Question 1

The Securities and Exchange Commission requires the use of push-down accounting for SEC filings when a subsidiary is substantially wholly-owned with no substantial publicly held debt or preferred stock outstanding.

Accepted Answer

A) True 
 B)False

Question 2

The GAAP states a noncontrolling interest in a subsidiary should be labeled and displayed as a separate financial note to the consolidated balance sheet.

Accepted Answer

A) True 
 B)False

Question 3

On January 1,2014,Jeff Company acquired a 90% interest in Marian Company for $198,000 cash.On January 1,2014,Marian Company had the following assets and liabilities:
  $$\begin{array} { l l } 
\text { Liabilities } & \$ 25,000  & \$ 25,000 \
\text { Capital Stock } & 100,000 \
\text { Retained Earnings } & \underline { 10,000 }
\end{array}$$ Total 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 1,2014.
2.Assume both companies use the parent company theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2014.

Accepted Answer

The answer of On January 1,2014,Jeff Company acquired a 90%...

Question 4

Per the GAAP,the noncontrolling interest is shown as a single,combined amount under the consolidated stockholder's equity.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

The answer of On July 1,2013,Parslow Corporation acquired a 75%...

Question 6

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

Accepted Answer

A) noncontrolling interest share 
B) noncontrolling interest income 
C) income attributable to controlling stockholders 
D) income attributable to noncontrolling stockholders

Question 7

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:

$\begin{array}{lll}
&\text {Book Value}&\text {Fair Value}\
\text { Cash } & \$ 10,000 & \$ 10,000 \
\text { Accounts Receivable } & 30,000 & 35,000 \
\text { Inventory } & 40,000 & 50,000 \
\text { Plant Assets } & \underline{60,000} & \underline{80,000} \
\text { Total Assets } & \underline{ \$ 140,000 }&  \underline{\$ 175,000}
\end{array}$
 $$\begin{array} { l l } 
\text { Liabilities } & \$ 25,000 &\$25,000\
\text { Capital Stock } & 100,000 \
\text { Retained Earnings } & 15,000
\end{array}$$ Push-down accounting is used for the acquisition.
-Assume the parent company theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Accepted Answer

A) $27,000; $30,000 
B) $27,000; $35,000 
C) $30,000; $30,000 
D) $30,500; $34,500

Question 8

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 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?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline\text { Parent Company Theory } & \text { Entity Theory } \
\hline \$ 69,600 & \$ 72,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline\text { Parent Company Theory } & \text { Entity Theory } \
\hline\$ 72,000 & \$ 72,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline\text { Parent Company Theory } & \text { Entity Theory } \
\hline \$ 72,000 & \$ 92,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline\text { Parent Company Theory } & \text { Entity Theory } \
\hline\$ 92,000 & \$ 72,000 \
\hline
\end{array}$$

Question 9

On January 1,2014,Penny Company acquired a 90% interest in Lampire Company for $180,000 cash.On January 1,2014,Lampire 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.Record the push-down adjustment on Lampire's separate books on January 1,2014.
2.Assume both companies use the parent company theory.Record the push-down adjustment on Lampire's separate books on January 1,2014.

Accepted Answer

The answer of On January 1,2014,Penny Company acquired a 90%...

Question 10

Under the entity theory,subsidiary assets and liabilities are consolidated at fair values and controlling and noncontrolling interests in the net assets are accounted for consistently.

Accepted Answer

A) True 
 B)False

Question 11

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:
 $\begin{array}{lll}
&\underline{\text { Book Value}}&\underline{\text { Fair Value}}\
\text { Cash } & \$ 10,000 & \$ 10,000 \
\text { Accounts Receivable } & 50,000 & 70,000 \
\text { Inventory } & 50,000 & 80,000 \
\text { Plant Assets } & \underline{100,000} & \underline{ 200,000} \
\text { Total Assets } & \underline{ \$ 210,000 }& \underline{ \$ 360,000}
\end{array}$
 $$\begin{array} { l l } 
\text { Liabilities } & \$ 100,000&\$120,000 \
\text { Capital Stock } & 100,000 \
\text { Retained Earnings } & \underline{10,000}
\end{array}$$ 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 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.

Accepted Answer

The answer of On January 1,2014,Jennifer Company acquired a 90%...

Question 12

Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.

Accepted Answer

A) book value; subsidiary 
B) book value; parent 
C) fair value; subsidiary 
D) present value; parent

Question 13

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

Accepted Answer

A) $72,000. 
B) $87,500. 
C) $90,000. 
D) $100,000.

Question 14

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

Accepted Answer

A) fair value; present value 
B) present value; fair value 
C) book value; fair value 
D) fair value; book value

Question 15

On January 1,2014,Gregory Company acquired a 90% interest in Subway Company for $200,000 cash.On January 1,2014,Subway Company had the following assets and liabilities:
 $\begin{array}{lll}
& \underline{\text {Book Value}}&
\underline{\text {Fair Value}}\
\text { Cash } & \$ 5,000 & \$ 5,000 \
\text { Accounts Receivable } & 30,000 & 35,000 \
\text { Inventory } & 40,000 & 50,000 \
\text { Other Current Assets } & 10,000 & 10,000 \
\text { Plant Assets } & \underline{60,000} &\underline{8 0 , 0 0 0} \
\text { Total Assets } &\underline{ \$ 145,000 }& \underline{\$ 180,000}
\end{array}$
 $$\begin{array} { l l } 
\text { Liabilities } & \$ 25,000&\$25,000 \
\text { Common Stock } & 100,000 \
\text { Retained Earnings } &\underline{ \$ 20,000}
\end{array}$$ Total Liabilities &
  The plant assets have 20 years of useful life remaining.Straight-line depreciation is used.The excess fair value over book value associated with Accounts Receivable and Inventory is realized in 2014.
In 2014,Subway reported net income of $35,000 and declared and paid common dividends of $10,000.Gregory reported Income from Subway in 2014 of $17,100.
Required:
Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers for the year ending December 31,2014.

Accepted Answer

The answer of On January 1,2014,Gregory Company acquired a 90%...

Question 16

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

Accepted Answer

A) goodwill for $60,000 under the parent company theory. 
B) goodwill for $85,714 under the entity theory. 
C) investment in Sandberg for $1,285,714 under the entity theory. 
D) investment in Sandberg for $900,000 under the entity and parent company theories.

Question 17

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.

-Noncontrolling interest share was reported in the 2014 consolidated income statement at

Accepted Answer

A) $5,000. 
B) $6,000. 
C) $8,000. 
D) $10,000.

Question 18

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

Accepted Answer

A) cost method. 
B) equity method. 
C) cost or equity methods. 
D) consolidated method.

Question 19

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.

Accepted Answer

The answer of Patch Corporation has a 50% undivided interest...

Question 20

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.

Accepted Answer

The answer of Partridge Corporation purchased an 80% interest in...

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

The Securities and Exchange Commission requires the use of push-down accounting for SEC filings when a subsidiary is substantially wholly-owned with no substantial publicly held debt or preferred stock outstanding.

The GAAP states a noncontrolling interest in a subsidiary should be labeled and displayed as a separate financial note to the consolidated balance sheet.

Per the GAAP,the noncontrolling interest is shown as a single,combined amount under the consolidated stockholder's equity.

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

Under the entity theory,subsidiary assets and liabilities are consolidated at fair values and controlling and noncontrolling interests in the net assets are accounted for consistently.

Under push-down accounting,the of the acquired subsidiary's assets and liabilities are reported on the financial statements of the .

Under parent company theory,noncontrolling interest is valued at on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at on the consolidated balance sheet.

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