Exam 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

On January 1,2011,Jeff Company acquired a 90% interest in Margaret Company for $198,000 cash.On January 1,2011,Margaret Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory. a.Record the journal entry on Margaret's separate books on January 1,2011. b.Record the journal entry on Jeff's separate books on January 1,2011. 2.Assume both companies use the parent company theory. a.Record the journal entry on Margaret's separate books on January 1,2011. b.Record the journal entry on Jeff's separate books on January 1,2011.

Johnsen Corporation paid $225,000 for a 70% interest in Jonas Corporation on January 1,2011.On that date,Jonas's balance sheet accounts,at book value and fair value,were as follows: Required: 1.Prepare the journal entry necessary on January 1,2011 on Jonas Corporation's books.Both companies use push-down accounting and the entity theory. 2.Prepare the balance sheet for Jonas Corporation immediately after the acquisition on January 1,2011.

On January 1,2011,Jennifer Company acquired a 90% interest in Jayda Company for $270,000 cash.On January 1,2011,Jayda Company had the following assets and liabilities: Push-down accounting is used for the acquisition.Both companies use the entity theory. Required: 1.What is the goodwill associated with Jayda Company on January 1,2011? 2.Prepare the journal entry(ies)on Jayda's books on January 1,2011. 3.Prepare the journal entry(ies)on Jennifer's books on January 1,2011. 4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2011.

Party Corporation acquired an 80% interest in Sang Corporation on January 1,2011 for $20,000.Balance sheet and fair value information on this date is summarized as follows: Required: 1.Prepare an entry on the books of Sang Corporation to record the push-down adjustment under parent company theory. 2.Prepare an entry on the books of Sang Corporation to record a push-down adjustment under entity theory.

Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.

Under parent company theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.

A parent company acquired 100% of the outstanding common stock of another corporation.The parent is going to use push-down accounting.The fair market value of each of the acquired corporation's assets is lower than its respective book value.The fair market value of each of the acquired corporation's liabilities is higher than its respective book value.The acquired corporation has a deficit in the Retained Earnings account.Which one of the following statements is correct?

Use the following information to answer the question(s)below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1,2011,when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings.The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income)of Pascoe and Sarabet for 2011 were $600,000 and $100,000,respectively.Dividends declared and paid during 2011 were $250,000 for Pascoe and $50,000 for Sarabet.Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Pascoe's income from Sarabet under the equity method for 2011 was

Use the following information to answer the question(s)below. On January 1,2011,Penelope Company acquired a 90% interest in Leah Company for $180,000 cash.On January 1,2011,Leah Company had the following assets and liabilities: Push-down accounting is used for the acquisition. -Assume the parent company theory is used.On January 2,2011,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Partel Corporation purchased 75% of Sandford Corporation on January 1,2011,for $230,000.Balance sheets for the two companies on this date,prepared just prior to the purchase,are provided below. Required: 1.Prepare a consolidated balance sheet using the entity theory of consolidation. 2.Prepare a consolidated balance sheet using the parent company theory of consolidation.

Use the following information to answer the question(s)below. On January 1,2011,Penelope Company acquired a 90% interest in Leah Company for $180,000 cash.On January 1,2011,Leah Company had the following assets and liabilities: Push-down accounting is used for the acquisition. -Assume the entity theory is used.On January 2,2011,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Entities other than the primary beneficiary account for their investment in a variable interest entity using the

On January 1,2011,Brody Company acquired an 80% interest in Kristin Company for $240,000 cash.On January 1,2011,Kristin Company had the following assets and liabilities: Push-down accounting is used for the acquisition.Both companies use the entity theory. Required: 1.What is the goodwill associated with Kristin Company on January 1,2011? 2.Prepare the journal entry(ies)on Kristin's books on January 1,2011. 3.Prepare the journal entry(ies)on Brody's books on January 1,2011. 4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2011.

Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1,2011.Using the parent company theory,what was the amount reported on the consolidated balance sheet for inventories on January 1,2011?

Use the following information to answer the question(s)below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1,2011,when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings.The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income)of Pascoe and Sarabet for 2011 were $600,000 and $100,000,respectively.Dividends declared and paid during 2011 were $250,000 for Pascoe and $50,000 for Sarabet.Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Goodwill was reported in the December 31,2011 consolidated balance sheet at

Earth Company,Fire Incorporated,and Wind Incorporated created a joint venture to market their products on the internet.Earth owns 40% of the stock,Fire owns 45% of the stock and Wind owns the remaining 15%.Which firms should report their joint venture investments using the equity method?

On January 1,2011,Gregory Company acquired a 90% interest in Subway Company for $200,000 cash.On January 1,2011,Subway Company had the following assets and liabilities: The plant assets have 20 years of useful life remaining.Straight-line depreciation is used.The excess fair value over book value associated with Accounts Receivable and Inventory is realized in 2011. In 2011,Subway reported net income of $35,000 and declared and paid common dividends of $10,000.Gregory reported Income from Subway in 2011 of $17,100. Required: Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers for the year ending December 31,2011.

Assume Paris's land account had a book value of $50,000 and a fair value of $70,000 on January 1,2011.Using the parent company and entity theories,what amounts would be reported on the consolidated balance sheet at January 1,2011 for the land account? Parent Company Theory Entity Theory

Which of the following statements about variable interest entities (VIE)is false?

On July 1,2010,Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000.Sanderson's net assets on this date had a book value of $140,000 and a fair value of $160,000.The excess of fair value over book value at acquisition was due to understated plant assets with a remaining useful life of five years from July 1,2010.Separate net incomes (excluding investment income)of Parslow and Sanderson for 2011 were $400,000 and $20,000,respectively. Required: 1.Compute goodwill at July 1,2010 under the parent company theory and the entity theory. 2.Determine consolidated net income and noncontrolling interest share for 2011 under the parent company theory and the entity theory.