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

Unrealized gains and losses are to be considered when totalling consolidated net income under the entity theory.

A leveraged buyout occurs when an investor group acquires a company from the public shareholders in a transaction financed with large equity and very little debt.

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. -Goodwill was reported in the December 31,2014 consolidated balance sheet at

Partel Corporation purchased 75% of Sandford Corporation on January 1,2014,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.

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

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

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 Book Value Fair Value Difference Current assets \ 40,000 \ 50,000 \ 10,000 Plant assets 60,000 75,000 15,000 Liabilities 0 Net assets -Under the entity theory,a consolidated balance sheet prepared immediately after the business combination will show noncontrolling interest of

All companies holding a significant interest in a variable interest entity (VIE)must disclose the nature,purpose,size and activities of the VIE in the consolidated statements.

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. 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: Book Value Fair Value Cash \ 10,000 \ 10,000 Accounts Receivable 30,000 35,000 Inventory 40,000 50,000 Plant Assets Total Assets Liabilities \ 25,000 \2 5,000 Capital Stock 100,000 Retained Earnings 15,000 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.

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 1,2014,Jeff Company acquired a 90% interest in Margaret Company for $198,000 cash.On January 1,2014,Margaret Company had the following assets and liabilities: Total 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 1,2014. b.Record the journal entry on Jeff's separate books on January 1,2014. 2.Assume both companies use the parent company theory. a.Record the journal entry on Margaret's separate books on January 1,2014. b.Record the journal entry on Jeff's separate books on January 1,2014.

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.

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.

Pashley Corporation purchased 75% of Sargent Corporation on January 1,2014,for $115,000.Balance sheets for the two companies on this date,prepared just prior to the purchase,are provided below. Required: Prepare a consolidated balance sheet using the entity theory of consolidation.