Question 1

Income attributable to the noncontrolling interest is treated as an expense.

Accepted Answer

A) True 
 B)False  False

Question 2

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?

Accepted Answer

A) $185,000 
B) $191,250 
C) $193,000 
D) $200,000 
A) $185,000 
B) $191,250 
C) $193,000 
D) $200,000 C

Question 3

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.

Accepted Answer

Requirement 1
Parent company theory:
   Entity theory:
 $$\begin{array} { l l } 
\text { Total fair value implied by price paid } ( \$ 184,000 / 8 0 \% ) & \$ 230,000 \
\text { Fair valup } & \$ 210,000 \
\text { Goodwill } & \$ 20,000
\end{array}$$ Or: $ (\$ 16,000 $ goodwill)/80% $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$ \$ 20,000 $ Requirement 2
   Less: Deprec./Amort.on excess to:
   Income allocated to noncontrolling shareholders

Question 4

The entity theory approach to consolidated statements states the income of the noncontrolling interests is a distribution of the total income of the consolidated entity.

Accepted Answer

A) True 
 B)False

Question 5

Johnsen Corporation paid $225,000 for a 70% interest in Jonas Corporation on January 1,2014.On that date,Jonas's balance sheet accounts,at book value and fair value,were as follows:
   Assets
   Equities
   Required:
1.Prepare the journal entry necessary on January 1,2014 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 1,2014.

Accepted Answer

Requirement 1
 \[\begin{array} { l } 
\t

Question 6

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?

Accepted Answer

A) The push-down capital account will have a credit balance after this transaction is posted. 
B) The push-down capital account will have a debit balance after this transaction is posted. 
C) The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments,or vice versa. 
D) Subsidiary Retained Earnings will have a deficit balance after this transaction is posted. 
A) The push-down capital account will have a credit balance after this transaction is posted. 
B) The push-down capital account will have a debit balance after this transaction is posted. 
C) The push-down capital account will have either a debit or a credit balance depending upon whether the asset adjustments exceed the liability adjustments,or vice versa. 
D) Subsidiary Retained Earnings will have a deficit balance after this transaction is posted.

Question 7

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?

Accepted Answer

A) Not at all 
B) In a footnote 
C) As a liability 
D) As a noncontrolling interest 
A) Not at all 
B) In a footnote 
C) As a liability 
D) As a noncontrolling interest

Question 8

Companies in which equity investors cannot provide financing for the entity's business risks and activities without additional financial support are considered variable interest entitites according to the GAAP.

Accepted Answer

A) True 
 B)False

Question 9

Joint ventures may be organized as partnerships or undivided interests,but not corporations.

Accepted Answer

A) True 
 B)False

Question 10

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.

-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?

Accepted Answer

A) $65,000 
B) $66,000 
C) $69,000 
D) $70,000 
A) $65,000 
B) $66,000 
C) $69,000 
D) $70,000

Question 11

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

Accepted Answer

A) parent company 
B) entity 
C) contemporary 
D) joint venture 
A) parent company 
B) entity 
C) contemporary 
D) joint venture

Question 12

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 ________.

Accepted Answer

A) stockholders' equity; stockholders' equity 
B) stockholders' equity; liability 
C) liability; a liability 
D) liability; stockholders' equity 
A) stockholders' equity; stockholders' equity 
B) stockholders' equity; liability 
C) liability; a liability 
D) liability; stockholders' equity

Question 13

The entity theory requires that the income and equity of a subsidiary be determined for all stockholders; therefore the total amounts will be allocated between controlling and noncontrolling shareholders.

Accepted Answer

A) True 
 B)False

Question 14

Push-down accounting is the establishment of a new accounting and reporting basis for an entity in its separate financial statements,based on a purchase transaction in the voting stock of the entity that results in a substantial change of ownership of the outstanding voting stock of the entity.

Accepted Answer

A) True 
 B)False

Question 15

Push-down capital is an additional paid-in capital account.

Accepted Answer

A) True 
 B)False

Question 16

Use the following information to answer the question(s) below.

Pasfield Corporation acquired a 90% interest in Santini Corporation for $90,000 cash on January 1, 2014. The following information is available for Santini at that time
$\begin{array}{lccr}
&\text { Book Value}&\text {  Fair Value }&\text { Difference }\
\text { Current assets } & \$ 40,000 & \$ 50,000 & \$ 10,000 \
\text { Plant assets } & 60,000 & 75,000 & 15,000 \
\text { Liabilities } & \underline{(50,000)} & \underline{(50,000)} & 0 \
\text { Net assets } & \underline{\underline{\$ 50,000}} & \underline{\underline{\$ 75,000}} &
\end{array}$

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

Accepted Answer

A) $15,000. 
B) $22,500. 
C) $25,000. 
D) $32,500. 
A) $15,000. 
B) $22,500. 
C) $25,000. 
D) $32,500.

Question 17

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:
   Assets
 $$\begin{array} { l l l } 
\text { Cash } & \$ 25,000 & \$ 25,000 \
\text { Accounts receivable-net } & 45,000 & 55,000 \
\text { Inventories } & 40,000 & 60,000 \
\text { Plant, property and equipment-net } & \underline { 140,000 } & \underline { 125,000 } \
\text { Total assets } & \underline { \$ 250,000 } & \underline { \$ 265,000}
\end{array}$$ Equities
 $$\begin{array} { l l } 
\text { Accounts payable } & \$ 40,000 &\$40,000\
\text { Common stock } & 120,000 \
\text { Retained earnings } & \$ 90,000 \
\text { Total liab. \& equity } & \$ 250,000
\end{array}$$ 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.

Accepted Answer

None

Question 18

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 parent company theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2014?

Accepted Answer

A) $148,000 
B) $153,000 
C) $154,400 
D) $160,000 
A) $148,000 
B) $153,000 
C) $154,400 
D) $160,000

Question 19

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?

Accepted Answer

A) Earth 
B) Fire 
C) Earth and Fire 
D) Earth,Fire and Wind 
A) Earth 
B) Fire 
C) Earth and Fire 
D) Earth,Fire and Wind

Question 20

On January 1,2014,Brody Company acquired an 80% interest in Kristin Company for $240,000 cash.On January 1,2014,Kristin Company had the following assets and liabilities:
 $\begin{array}{lll}
& \underline{\text {Book Value}}& \underline{\text {Fair Value}}\
\text { Cash } & \$ 10,000 & \$ 10,000 \
\text { Accounts Receivable } & 50,000 & 50,000 \
\text { Inventory } & 50,000 & 70,000 \
\text { Plant Assets } & \underline{100,000} & \underline{100,000} \
\text { Total Assets } & \underline{\$ 210,000} & \underline{\$ 230,000}
\end{array}$
 $$\begin{array} { l l } 
\text { Liabilities } & \$ 100,000 &\$120,000\
\text { Capital Stock } & 100,000 \
\text { Retained Earnings } & 10,000
\end{array}$$ Total Liabilities &
 $$\text { Stockholders' Equity } \quad \underline{\$ 210,000}$$ 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 1,2014?
2.Prepare the journal entry(ies)on Kristin's books on January 1,2014.
3.Prepare the journal entry(ies)on Brody's books on January 1,2014.
4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2014.

Accepted Answer

Requirement 1
 \[\begin{array} { l l }

Income attributable to the noncontrolling interest is treated as an expense.

The entity theory approach to consolidated statements states the income of the noncontrolling interests is a distribution of the total income of the consolidated entity.

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?

Companies in which equity investors cannot provide financing for the entity's business risks and activities without additional financial support are considered variable interest entitites according to the GAAP.

Joint ventures may be organized as partnerships or undivided interests,but not corporations.

Noncontrolling interest share is viewed as an expense under ________ 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 .

The entity theory requires that the income and equity of a subsidiary be determined for all stockholders; therefore the total amounts will be allocated between controlling and noncontrolling shareholders.

Push-down accounting is the establishment of a new accounting and reporting basis for an entity in its separate financial statements,based on a purchase transaction in the voting stock of the entity that results in a substantial change of ownership of the outstanding voting stock of the entity.

Push-down capital is an additional paid-in capital account.

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?

Business Combinations

Stock Investments - Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Derivatives and Foreign Currency: Concepts and Common Transactions

Accounting for Derivatives and Hedging Activities

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters

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

Income attributable to the noncontrolling interest is treated as an expense.

The entity theory approach to consolidated statements states the income of the noncontrolling interests is a distribution of the total income of the consolidated entity.

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?

Companies in which equity investors cannot provide financing for the entity's business risks and activities without additional financial support are considered variable interest entitites according to the GAAP.

Joint ventures may be organized as partnerships or undivided interests,but not corporations.

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

The entity theory requires that the income and equity of a subsidiary be determined for all stockholders; therefore the total amounts will be allocated between controlling and noncontrolling shareholders.

Push-down accounting is the establishment of a new accounting and reporting basis for an entity in its separate financial statements,based on a purchase transaction in the voting stock of the entity that results in a substantial change of ownership of the outstanding voting stock of the entity.

Push-down capital is an additional paid-in capital account.

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?

Business Combinations

Stock Investments - Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Derivatives and Foreign Currency: Concepts and Common Transactions

Accounting for Derivatives and Hedging Activities

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters

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 .