaltopCo.Kaltopmaintained
separateincorporation.Caleusedtheequitymethodtoaccountfortheinvestment.The
followinginformationisavailableforKaltop'sassets,liabilities,andstockholders'equity
accountsonJanuary1,2012:
Kaltopearnednetincomefor2012of$126,000andpaiddividendsof$48,000duringthe
year.
The2012totalamortizationofallocationsiscalculatedtobe
A.$4,000.
B.$6,400.
C.$(2,400).
D.$(1,000).
E.$3,800.
12.OnJanuary1,2012,CaleCorp.paid$1,020,000toacquireKaltopCo.Kaltopmaintained
separateincorporation.Caleusedtheequitymethodtoaccountfortheinvestment.The
followinginformationisavailableforKaltop'sassets,liabilities,andstockholders'equity
accountsonJanuary1,2012:
Kaltopearnednetincomefor2012of$126,000andpaiddividendsof$48,000duringthe
year.
InCale'saccountingrecords,whatamountwouldappearonDecember31,2012forequityin
subsidiaryearnings?
A.$77,000.
B.$79,000.
C.$125,000.
D.$127,000.
E.$81,800.
13.OnJanuary1,2012,CaleCorp.paid$1,020,000toacquireKaltopCo.Kaltopmaintained
separateincorporation.Caleusedtheequitymethodtoaccountfortheinvestment.The
followinginformationisavailableforKaltop'sassets,liabilities,andstockholders'equity
accountsonJanuary1,2012:

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Chapter 02 - Consolidation of Financial Information

Kaltopearnednetincomefor2012of$126,000andpaiddividendsof$48,000duringthe
year.
WhatisthebalanceinCale'sinvestmentinsubsidiaryaccountattheendof2012?
A.$1,099,000.
B.$1,020,000.
C.$1,096,200.
D.$1,098,000.
E.$1,144,400.
14.OnJanuary1,2012,CaleCorp.paid$1,020,000toacquireKaltopCo.Kaltopmaintained
separateincorporation.Caleusedtheequitymethodtoaccountfortheinvestment.The
followinginformationisavailableforKaltop'sassets,liabilities,andstockholders'equity
accountsonJanuary1,2012:
Kaltopearnednetincomefor2012of$126,000andpaiddividendsof$48,000duringthe
year.
Attheendof2012,theconsolidationentrytoeliminateCale'saccrualofKaltop'searnings
wouldincludeacredittoInvestmentinKaltopCo.for
A.$124,400.
B.$126,000.
C.$127,000.
D.$76,400.
E.$0.
15.OnJanuary1,2012,CaleCorp.paid$1,020,000toacquireKaltopCo.Kaltopmaintained
separateincorporation.Caleusedtheequitymethodtoaccountfortheinvestment.The
followinginformationisavailableforKaltop'sassets,liabilities,andstockholders'equity
accountsonJanuary1,2012:
Kaltopearnednetincomefor2012of$126,000andpaiddividendsof$48,000duringthe
year.
IfCaleCorp.hadnetincomeof$444,000in2012,exclusiveoftheinvestment,whatisthe
amountofconsolidatednetincome?
A.$569,000.
B.$570,000.
C.$571,000.
D.$566,400.
E.$444,000.
16.OnJanuary1,2012,FranelCo.acquiredallofthecommonstockofHurlemCorp.For
2012,Hurlemearnednetincomeof$360,000andpaiddividendsof$190,000.Amortization
ofthepatentallocationthatwasincludedintheacquisitionwas$6,000.
HowmuchdifferencewouldtherehavebeeninFranel'sincomewithregardtotheeffectof
theinvestment,betweenusingtheequitymethodorusingtheinitialvaluemethodofinternal
recordkeeping?
A.$190,000.

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Chapter 02 - Consolidation of Financial Information

B.$360,000.
C.$164,000.
D.$354,000.
E.$150,000.
17.OnJanuary1,2012,FranelCo.acquiredallofthecommonstockofHurlemCorp.For
2012,Hurlemearnednetincomeof$360,000andpaiddividendsof$190,000.Amortization
ofthepatentallocationthatwasincludedintheacquisitionwas$6,000.
HowmuchdifferencewouldtherehavebeeninFranel'sincomewithregardtotheeffectof
theinvestment,betweenusingtheequitymethodorusingthepartialequitymethodofinternal
recordkeeping?
A.$170,000.
B.$354,000.
C.$164,000.
D.$6,000.
E.$174,000.
18.CashenCo.paid$2,400,000toacquireallofthecommonstockofJanexCorp.on
January1,2012.Janex'sreportedearningsfor2012totaled$432,000,anditpaid$120,000in
dividendsduringtheyear.Theamortizationofallocationsrelatedtotheinvestmentwas
$24,000.Cashen'snetincome,notincludingtheinvestment,was$3,180,000,anditpaid
dividendsof$900,000.
Ontheconsolidatedfinancialstatementsfor2012,whatamountshouldhavebeenshownfor
EquityinSubsidiaryEarnings?
A.$432,000.
B.$0
C.$408,000.
D.$120,000.
E.$288,000
.
19.CashenCo.paid$2,400,000toacquireallofthecommonstockofJanexCorp.on
January1,2012.Janex'sreportedearningsfor2012totaled$432,000,anditpaid$120,000in
dividendsduringtheyear.Theamortizationofallocationsrelatedtotheinvestmentwas
$24,000.Cashen'snetincome,notincludingtheinvestment,was$3,180,000,anditpaid
dividendsof$900,000.
Ontheconsolidatedfinancialstatementsfor2012,whatamountshouldhavebeenshownfor
consolidateddividends?
A.$900,000.
B.$1,020,000.
C.$876,000.
D.$996,000.
E.$948,000.
20.CashenCo.paid$2,400,000toacquireallofthecommonstockofJanexCorp.on

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Chapter 02 - Consolidation of Financial Information

January1,2012.Janex'sreportedearningsfor2012totaled$432,000,anditpaid$120,000in
dividendsduringtheyear.Theamortizationofallocationsrelatedtotheinvestmentwas
$24,000.Cashen'snetincome,notincludingtheinvestment,was$3,180,000,anditpaid
dividendsof$900,000.
Whatistheamountofconsolidatednetincomefortheyear2012?
A.$3,180,000.
B.$3,612,000.
C.$3,300,000.
D.$3,588,000.
E.$3,420,000.
21.JansInc.acquiredalloftheoutsta
ndingcommonstockofTyskCorp.onJanuary1,2011,for$372,000.Equipmentwithaten
yearlifewasundervaluedonTysk'sfinancialrecordsby$46,000.Tyskalsoownedan
unrecordedcustomerlistwithanassessedfairvalueof$67,000andanestimatedremaining
lifeoffiveyears.
Tyskearnedreportednetincomeof$180,000in2011and$216,000in2012.Dividendsof
$70,000werepaidineachofthesetwoyears.SelectedaccountbalancesasofDecember31,
2013,forthetwocompaniesfollow.
Ifthepartialequitymethodhadbeenapplied,whatwas2013consolidatednetincome?
A.$840,000.
B.$768,400.
C.$822,000.
D.$240,000.
E.$600,000.
22.JansInc.acquiredalloftheoutstandingcommonstockofTyskCorp.onJanuary1,2011,
for$372,000.EquipmentwithatenyearlifewasundervaluedonTysk'sfinancialrecordsby
$46,000.Tyskalsoownedanunrecordedcustomerlistwithanassessedfairvalueof$67,000
andanestimatedremaininglifeoffiveyears.
Tyskearnedreportednetincomeof$180,000in2011and$216,000in2012.Dividendsof
$70,000werepaidineachofthesetwoyears.SelectedaccountbalancesasofDecember31,
2013,forthetwocompaniesfollow.
Iftheequitymethodhadbeenapplied,whatwouldbetheInvestmentinTyskCorp.account
balancewithintherecordsofJansattheendof2013?
A.$612,100.
B.$744,000.
C.$774,150.
D.$372,000.
E.$844,150.
23.RedCo.acquired100%ofGreen,Inc.onJanuary1,2012.Onthatdate,Greenhad
inventorywithabookvalueof$42,000andafairvalueof$52,000.Thisinventoryhadnot
yetbeensoldatDecember31,2012.Also,onthedateofacquisition,Greenhadabuilding

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Chapter 02 - Consolidation of Financial Information

withabookvalueof$200,000andafairvalueof$390,000.Greenhadequipmentwitha
bookvalueof$350,000andafairvalueof$280,000.Thebuildinghada10yearremaining
usefullifeandtheequipmenthada5yearremainingusefullife.Howmuchtotalexpensewill
beintheconsolidatedfinancialstatementsfortheyearendedDecember31,2012relatedto
theacquisitionallocationsofGreen?
A.$43,000.
B.$33,000.
C.$5,000.
D.$15,000.
E.0.
24.Allofthefollowingareacceptablemethodstoaccountforamajorityownedinvestment
insubsidiaryexcept
A.Theequitymethod.
B.Theinitialvaluemethod.
C.Thepartialequitymethod.
D.Thefairvaluemethod.
E.Bookvaluemethod.
25.Undertheequitymethodofaccountingforaninvestment,
A.Theinvestmentaccountremainsatinitialvalue.
B.Dividendsreceivedarerecordedasrevenue.
C.Goodwillisamortizedover20years.
D.Incomereportedbythesubsidiaryincreasestheinvestmentaccount.
E.Dividendsreceivedincreasetheinvestmentaccount.
26.Underthepartialequitymethodofaccountingforaninvestment,
A.Theinvestmentaccountremainsatinitialvalue.
B.Dividendsreceivedarerecordedasrevenue.
C.Theallocationsforexcessfairvalueallocationsoverbookvalueofnetassetsatdateof
acquisitionareappliedovertheirusefullivestoreducetheinvestmentaccount.
D.Amortizationoftheexcessoffairvalueallocationsoverbookvalueisignoredin
regardtotheinvestmentaccount.
E.Dividendsreceivedincreasetheinvestmentaccount.
27.Undertheinitialvaluemethod,whenaccountingforaninvestmentinasubsidiary,
A.Dividendsreceivedbythesubsidiarydecreasetheinvestmentaccount.
B.Theinvestmentaccountisadjustedtofairvalueatyearend.
C.Incomereportedbythesubsidiaryincreasestheinvestmentaccount.
D.Theinvestmentaccountremainsatinitialvalue.
E.Dividendsreceivedareignored.
28.AccordingtoGAAPregardingamortizationofgoodwillandotherintangibleassets,
whichofthefollowingstatementsistrue?
A.Goodwillrecognizedinconsolidationmustbeamortizedover20years.
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Chapter 02 - Consolidation of Financial Information

B.Goodwillrecognizedinconsolidationmustbeexpensedintheperiodofacquisition.
C.Goodwillrecognizedinconsolidationwillnotbeamortizedbutsubjecttoanannual
testforimpairment.
D.Goodwillrecognizedinconsolidationcanneverbewrittenoff.
E.Goodwillrecognizedinconsolidationmustbeamortizedover40years.
29.Whenacompanyappliestheinitialmethodinaccountingforitsinvestmentina
subsidiaryandthesubsidiaryreportsincomeinexcessofdividendspaid,whatentrywouldbe
madeforaconsolidationworksheet?
A.Aabove
B.Babove
C.Cabove
D.Dabove
E.Eabove
30.Whenacompanyappliestheinitialvaluemethodinaccountingforitsinvestmentina
subsidiaryandthesubsidiaryreportsincomelessthandividendspaid,whatentrywouldbe
madeforaconsolidationworksheet?
A.Aabove
B.Babove
C.Cabove
D.Dabove
E.Eabove
31.Whenacompanyappliesthepartialequitymethodinaccountingforitsinvestmentina
subsidiaryandthesubsidiary'sequipmenthasafairvaluegreaterthanitsbookvalue,what
consolidationworksheetentryismadeinayearsubsequenttotheinitialacquisitionofthe
subsidiary?
A.Aabove
B.Babove
C.Cabove
D.Dabove
E.Eabove
32.Whenacompanyappliesthepartialequitymethodinaccountingforitsinvestmentina
subsidiaryandinitialvalue,bookvalues,andfairvaluesofnetassetsacquiredareallequal,
whatconsolidationworksheetentrywouldbemade?
A.Aabove
B.Babove
C.Cabove
D.Dabove
E.Eabove
33.Whenconsolidatingasubsidiaryundertheequitymethod,whichofthefollowing
statementsistrue?
A.Goodwillisneverrecognized.
B.Goodwillrequiredisamortizedover20years.
C.Goodwillmayberecordedontheparentcompany'sbooks.
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Chapter 02 - Consolidation of Financial Information

D.Thevalueofanygoodwillshouldbetestedannuallyforimpairmentinvalue.
E.Goodwillshouldbeexpensedintheyearofacquisition.
34.Whenconsolidatingasubsidiaryundertheequitymethod,whichofthefollowing
statementsistruewithregardtothesubsidiarysubsequenttotheyearofacquisition?
A.Allnetassetsarerevaluedtofairvalueandmustbeamortizedovertheirusefullives.
B.Onlynetassetsthathadexcessfairvalueoverbookvaluewhenacquiredbytheparent
mustbeamortizedovertheirusefullives.
C.Alldepreciablenetassetsarerevaluedtofairvalueatdateofacquisitionandmust
beamortizedovertheirusefullives.
D.Onlydepreciablenetassetsthathaveexcessfairvalueoverbookvaluemustbeamortized
overtheirusefullives.
E.Onlyassetsthathaveexcessfairvalueoverbookvaluemustbeamortizedovertheir
usefullives.
35.Whichofthefollowingstatementsisfalseregardingpushdownaccounting?
A.Pushdownaccountingsimplifiestheconsolidationprocess.
B.Fewerworksheetentriesarenecessarywhenpushdownaccountingisapplied.
C.Pushdownaccountingprovidesbetterinformationforinternalevaluation.
D.Pushdownaccountingmustbeappliedforallbusinesscombinationsundera
poolingofinterests.
E.Pushdownproponentsarguethatachangeinownershipcreatesanewbasisfor
subsidiaryassetsandliabilities.
36.Whichofthefollowingisfalseregardingcontingentconsiderationinbusiness
combinations?
A.Contingentconsiderationpayableincashisreportedunderliabilities.
B.Contingentconsiderationpayableinstocksharesisreportedunderstockholders'equity.
C.Contingentconsiderationisrecordedbecauseofitssubstantialprobabilityof
eventualpayment.
D.Thecontingentconsiderationfairvalueisrecognizedaspartoftheacquisitionregardless
ofwhethereventualpaymentisbasedonfutureperformanceofthetargetfirmorfuturestock
priceoftheacquirer.
E.Contingentconsiderationisreflectedintheacquirer'sbalancesheetatthepresentvalueof
thepotentialexpectedfuturepayment.
37.Factorsthatshouldbeconsideredindeterminingtheusefullifeofanintangibleasset
include
A.Legal,regulatory,orcontractualprovisions.
B.Theresidualvalueoftheasset.
C.Theentity'sexpecteduseoftheintangibleasset.
D.Theeffectsofobsolescence,competition,andtechnologicalchange.
E.Allofthesechoicesareusedindeterminingtheusefullifeofanintangibleasset.

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38.Consolidatednetincomeusingtheequitymethodforanacquisitioncombinationis
computedasfollows:
A.Parentcompany'sincomefromitsownoperationsplustheequityfromsubsidiary's
incomerecordedbytheparent.
B.Parent'sreportednetincome.
C.Combinedrevenueslesscombinedexpenseslessequityinsubsidiary'sincomeless
amortizationoffairvalueallocationsinexcessofbookvalue.
D.Parent'srevenueslessexpensesforitsownoperationsplustheequityfrom
subsidiary'sincomerecordedbyparent.
E.Allofthese.
39.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheconsiderationtransferredinexcessofbookvalueacquiredatJanuary1,2012.
A.$150.
B.$700.
C.$2,200.
D.$550.
E.$2,900.
40.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
Computegoodwill,ifany,atJanuary1,2012.
A.$150.
B.$250.
C.$700.
D.$1,200.
E.$550.
41.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'sinventorythatwouldbereportedinaJanuary1,2012,
consolidatedbalancesheet.
A.$800.
B.$100.
C.$900.
D.$150.
E.$0.

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Chapter 02 - Consolidation of Financial Information

42.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'sbuildingsthatwouldbereportedinaDecember31,2012,
consolidatedbalancesheet.
A.$1,560.
B.$1,260.
C.$1,440.
D.$1,160.
E.$1,140.
43.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'sequipmentthatwouldbereportedinaDecember31,2012,
consolidatedbalancesheet.
A.$1,000.
B.$1,250.
C.$875.
D.$1,125.
E.$750.
44.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
Computetheamountoftotalexpensesreportedinanincomestatementfortheyearended
December31,2012,inordertorecognizeacquisitiondateallocationsoffairvalueandbook
valuedifferences,
A.$140.
B.$190.
C.$260.
D.$285.
E.$310.
45.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'slongtermliabilitiesthatwouldbereportedinaDecember
31,2012,consolidatedbalancesheet.
A.$1,800.
B.$1,700.
C.$1,725.
D.$1,675.

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Chapter 02 - Consolidation of Financial Information

E.$3,500.
46.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'sbuildingsthatwouldbereportedinaDecember31,2013,
consolidatedbalancesheet.
A.$1,620.
B.$1,380.
C.$1,320.
D.$1,080.
E.$1,500.
47.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'sequipmentthatwouldbereportedinaDecember31,2013,
consolidatedbalancesheet.
A.$0.
B.$1,000.
C.$1,250.
D.$1,125.
E.$1,200.
48.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'slandthatwouldbereportedinaDecember31,2013,
consolidatedbalancesheet.
A.$900.
B.$1,300.
C.$400.
D.$1,450.
E.$2,200.
49.PerryCompanyacquires100%ofthestockofHurleyCorporationonJanuary1,2012,
for$3,800cash.AsofthatdateHurleyhasthefollowingtrialbalance;
Anyexcessofconsiderationtransferredoverfairvalueofnetassetsacquiredisconsidered
goodwillwithanindefinitelife.FIFOinventoryvaluationmethodisused.
ComputetheamountofHurley'slongtermliabilitiesthatwouldbereportedinaDecember
31,2013,consolidatedbalancesheet.
A.$1,700.
B.$1,800.

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Chapter 02 - Consolidation of Financial Information

C.$1,650.
D.$1,750.
E.$3,500.
50.KayeCompanyacquired100%ofFioreCompanyonJanuary1,2013.Kayepaid$1,000
excessconsiderationoverbookvaluewhichisbeingamortizedat$20peryear.Fiorereported
netincomeof$400in2013andpaiddividendsof$100.
Assumetheequitymethodisapplied.HowmuchwillKaye'sincomeincreaseordecreaseasa
resultofFiore'soperations?
A.$400increase.
B.$300increase.
C.$380increase.
D.$280increase.
E.$480increase.
51.KayeCompanyacquired100%ofFioreCompanyonJanuary1,2013.Kayepaid$1,000
excessconsiderationoverbookvaluewhichisbeingamortizedat$20peryear.Fiorereported
netincomeof$400in2013andpaiddividendsof$100.
Assumethepartialequitymethodisapplied.HowmuchwillKaye'sincomeincreaseor
decreaseasaresultofFiore'soperations?
A.$400increase.
B.$300increase.
C.$380increase.
D.$280increase.
E.$480increase.
52.KayeCompanyacquired100%ofFioreCompanyonJanuary1,2013.Kayepaid$1,000
excessconsiderationoverbookvaluewhichisbeingamortizedat$20peryear.Fiorereported
netincomeof$400in2013andpaiddividendsof$100.
Assumetheinitialvaluemethodisapplied.HowmuchwillKaye'sincomeincreaseor
decreaseasaresultofFiore'soperations?
A.$400increase.
B.$300increase.
C.$380increase.
D.$100increase.
E.$210increase.
53.KayeCompanyacquired100%ofFioreCompanyonJanuary1,2013.Kayepaid$1,000
excessconsiderationoverbookvaluewhichisbeingamortizedat$20peryear.Fiorereported
netincomeof$400in2013andpaiddividendsof$100.
Assumethepartialequitymethodisused.Intheyearsfollowingacquisition,whatadditional
worksheetentrymustbemadeforconsolidationpurposesthatisnotrequiredfortheequity
method?
A.EntryA.
B.EntryB.
C.EntryC.
D.EntryD.
E.EntryE.

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Chapter 02 - Consolidation of Financial Information

54.KayeCompanyacquired100%ofFioreCompanyonJanuary1,2013.Kayepaid$1,000
excessconsiderationoverbookvaluewhichisbeingamortizedat$20peryear.Fiorereported
netincomeof$400in2013andpaiddividendsof$100.
Assumetheinitialvaluemethodisused.Intheyearsubsequenttoacquisition,whatadditional
worksheetentrymustbemadeforconsolidationpurposesthatisnotrequiredfortheequity
method?
A.EntryA.
B.EntryB.
C.EntryC.
D.EntryD.
E.EntryE.
55.HoytCorporationagreedtothefollowingtermsinordertoacquirethenetassetsof
BrownCompanyonJanuary1,2013:
(1.)Toissue400sharesofcommonstock($10par)withafairvalueof$45pershare.
(2.)ToassumeBrown'sliabilitieswhichhaveafairvalueof$1,500.
Onthedateofacquisition,theconsiderationtransferredforHoyt'sacquisitionofBrown
wouldbe
A.$18,000.
B.$16,500.
C.$20,000.
D.$18,500.
E.$19,500.
56.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputethebookvalueofVegaatJanuary1,2011.
A.$997,500.
B.$857,500.
C.$1,200,000.
D.$1,600,000.
E.$827,500.
57.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas

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Chapter 02 - Consolidation of Financial Information

undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedrevenues.
A.$1,400,000.
B.$800,000.
C.$500,000.
D.$1,590,375.
E.$1,390,375.
58.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedtotalexpenses.
A.$620,000.
B.$280,000.
C.$900,000.
D.$909,625.
E.$299,625.
59.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedbuildings.
A.$1,037,500.
B.$1,007,500.
C.$1,000,000.
D.$1,022,500.
E.$1,012,500.
60.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year

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Chapter 02 - Consolidation of Financial Information

life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedequipment.
A.$800,000.
B.$808,000.
C.$840,000.
D.$760,000.
E.$848,000.
61.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedland.
A.$220,000.
B.$180,000.
C.$670,000.
D.$630,000.
E.$450,000.
62.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedtrademark.
A.$50,000.
B.$46,875.
C.$0.
D.$34,375.
E.$37,500.
63.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There

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Chapter 02 - Consolidation of Financial Information

wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedcommonstock.
A.$450,000.
B.$530,000.
C.$555,000.
D.$635,000.
E.$525,000.
64.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015,consolidatedadditionalpaidincapital.
A.$210,000.
B.$75,000.
C.$1,102,500.
D.$942,500.
E.$525,000.
65.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There
wasnogoodwillassociatedwiththisinvestment.
ComputetheDecember31,2015consolidatedretainedearnings.
A.$1,645,375.
B.$1,350,000.
C.$1,565,375.
D.$1,840,375.
E.$1,265,375.
66.FollowingareselectedaccountsforGreenCorporationandVegaCompanyasof
December31,2015.SeveralofGreen'saccountshavebeenomitted.
Greenacquired100%ofVegaonJanuary1,2011,byissuing10,500sharesofits$10par
valuecommonstockwithafairvalueof$95pershare.OnJanuary1,2011,Vega'slandwas
undervaluedby$40,000,itsbuildingswereovervaluedby$30,000,andequipmentwas
undervaluedby$80,000.Thebuildingshavea20yearlifeandtheequipmenthasa10year
life.$50,000wasattributedtoanunrecordedtrademarkwitha16yearremaininglife.There

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Chapter 02 - Consolidation of Financial Information

wasnogoodwillassociatedwiththisinvestment.
ComputetheequityinVega'sincometobeincludedinGreen'sconsolidatedincome
statementfor2015.
A.$500,000.
B.$300,000.
C.$190,375.
D.$200,000.
E.$290,375.
67.Onecompanyacquiresanothercompanyinacombinationaccountedforasan
acquisition.Theacquiringcompanydecidestoapplytheinitialvaluemethodinaccounting
forthecombination.Whatisonereasontheacquiringcompanymighthavemadethis
decision?
A.ItistheonlymethodallowedbytheSEC.
B.Itisrelativelyeasytoapply.
C.Itistheonlyinternalreportingmethodallowedbygenerallyacceptedaccounting
principles.
D.Operatingresultsontheparent'sfinancialrecordsreflectconsolidatedtotals.
E.Whentheinitialmethodisused,noworksheetentriesarerequiredintheconsolidation
process.
68.Onecompanyacquiresanothercompanyinacombinationaccountedforasan
acquisition.Theacquiringcompanydecidestoapplytheequitymethodinaccountingforthe
combination.Whatisonereasontheacquiringcompanymighthavemadethisdecision?
A.ItistheonlymethodallowedbytheSEC.
B.Itisrelativelyeasytoapply.
C.Itistheonlyinternalreportingmethodallowedbygenerallyacceptedaccounting
principles.
D.Operatingresultsontheparent'sfinancialrecordsreflectconsolidatedtotals.
E.Whentheequitymethodisused,noworksheetentriesarerequiredintheconsolidation
process.
69.Whenisagoodwillimpairmentlossrecognized?
A.Annuallyonasystematicandrationalbasis.
B.Never.
C.Ifboththefairvalueofareportingunitanditsassociatedimpliedgoodwillfall
belowtheirrespectivecarryingvalues.
D.Ifthefairvalueofareportingunitfallsbelowitsoriginalacquisitionprice.
E.Wheneverthefairvalueoftheentitydeclinessignificantly.
70.Whichofthefollowingwillresultintherecognitionofanimpairmentlossongoodwill?
A.Goodwillamortizationistoberecognizedannuallyonasystematicandrationalbasis.
B.Boththefairvalueofareportingunitanditsassociatedimpliedgoodwillfallbelow
theirrespectivecarryingvalues.
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Chapter 02 - Consolidation of Financial Information

C.Thefairvalueoftheentitydeclinessignificantly.
D.Thefairvalueofareportingunitfallsbelowtheoriginalconsiderationtransferredforthe
acquisition.
E.TheentityisinvestigatedbytheSECanditsreputationhasbeenseverelydamaged.
71.Goehler,Inc.acquiresallofthevotingstockofKenneth,Inc.onJanuary4,2012,atan
amountinexcessofKenneth'sfairvalue.Onthatdate,Kennethhasequipmentwithabook
valueof$90,000andafairvalueof$120,000(10yearremaininglife).Goehlerhas
equipmentwithabookvalueof$800,000andafairvalueof$1,200,000(10yearremaining
life).OnDecember31,2013,Goehlerhasequipmentwithabookvalueof$975,000butafair
valueof$1,350,000andKennethhasequipmentwithabookvalueof$105,000butafair
valueof$125,000.
IfGoehlerappliestheequitymethodinaccountingforKenneth,whatistheconsolidated
balancefortheEquipmentaccountasofDecember31,2013?
A.$1,080,000.
B.$1,104,000.
C.$1,100,000.
D.$1,468,000.
E.$1,475,000.
72.Goehler,Inc.acquiresallofthevotingstockofKenneth,Inc.onJanuary4,2012,atan
amountinexcessofKenneth'sfairvalue.Onthatdate,Kennethhasequipmentwithabook
valueof$90,000andafairvalueof$120,000(10yearremaininglife).Goehlerhas
equipmentwithabookvalueof$800,000andafairvalueof$1,200,000(10yearremaining
life).OnDecember31,2013,Goehlerhasequipmentwithabookvalueof$975,000butafair
valueof$1,350,000andKennethhasequipmentwithabookvalueof$105,000butafair
valueof$125,000.
IfGoehlerappliesthepartialequitymethodinaccountingforKenneth,whatisthe
consolidatedbalancefortheEquipmentaccountasofDecember31,2013?
A.$1,080,000.
B.$1,104,000.
C.$1,100,000.
D.$1,468,000.
E.$1,475,000.
73.Goehler,Inc.acquiresallofthevotingstockofKenneth,Inc.onJanuary4,2012,atan
amountinexcessofKenneth'sfairvalue.Onthatdate,Kennethhasequipmentwithabook
valueof$90,000andafairvalueof$120,000(10yearremaininglife).Goehlerhas
equipmentwithabookvalueof$800,000andafairvalueof$1,200,000(10yearremaining
life).OnDecember31,2013,Goehlerhasequipmentwithabookvalueof$975,000butafair
valueof$1,350,000andKennethhasequipmentwithabookvalueof$105,000butafair
valueof$125,000.
IfGoehlerappliestheinitialvaluemethodinaccountingforKenneth,whatistheconsolidated
balancefortheEquipmentaccountasofDecember31,2013?

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Chapter 02 - Consolidation of Financial Information

A.$1,080,000.
B.$1,104,000.
C.$1,100,000.
D.$1,468,000.
E.$1,475,000.
74.Howisthefairvalueallocationofanintangibleassetallocatedtoexpensewhentheasset
hasnolegal,regulatory,contractual,competitive,economic,orotherfactorsthatlimititslife?
A.Equallyover20years.
B.Equallyover40years.
C.Equallyover20yearswithanannualimpairmentreview.
D.Noamortization,butannuallyreviewedforimpairmentandadjustedaccordingly.
E.Noamortizationoveranindefiniteperiodtime.
75.Harrison,Inc.acquires100%ofthevotingstockofRhineCompanyonJanuary1,2012
for$400,000cash.Acontingentpaymentof$16,500willbepaidonApril15,2013ifRhine
generatescashflowsfromoperationsof$27,000ormoreinthenextyear.Harrisonestimates
thatthereisa20%probabilitythatRhinewillgenerateatleast$27,000nextyear,andusesan
interestrateof5%toincorporatethetimevalueofmoney.Thefairvalueof$16,500at5%,
usingaprobabilityweightedapproach,is$3,142.
WhatwillHarrisonrecordasitsInvestmentinRhineonJanuary1,2012?
A.$400,000.
B.$403,142.
C.$406,000.
D.$409,142.
E.$416,500.
76.Harrison,Inc.acquires100%ofthevotingstockofRhineCompanyonJanuary1,2012
for$400,000cash.Acontingentpaymentof$16,500willbepaidonApril15,2013ifRhine
generatescashflowsfromoperationsof$27,000ormoreinthenextyear.Harrisonestimates
thatthereisa20%probabilitythatRhinewillgenerateatleast$27,000nextyear,andusesan
interestrateof5%toincorporatethetimevalueofmoney.Thefairvalueof$16,500at5%,
usingaprobabilityweightedapproach,is$3,142.
AssumingRhinegeneratescashflowfromoperationsof$27,200in2012,howwillHarrison
recordthe$16,500paymentofcashonApril15,2013insatisfactionofitscontingent
obligation?
A.DebitContingentperformanceobligation$16,500,andCreditCash$16,500.
B.DebitContingentperformanceobligation$3,142,debitLossfromrevaluationof
contingentperformanceobligation$13,358,andCreditCash$16,500.
C.DebitInvestmentinSubsidiaryandCreditCash$16,500.
D.DebitGoodwillandCreditCash$16,500.
E.Noentry.
77.Harrison,Inc.acquires100%ofthevotingstockofRhineCompanyonJanuary1,2012
for$400,000cash.Acontingentpaymentof$16,500willbepaidonApril15,2013ifRhine
generatescashflowsfromoperationsof$27,000ormoreinthenextyear.Harrisonestimates

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Chapter 02 - Consolidation of Financial Information

thatthereisa20%probabilitythatRhinewillgenerateatleast$27,000nextyear,andusesan
interestrateof5%toincorporatethetimevalueofmoney.Thefairvalueof$16,500at5%,
usingaprobabilityweightedapproach,is$3,142.
WhenrecordingconsiderationtransferredfortheacquisitionofRhineonJanuary1,2012,
Harrisonwillrecordacontingentperformanceobligationintheamountof:
A.$628.40
B.$2,671.60
C.$3,142.00
D.$13,358.00
E.$16,500.00
78.Beatty,Inc.acquires100%ofthevotingstockofGatauxCompanyonJanuary1,2012
for$500,000cash.Acontingentpaymentof$12,000willbepaidonApril1,2013ifGataux
generatescashflowsfromoperationsof$26,500ormoreinthenextyear.Beattyestimates
thatthereisa30%probabilitythatGatauxwillgenerateatleast$26,500nextyear,anduses
aninterestrateof4%toincorporatethetimevalueofmoney.Thefairvalueof$12,000at
4%,usingaprobabilityweightedapproach,is$3,461.
WhatwillBeattyrecordasitsInvestmentinGatauxonJanuary1,2012?
A.$500,000.
B.$503,461.
C.$512,000.
D.$515,461.
E.$526,500.
79.Beatty,Inc.acquires100%ofthevotingstockofGatauxCompanyonJanuary1,2012
for$500,000cash.Acontingentpaymentof$12,000willbepaidonApril1,2013ifGataux
generatescashflowsfromoperationsof$26,500ormoreinthenextyear.Beattyestimates
thatthereisa30%probabilitythatGatauxwillgenerateatleast$26,500nextyear,anduses
aninterestrateof4%toincorporatethetimevalueofmoney.Thefairvalueof$12,000at
4%,usingaprobabilityweightedapproach,is$3,461.
AssumingGatauxgeneratescashflowfromoperationsof$27,200in2012,howwillBeatty
recordthe$12,000paymentofcashonApril1,2013insatisfactionofitscontingent
obligation?
A.DebitContingentperformanceobligation$3,461,debitGoodwill$8,539,andCreditCash
$12,000.
B.DebitContingentperformanceobligation$3,461,debitLossfromrevaluationof
contingentperformanceobligation$8,539,andCreditCash$12,000.
C.DebitGoodwillandCreditCash$12,000.
D.DebitGoodwill$27,200,creditContingentperformanceobligation$15,200,andCredit
Cash$12,000.
E.Noentry.
80.Beatty,Inc.acquires100%ofthevotingstockofGatauxCompanyonJanuary1,2012
for$500,000cash.Acontingentpaymentof$12,000willbepaidonApril1,2013ifGataux
generatescashflowsfromoperationsof$26,500ormoreinthenextyear.Beattyestimates
thatthereisa30%probabilitythatGatauxwillgenerateatleast$26,500nextyear,anduses

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aninterestrateof4%toincorporatethetimevalueofmoney.Thefairvalueof$12,000at
4%,usingaprobabilityweightedapproach,is$3,461.
WhenrecordingconsiderationtransferredfortheacquisitionofGatauxonJanuary1,2012,
Beattywillrecordacontingentperformanceobligationintheamountof:
A.$692.20
B.$3,040.00
C.$3,461.00
D.$12,000.00
E.$15,200.00
81.PrinceCompanyacquiresDuchess,Inc.onJanuary1,2011.Theconsideration
transferredexceedsthefairvalueofDuchess'netassets.Onthatdate,Princehasabuilding
withabookvalueof$1,200,000andafairvalueof$1,500,000.Duchesshasabuildingwitha
bookvalueof$400,000andfairvalueof$500,000.
Ifpushdownaccountingisused,whatamountsintheBuildingaccountappearinDuchess'
separatebalancesheetandintheconsolidatedbalancesheetimmediatelyafteracquisition?
A.$400,000and$1,600,000.
B.$500,000and$1,700,000.
C.$400,000and$1,700,000.
D.$500,000and$2,000,000.
E.$500,000and$1,600,000.
82.PrinceCompanyacquiresDuchess,Inc.onJanuary1,2011.Theconsideration
transferredexceedsthefairvalueofDuchess'netassets.Onthatdate,Princehasabuilding
withabookvalueof$1,200,000andafairvalueof$1,500,000.Duchesshasabuildingwitha
bookvalueof$400,000andfairvalueof$500,000.
Ifpushdownaccountingisnotused,whatamountsintheBuildingaccountappearon
Duchess'separatebalancesheetandontheconsolidatedbalancesheetimmediatelyafter
acquisition?
A.$400,000and$1,600,000.
B.$500,000and$1,700,000.
C.$400,000and$1,700,000.
D.$500,000and$2,000,000.
E.$500,000and$1,600,000.
83.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$450,000incashforGlen,whatamountwouldberepresentedasthe
subsidiary'sBuildinginaconsolidationatDecember31,2014,assumingthebookvalueof
thebuildingatthatdateisstill$200,000?
A.$200,000.
B.$285,000.
C.$290,000.

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D.$295,000.
E.$300,000.
84.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$400,000incashforGlen,whatamountwouldberepresentedasthe
subsidiary'sBuildinginaconsolidationatDecember31,2014,assumingthebookvalueof
thebuildingatthatdateisstill$200,000?
A.$200,000.
B.$285,000.
C.$260,000.
D.$268,000.
E.$300,000.
85.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$450,000incashforGlen,whatamountwouldberepresentedasthe
subsidiary'sEquipmentinaconsolidationatDecember31,2014,assumingthebookvalueof
theequipmentatthatdateisstill$80,000?
A.$70,000.
B.$73,500.
C.$75,000.
D.$76,500.
E.$80,000.
86.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$450,000incashforGlen,whatacquisitiondatefairvalueallocation,netof
amortization,shouldbeattributedtothesubsidiary'sEquipmentinconsolidationatDecember
31,2014?
A.$(5,000.)
B.$80,000.
C.$75,000.
D.$73,500.
E.$(3,500.)
87.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$300,000incashforGlen,atwhatamountwouldthesubsidiary'sBuildingbe
representedinaJanuary2,2012consolidation?
A.$200,000.
B.$225,000.
C.$273,000.
D.$279,000.
E.$300,000.

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88.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$450,000incashforGlen,atwhatamountwouldGlen'sInventoryacquired
berepresentedinaDecember31,2012consolidatedbalancesheet?
A.$40,000.
B.$50,000.
C.$0.
D.$10,000.
E.$90,000.
89.Watkins,Inc.acquiresalloftheoutstandingstockofGlenCorporationonJanuary1,
2012.Atthatdate,Glenownsonlythreeassetsandhasnoliabilities:
IfWatkinspays$450,000incashforGlen,andGlenearns$50,000innetincomeandpays
$20,000individendsduring2012,whatamountwouldbereflectedinconsolidatednet
incomefor2012asaresultoftheacquisition?
A.$20,000undertheinitialvaluemethod.
B.$30,000underthepartialequitymethod.
C.$50,000underthepartialequitymethod.
D.$44,500undertheequitymethod.
E.$45,500regardlessoftheinternalaccountingmethodused.
90.AccordingtotheFASBASCregardingthetestingproceduresforGoodwillImpairment,
theproperprocedureforconductingimpairmenttestingis:
A.Goodwillrecognizedinconsolidationmaybeamortizeduniformlyandonlytestedifthe
amortizationmethodoriginallychosenischanged.
B.Goodwillrecognizedinconsolidationmustonlybeimpairmenttestedpriortodisposalof
theconsolidatedunittoeliminatetheimpairmentofgoodwillfromthegainorlossonthesale
ofthatspecificentity.
C.Goodwillrecognizedinconsolidationmaybeimpairmenttestedinatwostepapproach,
firstbyquantitativeassessmentofthepossibleimpairmentofthefairvalueoftheunitrelative
tothebookvalue,andthenaqualitativeassessmentastowhytheimpairment,ifany,
occurredfordisclosure.
D.Goodwillrecognizedinconsolidationmaybeimpairmenttestedinatwostepapproach,
firstbyqualitativeassessmentofthepossibilityofimpairmentoftheunitfairvaluerelativeto
thebookvalue,andthenquantitativeassessmentsastohowmuchimpairment,ifany,
occurredfordisclosure.
E.Goodwillrecognizedinconsolidationmaybeimpairmenttestedinatwostepapproach,
firstbyqualitativeassessmentofthepossibilityofimpairmentoftheunitfairvaluerelativeto
thebookvalue,andthenquantitativeassessmentsastohowmuchimpairment,ifany,
occurredforassetwritedown.
91.Whenisagoodwillimpairmentlossrecognized?
A.Onlyafterbothaquantitativeandqualitativeassessmentofthefairvalueofgoodwillofa

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reportingunit.
B.Afteronlydefinitivequantitativeassessmentsofthefairvalueofgoodwilliscompleted.
C.Afteronlydefinitivequalitativeassessmentsofthefairvalueofgoodwilliscompleted.
D.Ifthefairvalueofareportingunitfallstozeroorbelowitsoriginalacquisitionprice.
E.Never.

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