On January 2 of the current year, Peace Co.

paid $310,000 to purchase 75% of the

voting shares of Surge Co. Peace reported retained earnings of $80,000, and Surge
reported contributed capital of $300,000 and retained earnings of $100,000. The
purchase differential was attributed to depreciable assets with a remaining useful life of
10 years. Peace used the equity method in accounting for its investment in Surge.
Surge reported net income of $20,000 and paid dividends of $8,000 during the current
year. Peace reported income, exclusive of its income from Surge, of $30,000 and paid
dividends of $15,000 during the current year. What amount will Peace report as
dividends declared and paid in its current year's consolidated statement of retained
earnings?
a. $8,000
b. $21,000
c. $15,000
d. $23,000
c
Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in
an acquisition-business combination. The market value of Sayon's common stock is
$12. Legal and consulting fees incurred in relationship to the purchase are $110,000.
Registration and issuance costs for the common stock are $35,000. What should be
recorded in Sayon's additional paid-in capital account for this business combination?
a. $1,545,000
b. $1,365,000
c. $1,400,000
d. $1,255,000
b
Penn Corp. paid $300,000 for 75% of the outstanding common stock of Star Co. At that
time, Star had the following condensed balance sheet:
Carrying
Amounts
Current assets $ 40,000
Plant and equipment, net 380,000
Liabilities 200,000
Stockholders' equity 220,000
The fair value of the plant and equipment was $60,000 more than its recorded carrying
amount. The fair values and carrying amounts were equal for all other assets and
liabilities. What is the noncontrolling interest that Penn should report on its acquisition
date consolidated balance sheet under the IFRS partial goodwill method?
a. $60,000
b. $100,000
c. $55,000
d. $70,000
d
On January 1, Year 1, Pacific Corporation acquired 75% of Sand Corporation's 200,000
outstanding common shares for $2,850,000. On January 1, the book value of Sand's net
assets was $3,000,000. Book value equaled fair value for all of Sand's assets and
liabilities except land, which had a fair value of $200,000 greater than book value, and
equipment, which had a fair value of $150,000 greater than book value. On January 1,
Year 1, Sand had a noncompete agreement with a fair value of $300,000. What is the
noncontrolling interest to be reported on Pacific Corporation's December 31, Year 1
balance sheet under U.S. GAAP?
a. $750,000
b. $800,000
c. $950,000
d. $912,500
c
A 70%-owned subsidiary company declares and pays a cash dividend. What effect
does the dividend have on the retained earnings and noncontrolling interest balances in
the parent company's consolidated balance sheet?
a. No effect on either retained earnings or noncontrolling interest.
b. Decreases in both retained earnings and noncontrolling interest.
c. A decrease in retained earnings and no effect on noncontrolling interest.
d. No effect on retained earnings and a decrease in noncontrolling interest.
d
On December 31, Year 1, Starlight Enterprises acquired a 90% ownership interest in
Lunar Importers by purchasing 90,000 of Lunar's 100,000 voting common shares
outstanding for $900,000 cash. Additional information regarding Lunar as of December
31, Year 1, follows:
Book Value Fair Value
Net assets $ 600,000 $ 800,000
Under the IFRS partial goodwill method, the consolidated balance sheet of Starlight
Enterprises and subsidiary would report goodwill in the amount of:
a. $200,000
b. $280,000
c. $360,000
d. $180,000
d
How should the acquirer recognize a bargain purchase in a business acquisition?
a. As a gain in earnings at the acquisition date.
b. As a deferred gain that is amortized into earnings over the estimated future periods
benefited.
c. As goodwill in the statement of financial position.
d. As negative goodwill in the statement of financial position.
a
Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net
assets of Dixon Co. The $100,000 should be:
a. Expensed as incurred in the current period.
b. Capitalized as another asset and amortized over five years.
c. Capitalized as part of goodwill and tested annually for impairment.
d. Allocated on a pro rata basis to the nonmonetary assets acquired.
a