Answered: Question 11 Subsequent to an…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 11

Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for

Answers:	A. investments in consolidated subsidiaries.
	B. ending retained earnings.
	C. investments in unconsolidated subsidiaries.
	D. capital stock.

Question 12

Under the provisions of ASC 805-30, in a business combination, when the investment cost exceeds the total fair value of identifiable net assets acquired, which of the following statements is correct?

Answers:	A. The difference is allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit.
	B. The difference is allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain.
	C. The difference is allocated first to reduce proportionately (according to market value) non-current assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit.
	D. The excess is first assigned to identifiable net assets according to their fair values; then the rest is assigned to goodwill.

Question 13

A newly acquired subsidiary had pre-existing goodwill on its books. The parent company's consolidated balance sheet will

Answers:	A. always show the pre-existing goodwill of the subsidiary at its book value.
	B. not show any value for the subsidiary's pre-existing goodwill.
	C. treat the goodwill similarly to other intangible assets of the acquired company.
	D. not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value.

Question 14

Pyming Corporation accounts for its 40% investment in Sillabog Company using the equity method. On the date of the original investment, fair values were equal to the book values except for a patent, which cost Pyming an additional $40,000. The patent had an estimated life of 10 years. Sillabog has a steady net income of $20,000 per year and consistently pays out 40% of its net income as dividends to its shareholders. Which one of the following statements is correct?

Answers:	A. The net change in the investment account for each full year will be a debit of $8,000.
	B. The net change in the investment account for each full year will be a debit of $800.
	C. The net change in the investment account for each full year will be a debit of $4,800.
	D. The net change in the investment account for each full year will be a credit of $800.

Question 15

What is the amount of consolidated Retained Earnings?

Answers:	A. $304,000
	B. $224,000
	C. $224,000
	D. $324,000

Question 16

A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary. The parent has control over the subsidiary. Which of the following statements is correct?

Answers:	A. The parent corporation must use the fair value method.
	B. The parent corporation must prepare consolidated financial statements for the economic entity.
	C. The parent company may use the equity method but the subsidiary cannot be consolidated.
	D. The parent company can use the equity method or the fair value/cost method.

Question 17

With respect to goodwill, an impairment

Answers:	A. is a two-step process which first compares book value to fair value at the business reporting unit level.
	B. occurs when asset values are adjusted to fair value in a purchase.
	C. will be amortized over the remaining useful life.
	D. is a one-step process considering the entire firm.

Question 18

Sadie Corporation's stockholders' equity at December 31, 2013 included the following:

6% Preferred stock, $10 par value $1,000,000

Common stock, $1 par value 10,000,000

Other paid-in capital—common 4,000,000

Retained earnings 4,000,000

$19,000,000

Pilga Corporation purchased a 30% interest in Sadie's common stock from other shareholders on January 1, 2014 for $5,800,000. What was the book value of Pilga's investment in Sadie on January 1, 2014?

Answers:	A. $5,700,000
	B. $7,120,000
	C. $5,400,000
	D. $7,440,000

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Question 11 Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for Answers: A. investments in consolidated subsidiaries. B. ending retained earnings. C. investments in unconsolidated subsidiaries. D. capital stock.