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

Under GAAP,the ________ will include the variable interest entity in consolidated financial statements.

Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings.The fair values of Sandberg's net assets were equal to their recorded book values.At the time of acquisition,on Paroz's books,Paroz will record

Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.

On January 1,2011,Penny Company acquired a 90% interest in Lampire Company for $180,000 cash.On January 1,2011,Lampire Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Record the push-down adjustment on Lampire's separate books on January 1,2011. 2.Assume both companies use the parent company theory.Record the push-down adjustment on Lampire's separate books on January 1,2011.

Partridge Corporation purchased an 80% interest in Sandy Corporation for $840,000 on January 1,2011.Sandy's balance sheet book values and accompanying fair values on this date are shown below. Required: Complete the push-down columns of Sandy Corporation's restructured balance sheet using entity theory and parent company theory.

Under the entity theory,a consolidated balance sheet prepared immediately after the business combination will show goodwill of

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. -Noncontrolling interest share was reported in the 2011 consolidated income statement at

Anthony and Cleopatra create a joint venture to distribute artifacts.Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company.How would Anthony report information about Cleopatra on Anthony's financial statements?

Use the following information to answer the question(s)below. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1,2011,at a cost of $400,000.The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings.Book values were equal to fair values except for land and inventory.The book value of Sanders' land was $10,000,and fair value was $22,000.The book value of Sanders' inventory was $30,000,and fair value was $25,000. -Under the parent company theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2011?

On January 1,2011,Jeff Company acquired a 90% interest in Marian Company for $198,000 cash.On January 1,2011,Marian Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2011. 2.Assume both companies use the parent company theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2011.

The SEC requires push-down accounting for SEC filings of subsidiaries when the subsidiary has no substantial publicly-held debt or preferred stock outstanding and

On January 1,2011,Parton Corporation acquired an 80% interest in Sandra Corporation for $184,000.Sandra's net assets on this date had a book value of $160,000 and a fair value of $210,000.The excess of fair value over book value at acquisition was attributable to $20,000 of understated plant assets with a remaining useful life of five years from January 1,2011,and $30,000 to an understated patent with a remaining economic life of six years from January 1,2011.Separate net incomes (excluding investment income)of Parton and Sandra for 2011 were $300,000 and $50,000,respectively. Required: 1.Compute goodwill at January 1,2011 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.

Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1,2011,for $500,000.Sanlon Corporation's stockholders' equity at this date consisted of $250,000 in Capital Stock and $100,000 in Retained Earnings.The fair value of Sanlon's assets was equal to the book value of the assets except for land with a fair value $40,000 greater than its book value,and marketable securities with a fair value $50,000 greater than its book value.Sanlon also had a valuable patent with a fair value of $25,000 and a book value of zero because its development costs were expensed as incurred.The fair value of Sanlon's liabilities is $10,000 higher than the $40,000 book value. Required: Calculate the amount of goodwill under the parent company and entity theories of consolidation.

Under the entity theory,a consolidated balance sheet prepared immediately after the business combination will show noncontrolling interest of

Noncontrolling interest share is viewed as an expense under ________ theory.

Patch Corporation has a 50% undivided interest in Saric Corporation,a joint venture.Patch accounts for its interest in Saric by the equity method and also prepares consolidated financial statements for external reporting purposes.Patch follows specialized industry practices and uses proportionate consolidation for its interest in Saric.Separate financial statements for Patch and Saric are as follows: Required: Prepare the consolidated balance sheet for Patch Corporation and its undivided interest in Saric Corporation.

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

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

With regard to a variable interest entity (VIE),Ann Company may meet the following two conditions: Condition I Ann Company has the power to direct VIE activities that significantly impact VIE's economic performance. Condition II Ann Company has an obligation to absorb losses and/or a right to receive significant benefits from the VIE. Ann Company must consolidate a VIE if

Use the following information to answer the question(s)below. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1,2011,at a cost of $400,000.The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings.Book values were equal to fair values except for land and inventory.The book value of Sanders' land was $10,000,and fair value was $22,000.The book value of Sanders' inventory was $30,000,and fair value was $25,000. -Under the entity theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2011?