Exam 3: Consolidations - Subsequent to the Date of Acquisition

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: Net income and dividends reported by Clark for 2020 and 2021 follow: The fair value of Clark's net assets that differ from their book values are listed below: Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's land that would be reported in a December 31, 2021, consolidated balance sheet.

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made to convert to full-accrual totals in a year subsequent to the initial acquisition of the subsidiary?

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

Consolidated net income using the equity method for an acquisition combination is computed as follows:

When consolidating parent and subsidiary financial statements, which of the following statements is true?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2023, consolidated additional paid-in capital.

With respect to identifiable intangible assets other than goodwill, which of the following is true?

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted. Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2023, consolidated total expenses.

Under the partial equity method, the parent recognizes income when

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance: Net income and dividends reported by Clark for 2020 and 2021 follow: The fair value of Clark's net assets that differ from their book values are listed below: Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's buildings that would be reported in a December 31, 2021, consolidated balance sheet.

Which of the following will result in the recognition of an impairment loss on goodwill?

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2020 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2021 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability-weighted approach, is $3,142.Assuming Rhine generates cash flow from operations of $27,200 in 2020, how will Harrison record the $16,500 payment of cash on April 15, 2021 in satisfaction of its contingent obligation?

An impairment model is used

Under the initial value method, when accounting for an investment in a subsidiary,

Paperless Co. acquired Sheetless Co. and in effecting this business combination, there was a cash-flow performance contingency to be paid in cash, and a market-price performance contingency to be paid in additional shares of stock. In what accounts and in what section(s) of a consolidated balance sheet are these contingent consideration items shown?

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000.How much difference would there have been in Hemingway's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date:(A) Initial value method.(B) Partial equity method.(C) Equity method.(D) Initial value method and partial equity method but not equity method.(E) Partial equity method and equity method but not initial value method.(F) Initial value method, partial equity method, and equity method.Method(s) available to the parent for internal record-keeping.Easiest internal record-keeping method to apply.Income of the subsidiary is recorded by the parent when earned.Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company.For years subsequent to acquisition, requires the *C entry.Uses the cash basis for income recognition.Investment account remains at initially recorded amount.Dividends received by the parent from the subsidiary reduce the parent's investment account.Often referred to in accounting as a single-line consolidation.Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made to convert to full-accrual totals in a consolidation worksheet for the second year?