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

On January 1,2014,Jennifer Company acquired a 90% interest in Jayda Company for $270,000 cash.On January 1,2014,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 1,2014? 2.Prepare the journal entry(ies)on Jayda's books on January 1,2014. 3.Prepare the journal entry(ies)on Jennifer's books on January 1,2014. 4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2014.

On July 1,2013,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 1,2013.Separate net incomes (excluding investment income)of Parslow and Sanderson for 2014 were $400,000 and $20,000,respectively. Required: 1.Compute goodwill at July 1,2013 under the parent company theory and the entity theory. 2.Determine consolidated net income and noncontrolling interest share for 2014 under the parent company theory and the entity theory.

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

Patane Corporation acquired 80% of the outstanding voting common stock of Sanlon Corporation on January 1,2014,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.

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 1,2014,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 31,2014?

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

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 1,2014,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 1,2014,and $30,000 to an understated patent with a remaining economic life of six years from January 1,2014.Separate net incomes (excluding investment income)of Parton and Sandra for 2014 were $300,000 and $50,000,respectively. Required: 1.Compute goodwill at January 1,2014 under the parent company theory and the entity theory. 2.Determine consolidated net income and noncontrolling interest share for 2014 under the parent company theory and the entity theory.

Assume Paris's land account had a book value of $50,000 and a fair value of $70,000 on January 1,2014.Using the parent company and entity theories,what amounts would be reported on the consolidated balance sheet at January 1,2014 for the land account? Parent Company Theory Entity 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 1,2014,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 2014 were $600,000 and $100,000,respectively.Dividends declared and paid during 2014 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 2014 was

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

Pascal Corporation paid $225,000 for a 70% interest in Sank Corporation on January 1,2014.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 1,2014 on Sank Corporation's books. 2.Prepare a balance sheet for Sank Corporation immediately after the acquisition on January 1,2014.

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

Use the following information to answer the question(s)below. On January 1,2014,Penelope Company acquired a 90% interest in Leah Company for $180,000 cash.On January 1,2014,Leah Company had the following assets and liabilities: Push-down accounting is used for the acquisition. -Assume the entity theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1,2014.Using the parent company theory,what was the amount reported on the consolidated balance sheet for inventories on January 1,2014?

Party Corporation acquired an 80% interest in Sang Corporation on January 1,2014 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 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 ________.

Partridge Corporation purchased an 80% interest in Sandy Corporation for $840,000 on January 1,2014.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.