Exam 8: Consolidations - Changes in Ownership Interests

Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary

Use the following information to answer the question(s)below. Bird Corporation purchased an 80% interest in Brush Corporation on July 1,2010 at its book value,and on January 1,2011 its Investment in Brush account was $300,000,equal to its book value.Brush's net income for 2011 was $99,000 (earned uniformly);no dividends were declared.On March 1,2011,Bird reduced its interest in Brush by selling a 20% interest,one-fourth of its investment,for $84,000. -If Bird uses a "beginning-of-the-year" sale assumption,its gain on sale and income from Brush for 2011 will be

Use the following information to answer the question(s)below. Bird Corporation purchased an 80% interest in Brush Corporation on July 1,2010 at its book value,and on January 1,2011 its Investment in Brush account was $300,000,equal to its book value.Brush's net income for 2011 was $99,000 (earned uniformly);no dividends were declared.On March 1,2011,Bird reduced its interest in Brush by selling a 20% interest,one-fourth of its investment,for $84,000. -If Bird uses the "actual-sale-date" sales assumption,its gain on the sale and income from Brush for 2011 will be

At December 31,2010,the stockholders' equity of Gost Corporation and its 80%-owned subsidiary,Tree Corporation,are as follows: Gost's Investment in Tree is equal to 80 percent of Tree's book value.Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1,2011 at $18 per share. Required: 1.Compute the balance in Gost's Investment in Tree account on January 1,2011 after the new investment is recorded. 2.Determine the increase or decrease in goodwill from Gost's new investment in the 225 Tree shares.Use four decimal places for the ownership percentage.Assume the fair values of Tree's assets and liabilities are equal to book values.

At December 31,2010,the stockholders' equity of Godwin Corporation and its 80%-owned subsidiary,Goldberg Corporation,are as follows: Godwin's Investment in Goldberg is equal to 80 percent of Goldberg's book value.Goldberg Corporation issued 225 additional shares of common stock directly to Godwin on January 1,2011 at $28 per share. Required: 1.Compute the balance in Godwin's Investment in Goldberg account on January 1,2011 after the new investment is recorded. 2.Determine the increase or decrease in goodwill from Godwin's new investment in the 225 Goldberg shares.Use four decimal places for the ownership percentage.Assume the fair value and book value of Goldberg's assets and liabilities are equal.

On December 31,2011,Maria Corporation has the following stockholders' equity: On January 1,2012,Maria Corporation declared and issued a 10% stock dividend when the market price per share was $50. On January 2,2012,James Corporation purchased an 80% interest in Maria Corporation for $160,000 from the open market.On January 2,2012,the fair value of Maria's individual assets and liabilities was equal to book value. Required: 1.Prepare the journal entry(ies)for Maria Corporation on January 1,2012. 2.Prepare the journal entry(ies)for James Corporation on January 2,2012. 3.Prepare the elimination entry(ies)for consolidating work papers on January 2,2012. 4.Prepare the elimination entry(ies)for consolidating work papers on January 2,2012 if the 10% stock dividend is not declared and issued on January 1,2012.

The acquisition of treasury stock by a subsidiary from noncontrolling shareholders at a price above book value

Use the following information to answer the question(s)below. Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31,2010,and Goldberg's Investment in Savannah account had a balance of $3,900,000.Savannah's stockholders' equity on this date was as follows: On January 1,2011,Savannah issues 80,000 new shares of common stock to Goldberg for $16 each. -On January 1,2011,assume the fair values of Savannah's identifiable assets and liabilities equal book values.What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places. )

Jersey Company acquired 90% of York Company on April 1,2011.Both Jersey Company and York Company have December 31 fiscal year ends.Under current GAAP,which of the following statements is false?

Olson Corporation paid $62,000 to acquire 100% of Towing Corporation's outstanding voting common stock at book value on May 1,2011.The stockholders' equity of Towing on January 1,2011 consisted of $40,000 Capital Stock and $20,000 Retained Earnings.Towing's total dividends for 2011 were $6,000,paid equally on April 1 and October 1.Towing's net income was earned uniformly throughout 2011.In 2011,preacquisition sales were $10,000 and preacquisition expenses were cost of sales for $5,000.(There were no other preacquisition expenses in 2011. ) During 2011,Olson made sales of $10,000 to Towing at a gross profit of $3,000.One-half of this merchandise was inventoried by Towing at year-end,and one-half of the 2011 intercompany sales were unpaid at year-end 2011. Olson sold equipment with a ten-year remaining useful life to Towing at a $2,000 gain on December 31,2011.The straight-line depreciation method is used by both companies.The equipment has no salvage value. Financial statements of Olson and Towing Corporations for 2011 appear in the first two columns of the partially completed consolidation working papers. Required: Complete the consolidating working papers for Olson Corporation and Subsidiary for the year ending December 31,2011.

On December 31,2011,Lorna Corporation has the following information available: On December 31,2011,Gerald Corporation buys an 80% interest in Lorna Corporation for $240,000.On December 31,2011,the fair value of Lorna's assets and liabilities are equal to the respective book values. Required: 1.On January 1,2012,Lorna Corporation buys 500 shares of common stock from noncontrolling stockholders at $20 per share.Prepare the journal entry for Gerald Corporation on January 1,2012.Use four decimal places for the ownership percentage. 2.On January 1,2012,Lorna Corporation buys 500 shares of common stock from noncontrolling stockholders at $30 per share.Prepare the journal entry for Gerald Corporation on January 1,2012.Use four decimal places for the ownership percentage. 3.On January 1,2012,Lorna Corporation buys 500 shares of common stock from noncontrolling stockholders at $10 per share.Prepare the journal entry for Gerald Corporation on January 1,2012.Use four decimal places for the ownership percentage.

On December 31,2011,Pat Corporation has the following information available: On December 31,2011,Anne Corporation buys an 80% interest in Pat Corporation for $160,000.On December 31,2011,the fair value of Pat's assets and liabilities are equal to the respective book values.Use four decimal places for the ownership percentage. Required: 1.On January 1,2012,Pat Corporation sells 2,000 additional shares of common stock to noncontrolling stockholders at $20 per share.Prepare the journal entry for Anne Corporation on January 1,2012. 2.On January 1,2012,Pat Corporation sells 2,000 additional shares of common stock to noncontrolling stockholders at $35 per share.Prepare the journal entry for Anne Corporation on January 1,2012. 3.On January 1,2012,Pat Corporation sells 2,000 additional shares of common stock to noncontrolling stockholders at $15 per share.Prepare the journal entry for Anne Corporation on January 1,2012.

Candy Corporation paid $240,000 on April 1,2011 for all of the common stock of Bun Corporation in a business acquisition.On January 1,2011,Bun's stockholders' equity was equal to $195,000.Bun's first quarter 2011 net income was $10,000 and first quarter 2011 dividends were $5,000.In 2011,preacquisition sales were $32,500 and preacquisition cost of sales was $22,500.(There were no other preacquisition expenses in 2011. )Dividends are paid quarterly on March 31,June 30,September 30 and December 31.Any excess cost over book value acquired is allocated to goodwill. Additional information: 1.Candy sold equipment with a 5-year remaining useful life to Bun on July 1,2011 for a gain of $10,000.Salvage value of the equipment is zero and both companies use the straight-line depreciation method. 2.Bun's accounts payable balance at December 31 includes $5,000 due to Candy from the sale of equipment. 3.Candy accounts for its investment in Bun using the equity method. Required: Complete the working papers to consolidate the financial statements of Candy and Bun Corporations for the year ending December 31,2011.

On January 1,2011,Fly Corporation held a 60% interest in Liptin Corporation.The investment account balance was $2,100,000,consisting of 60% of Liptin's $3,500,000 of net assets. During 2011,Liptin earned $300,000 uniformly and paid dividends of $110,000 on November 1.On October 1,2011,Fly sold 10% of its investment in Liptin for $364,000,thereby reducing its interest in Liptin to 54%. Required: Compute the following using the actual sales date assumption: 1.Gain or loss on sale. 2.Income from Liptin for 2011. 3.Noncontrolling interest share for 2011.

Use the following information to answer the question(s)below. Bower Corporation purchased a 70% interest in Stage Corporation on June 1,2010 at a purchase price of $350,000.On June 1,2010,the book values of Stage's assets and liabilities were equal to fair values.On June 1,2010,Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings.All cost-book differentials were attributed to goodwill. During 2010,Stage earned $120,000 of net income,earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1. -Preacquisition income for 2010 is

At December 31,2010,the stockholders' equity of Pearson Corporation and its 80%-owned subsidiary,Trompeter Corporation,are as follows: Pearson's Investment in Trompeter is equal to 80 percent of Trompeter's book value.Trompeter Corporation issued 400 additional shares of common stock directly to Pearson on January 1,2011 at $10 per share. Required: 1.Compute the balance in Pearson's Investment in Trompeter account on January 1,2011 after the new investment is recorded. 2.Determine the increase or decrease in goodwill from Pearson's new investment in the 400 Trompeter shares.Use four decimal places for the ownership percentage.Assume the fair value and book value of Trompeter's assets and liabilities are equal.

Use the following information to answer the question(s)below. On December 31,2010,Giant Corporation's Investment in Penguin Corporation account had a balance of $500,000.The balance consisted of 80% of Penguin's $625,000 stockholders' equity on that date.Giant owns 80% of Penguin.On January 2,2011,Penguin increased its outstanding common stock from 15,000 to 18,000 shares. -Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2,2011.Giant's percentage ownership immediately after the sale of additional stock would be

At December 31,2012 year-end,Arnold Corporation's investment in Oakes Inc.was $200,000 consisting of 80% of Oakes's $250,000 stockholders' equity on that date.On April 1,2013,Arnold sold 20% interest (one-fourth of its holdings)in Oakes for $65,000.During 2013,Oakes had net income of $75,000 (earned uniformly)and on July 1,2013,Oakes paid dividends of $40,000.Arnold uses the equity method to account for the investment. Required: 1.What is the gain or loss on sale of the 20% interest? 2.Record the journal entries for Arnold for the year ending December 31,2013.Use the beginning-of-the-year-sale-date assumption.

Utah Company holds 80% of the stock of a subsidiary company.The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share.The subsidiary does not issue any additional shares at the same time.How will Utah Company record the purchase?

Justice Corporation paid $40,000 cash for an 80% interest in the voting common stock of Grace Corporation on July 1,2012,when Grace's stockholders' equity consisted of $30,000 of $10 par common stock and $15,000 retained earnings.The excess cost over the book value of the investment was assigned $2,000 to undervalued inventory items that were sold in 2012,with the remaining excess being assigned to goodwill.During the last half of 2012,Grace reported $4,000 net income and declared dividends of $2,000,and Justice reported income from Grace of $1,200. There were no intercompany sales during the last half of 2012,but during 2013 Justice sold inventory items that cost $8,000 to Grace for $12,000.Half of these inventory items were included in Grace Corporation's Inventory at December 31,2013,with $1,000 unpaid by Grace at December 31,2013. On January 5,2013,Justice sold a plant asset with a book value of $2,500 and a remaining useful life of 5 years to Grace for $4,000.Grace Corporation owned the plant asset at year-end.The plant asset has no salvage value and both companies use the straight-line depreciation method. Justice Corporation uses the equity method to account for its investment in Grace,and the changes in Justice's Investment in Grace account from acquisition until year-end 2013 are as follows: Required: Complete the working papers for the year ending December 31,2013 that are given below.