Question 1

REFERENCE: Ref.03_01
On January 1,2009,Cale Corp.paid $1,020,000 to acquire Kaltop Co.Kaltop maintained separate incorporation.Cale used the equity method to account for the investment.The following information is available for Kaltop's assets,liabilities,and stockholders' equity accounts:
SHAPE \* MERGEFORMAT
  Kaltop earned net income for 2009 of $126,000 and paid dividends of $48,000 during the year.
-The 2009 total amortization of allocations is calculated to be

Accepted Answer

A)  $4,000.
B)  $6,400.
C)  $(2,400) .
D)  $(1,000) .
E)  $3,800. D

Question 2

REFERENCE: Ref.03_07
Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted.
  Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment.
-Compute the December 31,2010,consolidated buildings.

Accepted Answer

A)  $1,037,500.
B)  $1,007,500.
C)  $1,000,000.
D)  $1,022,500.
E)  $1,012,500. B

Question 3

REFERENCE: Ref.03_02
On January 1,2009,Franel Co.acquired all of the common stock of Hurlem Corp.For 2009,Hurlem earned net income of $360,000 and paid dividends of $190,000.Amortization of the patent allocation that was included in the acquisition was $6,000.
-How much difference would there have been in Franel's income with regard to the effect of the investment,between using the equity method or using the partial equity method of internal recordkeeping?

Accepted Answer

A)  $170,000.
B)  $354,000.
C)  $164,000.
D)  $6,000.
E)  $174,000. D

Question 4

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

Accepted Answer

The answer of For an acquisition when the subsidiary retains...

Question 5

Yules Co.acquired Noel Co.in an acquisition transaction.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

Accepted Answer

The answer of Yules Co.acquired Noel Co.in an acquisition transaction.Yules...

Question 6

REFERENCE: Ref.03_16
Pritchett Company recently acquired three businesses,recognizing goodwill in each acquisition.Destin has allocated its acquired goodwill to its three reporting units: Apple,Banana,and Carrot.Pritchett provides the following information in performing the 2009 annual review for impairment: 
-How much goodwill impairment should Pritchett report for 2009?

Accepted Answer

The answer of REFERENCE: Ref.03_16
Pritchett Company recently acquired three businesses,recognizing...

Question 7

Push-down accounting is concerned with the

Accepted Answer

A)  impact of the purchase on the subsidiary's financial statements.
B)  recognition of goodwill by the parent.
C)  correct consolidation of the financial statements.
D)  impact of the purchase on the separate financial statements of the parent.
E)  recognition of dividends received from the subsidiary.

Question 8

REFERENCE: Ref.03_05
Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance;
SHAPE \* MERGEFORMAT
  Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used.
-Compute the consideration transferred in excess of book value at January 1,2009.

Accepted Answer

A)  $150.
B)  $700.
C)  $2,200.
D)  $550.
E)  $2,900.

Question 9

REFERENCE: Ref.03_10
Beatty,Inc.acquires 100% of the voting stock of Gataux Company on January 1,2009 for $500,000 cash.A contingent payment of $12,000 will be paid on April 1,2010 if Gataux generates cash flows from operations of $26,500 or more in the next year.Harrison estimates that there is a 30% probability that Rhine will generate at least $26,500 next year,and uses an interest rate of 4% to incorporate the time value of money.The fair value of $12,000 at 4%,using a probability weighted approach,is $3,461.
-Under SFAS 141(R),what will Beatty record as the acquisition price on January 1,2009?

Accepted Answer

A)  $500,000.
B)  $503,461.
C)  $512,000.
D)  $515,461.
E)  $526,500.

Question 10

Consolidations subsequent to the date of combination are generally considered to be easier for a pooling of interests than for an acquisition.Why is this so?

Accepted Answer

The answer of Consolidations subsequent to the date of combination...

Question 11

REFERENCE: Ref.03_08
Goehler,Inc.acquires all of the voting stock of Kenneth,Inc.on January 4,2009,at a price in excess of Kenneth's fair value.On that date,Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life).Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life).On December 31,2010,Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.
-If Goehler applies the equity method in accounting for Kenneth,what is the consolidated balance for the Equipment account as of December 31,2010?

Accepted Answer

A)  $1,080,000.
B)  $1,104,000.
C)  $1,100,000.
D)  $1,468,000.
E)  $1,475,000.

Question 12

Under the partial equity method,the parent recognizes income when

Accepted Answer

A)  dividends are received from the investee.
B)  dividends are declared by the investee.
C)  the related expense has been incurred.
D)  the related contract is signed by the subsidiary.
E)  it is earned by the subsidiary.

Question 13

REFERENCE: Ref.03_12
Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: 
-If Watkins issued common stock valued at $410,000 for Glen,rather than paying cash,in a pooling of interests on June 15,1999,at what amount would the subsidiary's Building be represented in a December 31,2009,consolidation,assuming there are no acquisitions or disposals of buildings and equipment?

Accepted Answer

A)  $190,000.
B)  $193,000.
C)  $197,000.
D)  $199,400.
E)  $200,000.

Question 14

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping is the easiest for the parent to use?

Accepted Answer

The answer of For an acquisition when the subsidiary retains...

Question 15

REFERENCE: Ref.03_10
Beatty,Inc.acquires 100% of the voting stock of Gataux Company on January 1,2009 for $500,000 cash.A contingent payment of $12,000 will be paid on April 1,2010 if Gataux generates cash flows from operations of $26,500 or more in the next year.Harrison estimates that there is a 30% probability that Rhine will generate at least $26,500 next year,and uses an interest rate of 4% to incorporate the time value of money.The fair value of $12,000 at 4%,using a probability weighted approach,is $3,461.
-Under SFAS 141 for purchase Business Combinations,what will Beatty record as the cost of the investment in Gataux if the purchase had occurred on January 1,2008?

Accepted Answer

A)  $500,000.
B)  $503,461.
C)  $512,000.
D)  $515,461.
E)  $526,500.

Question 16

REFERENCE: Ref.03_12
Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: 
-If Watkins pays $450,000 in cash for Glen,what amount would be represented as the subsidiary's Equipment in a consolidation at December 31,2011,assuming the book value at that date is still $80,000?

Accepted Answer

A)  $70,000.
B)  $73,500.
C)  $75,000.
D)  $76,500.
E)  $80,000.

Question 17

REFERENCE: Ref.03_07
Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted.
  Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment.
-Compute the book value of Vega at January 1,2006.

Accepted Answer

A)  $997,500.
B)  $857,500.
C)  $1,200,000.
D)  $1,600,000.
E)  $827,500.

Question 18

An acquisition transaction results in $90,000 of goodwill.Several years later a worksheet is being produced to consolidate the two companies.Describe in words at what amount goodwill will be reported at this date

Accepted Answer

The answer of An acquisition transaction results in $90,000 of...

Question 19

Racer Corp.purchased all of the common stock of Tangiers Co.several years ago.Tangiers maintained its incorporation.Balances in which of Racer's accounts would vary between the equity method and the initial value method?

Accepted Answer

A)  Goodwill,Investment in Tangiers Co. ,and Retained Earnings.
B)  Expenses,Investment in Tangiers Co. ,and Equity in Subsidiary Earnings.
C)  Investment in Tangiers Co. ,Equity in Subsidiary Earnings,and Retained Earnings.
D)  Common Stock,Goodwill,and Investment in Tangiers Co.
E)  Expenses,Goodwill,and Investment in Tangiers Co.

Question 20

REFERENCE: Ref.03_03
Cashen Co.paid $2,400,000 to acquire all of the common stock of Janex Corp.on January 1,2009.Janex's reported earnings for 2009 totaled $432,000,and it paid $120,000 in dividends during the year.The amortization of allocations related to the investment was $24,000.Cashen's net income,not including the investment,was $3,180,000,and it paid dividends of $900,000.
-On the consolidated financial statements,what amount should have been shown for Equity in Subsidiary Earnings?

Accepted Answer

A)  $432,000.
B)  $-0-.
C)  $408,000.
D)  $120,000.
E)  $312,000.

Exam 3: Consolidations - Subsequent to the Date of Acquisition