Chapter 03

Consolidations - Subsequent to the Date of Acquisition

 

Multiple Choice Questions

 

1. Which one of the following accounts would not appear in the consolidated financial
statements at the end of the first fiscal period of the combination? 
 

A. Goodwill.
B. Equipment.
C.  Investment in Subsidiary.
D. Common Stock.
E.  Additional Paid-In Capital.
 
2. Which of the following internal record-keeping methods can a parent choose to account
for a subsidiary acquired in a business combination? 
 

A. initial value or book value.

B. initial value, lower-of-cost-or-market-value, or equity.
C.  initial value, equity, or partial equity.
D. initial value, equity, or book value.
E.  initial value, lower-of-cost-or-market-value, or partial equity.
 
3. Which one of the following varies between the equity, initial value, and partial equity
methods of accounting for an investment? 
 

A. the amount of consolidated net income.

B. total assets on the consolidated balance sheet.
C.  total liabilities on the consolidated balance sheet.
D. the balance in the investment account on the parent's books.
E.  the amount of consolidated cost of goods sold.
 
4. Under the partial equity method, the parent recognizes income when 
 

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.
 
5. Push-down accounting is concerned with the 
 

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.
 
6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers
maintained its incorporation. Which of Racer's account balances would vary between the
equity method and the initial value method? 
 

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.
 
7. How does the partial equity method differ from the equity method? 
 

A. In the total assets reported on the consolidated balance sheet.

B. In the treatment of dividends.
C.  In the total liabilities reported on the consolidated balance sheet.
D. Under the partial equity method, subsidiary income does not increase the balance in the
parent's investment account.
E.  Under the partial equity method, the balance in the investment account is not decreased
by amortization on allocations made in the acquisition of the subsidiary.
 
8. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1,
2010, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen
reported net income of $70,000 in 2010 and $50,000 in 2011 and paid $22,000 in
dividends each year. Merriam reported net income of $40,000 in 2010 and $47,000 in
2011 and paid $10,000 in dividends each year. What is the Investment in Merriam Co.
balance on Jansen's books as of December 31, 2011, if the equity method has been
applied? 
 

A. $286,000.
B. $295,000.
C.  $276,000.
D. $344,000.
E.  $324,000.
 
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the fair
value of the subsidiary's net assets. On that date, Velway had equipment with a book value
of $500,000 and a fair value of $640,000. Joker had equipment with a book value of
$400,000 and a fair value of $470,000. Joker decided to use push-down accounting.
Immediately after the acquisition, what Equipment amount would appear on Joker's
separate balance sheet and on Velway's consolidated balance sheet, respectively? 
 

A. $400,000 and $900,000

B. $400,000 and $970,000
C.  $470,000 and $900,000
D. $470,000 and $970,000
E.  $470,000 and $1,040,000
 
10. Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price in
excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a
book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-year life)
with a book value of $240,000 and a fair value of $350,000. Parrett used the partial equity
method to record its investment in Jones. On December 31, 2011, Parrett had equipment
with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a
book value of $170,000 and a fair value of $320,000. What is the consolidated balance for
the Equipment account as of December 31, 2011? 
 

A. $387,000.
B. $497,000.
C.  $508.000.
D. $537,000.
E.  $570,000.
 
11. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the
year.

The 2010 total amortization of allocations is calculated to be 

 

A. $4,000.
B. $6,400.
C.  $(2,400).
D. $(1,000).
E.  $3,800.
 
12. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the
year.

In Cale's accounting records, what amount would appear on December 31, 2010 for equity
in subsidiary earnings? 
 

A. $77,000.
B. $79,000.
C.  $125,000.
D. $127,000.
E.  $81,800.
 
13. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the
year.

What is the balance in Cale's investment in subsidiary account at the end of 2010? 
 

A. $1,099,000.
B. $1,020,000.
C.  $1,096,200.
D. $1,098,000.
E.  $1,144,400.
 
14. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the
year.

At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings
would include a credit to Investment in Kaltop Co. for 
 

A. $124,400.
B. $126,000.
C.  $127,000.
D. $76,400.
E.  $0.
 
15. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the
year.

If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the
amount of consolidated net income? 
 

A. $569,000.
B. $570,000.
C.  $571,000.
D. $566,400.
E.  $444,000.
 
16. On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For
2010, 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 initial value method of
internal recordkeeping? 
 

A. $190,000.
B. $360,000.
C.  $164,000.
D. $354,000.
E.  $150,000.
 
17. On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For
2010, 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? 
 

A. $170,000.
B. $354,000.
C.  $164,000.
D. $6,000.
E.  $174,000.
 
18. Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January
1, 2010. Janex's reported earnings for 2010 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 for 2010, what amount should have been shown
for Equity in Subsidiary Earnings? 
 

A. $432,000.
B. $-0-
C.  $408,000.
D. $120,000.
E.  $288,000.
 
19. Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January
1, 2010. Janex's reported earnings for 2010 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 for 2010, what amount should have been shown
for consolidated dividends? 
 

A. $900,000.
B. $1,020,000.
C.  $876,000.
D. $996,000.
E.  $948,000.
 
20. Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009,
for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records
by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of
$67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of
$70,000 were paid in each of these two years. Selected account balances as of December
31, 2011, for the two companies follow.

   

If the partial equity method had been applied, what was 2011 consolidated net income? 
 

A. $840,000.
B. $768,400.
C.  $822,000.
D. $240,000.
E.  $600,000.
 
21. Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009,
for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records
by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of
$67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of
$70,000 were paid in each of these two years. Selected account balances as of December
31, 2011, for the two companies follow.

   

If the equity method had been applied, what would be the Investment in Tysk Corp.
account balance within the records of Jans at the end of 2011? 
 

A. $612,100.
B. $744,000.
C.  $774,150.
D. $372,000.
E.  $844,150.
 
22. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had
inventory with a book value of $42,000 and a fair value of $52,000. This inventory had
not yet been sold at December 31, 2010. Also, on the date of acquisition, Green had a
building with a book value of $200,000 and a fair value of $390,000. Green had
equipment with a book value of $350,000 and a fair value of $280,000. The building had a
10-year remaining useful life and the equipment had a 5-year remaining useful life. How
much total expense will be in the consolidated financial statements for the year ended
December 31, 2010 related to the acquisition allocations of Green? 
 

A. $43,000.
B. $33,000.
C.  $5,000.
D. $15,000.
E.  0.
 
23. All of the following are acceptable methods to account for a majority-owned investment
in subsidiary except 
 

A. The equity method.

B. The initial value method.
C.  The partial equity method.
D. The fair-value method.
E.  Book value method.
 
24. Under the equity method of accounting for an investment, 
 

A. The investment account remains at initial value.

B. Dividends received are recorded as revenue.
C.  Goodwill is amortized over 20 years.
D. Income reported by the subsidiary increases the investment account.
E.  Dividends received increase the investment account.
 
25. Under the partial equity method of accounting for an investment, 
 

A. The investment account remains at initial value.

B. Dividends received are recorded as revenue.
C.  The allocations for excess fair value allocations over book value of net assets at date of
acquisition are applied over their useful lives to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in
regard to the investment account.
E.  Dividends received increase the investment account.
 
26. Under the initial value method, when accounting for an investment in a subsidiary, 
 

A. Dividends received by the subsidiary decrease the investment account.

B. The investment account is adjusted to fair value at year-end.
C.  Income reported by the subsidiary increases the investment account.
D. The investment account remains at initial value.
E.  Dividends received are ignored.
 
27. According to GAAP regarding amortization of goodwill and other intangible assets, which
of the following statements is true? 
 

A. Goodwill recognized in consolidation must be amortized over 20 years.

B. Goodwill recognized in consolidation must be expensed in the period of acquisition.
C.  Goodwill recognized in consolidation will not be amortized but subject to an annual
test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E.  Goodwill recognized in consolidation must be amortized over 40 years.
 
28. When a company applies the initial method in accounting for its investment in a
subsidiary and the subsidiary reports income in excess of dividends paid, what entry
would be made for a consolidation worksheet?

    
 

A. A above
B. B above
C.  C above
D. D above
E.  E above
 
29. When a company applies the initial value method in accounting for its investment in a
subsidiary and the subsidiary reports income less than dividends paid, what entry would
be made for a consolidation worksheet?

    
 

A. A above
B. B above
C.  C above
D. D above
E.  E above
 
30. When a company applies the partial equity method in accounting for its investment in a
subsidiary and the subsidiary's equipment has a fair value greater than its book value,
what consolidation worksheet entry is made in a year subsequent to the initial acquisition
of the subsidiary?

    
 

A. A above
B. B above
C.  C above
D. D above
E.  E above
 
31. When a company applies the partial equity method in accounting for its investment in a
subsidiary and initial value, book values, and fair values of net assets acquired are all
equal, what consolidation worksheet entry would be made?

    
 

A. A above
B. B above
C.  C above
D. D above
E.  E above
 
32. When consolidating a subsidiary under the equity method, which of the following
statements is true? 
 

A. Goodwill is never recognized.

B. Goodwill required is amortized over 20 years.
C.  Goodwill may be recorded on the parent company's books.
D. The value of any goodwill should be tested annually for impairment in value.
E.  Goodwill should be expensed in the year of acquisition.
 
33. When consolidating a subsidiary under the equity method, which of the following
statements is true with regard to the subsidiary subsequent to the year of acquisition? 
 

A. All net assets are revalued to fair value and must be amortized over their useful lives.
B. Only net assets that had excess fair value over book value when acquired by the parent
must be amortized over their useful lives.
C.  All depreciable net assets are revalued to fair value at date of acquisition and must be
amortized over their useful lives.
D. Only depreciable net assets that have excess fair value over book value must be
amortized over their useful lives.
E.  Only assets that have excess fair value over book value must be amortized over their
useful lives.
 
34. Which of the following statements is false regarding push-down accounting? 
 

A. Push-down accounting simplifies the consolidation process.

B. Fewer worksheet entries are necessary when push-down accounting is applied.
C.  Push-down accounting provides better information for internal evaluation.
D. Push-down accounting must be applied for all business combinations under a pooling
of interests.
E.  Push-down proponents argue that a change in ownership creates a new basis for
subsidiary assets and liabilities.
 
35. Which of the following is false regarding contingent consideration in business
combinations? 
 

A. Contingent consideration payable in cash is reported under liabilities.

B. Contingent consideration payable in stock shares is reported under stockholders'
equity.
C.  Contingent consideration is recorded because of its substantial probability of eventual
payment.
D. The contingent consideration fair value is recognized as part of the acquisition
regardless of whether eventual payment is based on future performance of the target
firm or future stock price of the acquirer.
E.  Contingent consideration is reflected in the acquirer's balance sheet at the present value
of the potential expected future payment.
 
36. Factors that should be considered in determining the useful life of an intangible asset
include 
 

A. Legal, regulatory, or contractual provisions.

B. The residual value of the asset.
C.  The entity's expected use of the intangible asset.
D. The effects of obsolescence, competition, and technological change.
E.  All of the above choices are used in determining the useful life of an intangible asset.
 
37. Consolidated net income using the equity method for an acquisition combination is
computed as follows: 
 

A. Parent company's income from its own operations plus the equity from subsidiary's
income recorded by the parent.
B. Parent's reported net income.
C.  Combined revenues less combined expenses less equity in subsidiary's income less
amortization of fair-value allocations in excess of book value.
D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's
income recorded by parent.
E.  All of the above.
 
38. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the consideration transferred in excess of book value acquired at January 1,

2010. 
 
 A. $150.
B. $700.
C.  $2,200.
D. $550.
E.  $2,900.
 
39. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute goodwill, if any, at January 1, 2010. 

 

A. $150.
 B. $250.
C.  $700.
D. $1,200.
E.  $550.
 
40. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's inventory that would be reported in a January 1, 2010,
consolidated balance sheet. 
 
 A. $800.
B. $100.
C.  $900.
D. $150.
E.  $0.
 
41. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a December 31,
2010, consolidated balance sheet. 
 
 A. $1,560.
B. $1,260.
C.  $1,440.
D. $1,160.
E.  $1,140.
 
42. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a December 31,
2010, consolidated balance sheet. 
 
 A. $1,000.
B. $1,250.
C.  $875.
D. $1,125.
E.  $750.
 
43. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of total expenses reported in an income statement for the year ended
December 31, 2010, in order to recognize acquisition-date allocations of fair value and
book value differences, 
 
 A. $140.
B. $190.
C.  $260.
D. $285.
E.  $310.
 
44. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be reported in a

December 31, 2010, consolidated balance sheet. 
 
 A. $1,800.
B. $1,700.
C.  $1,725.
D. $1,675.
E.  $3,500.
 
45. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a December 31,
2011, consolidated balance sheet. 
 
 A. $1,620.
B. $1,380.
C.  $1,320.
D. $1,080.
E.  $1,500.
 
46. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a December 31,
2011, consolidated balance sheet. 
 
 A. $0.
B. $1,000.
C.  $1,250.
D. $1,125.
E.  $1,200.
 
47. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's land that would be reported in a December 31, 2011,
consolidated balance sheet. 
 
 A. $900.
B. $1,300.
C.  $400.
D. $1,450.
E.  $2,200.
 
48. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for
$3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is considered
goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be reported in a

December 31, 2011, consolidated balance sheet. 
 
 A. $1,700.
B. $1,800.
C.  $1,650.
D. $1,750.
E.  $3,500.
 
49. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000
excess consideration over book value which is being amortized at $20 per year. Fiore
reported net income of $400 in 2011 and paid dividends of $100.

Assume the equity method is applied. How much will Kaye's income increase or decrease
as a result of Fiore's operations? 
 

A. $400 increase.
B. $300 increase.
C.  $380 increase.
D. $280 increase.
E.  $480 increase.
 
50. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000
excess consideration over book value which is being amortized at $20 per year. Fiore
reported net income of $400 in 2011 and paid dividends of $100.

Assume the partial equity method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations? 
 

A. $400 increase.
B. $300 increase.
C.  $380 increase.
D. $280 increase.
E.  $480 increase.
 
51. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000
excess consideration over book value which is being amortized at $20 per year. Fiore
reported net income of $400 in 2011 and paid dividends of $100.

Assume the initial value method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations? 
 

A. $400 increase.
B. $300 increase.
C.  $380 increase.
D. $100 increase.
E.  $210 increase.
 
52. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000
excess consideration over book value which is being amortized at $20 per year. Fiore
reported net income of $400 in 2011 and paid dividends of $100.

Assume the partial equity method is used. In the years following acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required
for the equity method?

    
 

A. Entry A.
B. Entry B.
C.  Entry C.
D. Entry D.
E.  Entry E.
 
53. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000
excess consideration over book value which is being amortized at $20 per year. Fiore
reported net income of $400 in 2011 and paid dividends of $100.

Assume the initial value method is used. In the year subsequent to acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required
for the equity method?

    
 

A. Entry A.
B. Entry B.
C.  Entry C.
D. Entry D.
E.  Entry E.
 
54. Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown
Company on January 1, 2011:

(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.

On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown
would be 
 

A. $18,000.
B. $16,500.
C.  $20,000.
D. $18,500.
E.  $19,500.
 
55. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2009. 

 

A. $997,500.
B. $857,500.
C.  $1,200,000.
D. $1,600,000.
E.  $827,500.
 
56. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated revenues. 

 

A. $1,400,000.
B. $800,000.
C.  $500,000.
D. $1,590,375.
E.  $1,390,375.
 
57. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated total expenses. 

 

A. $620,000.
B. $280,000.
C.  $900,000.
D. $909,625.
E.  $299,625.
 
58. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated buildings. 

 

A. $1,037,500.
B. $1,007,500.
C.  $1,000,000.
D. $1,022,500.
E.  $1,012,500.
 
59. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated equipment. 

 

A. $800,000.
B. $808,000.
C.  $840,000.
D. $760,000.
E.  $848,000.
 
60. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated land. 

 

A. $220,000.
B. $180,000.
C.  $670,000.
D. $630,000.
E.  $450,000.
 
61. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated trademark. 

 

A. $50,000.
B. $46,875.
C.  $0.
D. $34,375.
E.  $37,500.
 
62. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated common stock. 

 

A. $450,000.
B. $530,000.
C.  $555,000.
D. $635,000.
E.  $525,000.
 
63. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated additional paid-in capital. 

 

A. $210,000.
B. $75,000.
C.  $1,102,500.
D. $942,500.
E.  $525,000.
 
64. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013 consolidated retained earnings. 

 

A. $1,645,375.
B. $1,350,000.
C.  $1,565,375.
D. $1,840,375.
E.  $1,265,375.
 
65. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par
value common stock with a fair value of $95 per share. On January 1, 2009, 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 equity in Vega's income to be included in Green's consolidated income

statement for 2013. 
 

A. $500,000.
B. $300,000.
C.  $190,375.
D. $200,000.
E.  $290,375.
 
66. One company acquires another company in a combination accounted for as an acquisition.
The acquiring company decides to apply the initial value method in accounting for the
combination. What is one reason the acquiring company might have made this decision? 
 

A. It is the only method allowed by the SEC.

B. It is relatively easy to apply.
C.  It is the only internal reporting method allowed by generally accepted accounting
principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E.  When the initial method is used, no worksheet entries are required in the consolidation
process.
 
67. One company acquires another company in a combination accounted for as an acquisition.
The acquiring company decides to apply the equity method in accounting for the
combination. What is one reason the acquiring company might have made this decision? 
 

A. It is the only method allowed by the SEC.

B. It is relatively easy to apply.
C.  It is the only internal reporting method allowed by generally accepted accounting
principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E.  When the equity method is used, no worksheet entries are required in the consolidation
process.
 
68. When is a goodwill impairment loss recognized? 
 

A. Annually on a systematic and rational basis.

B. Never.
C.  If both the fair value of a reporting unit and its associated implied goodwill fall below
their respective carrying values.
D. If the fair value of a reporting unit falls below its original acquisition price.
E.  Whenever the fair value of the entity declines significantly.
 
69. Which of the following will result in the recognition of an impairment loss on goodwill? 
 

A. Goodwill amortization is to be recognized annually on a systematic and rational basis.

B. Both the fair value of a reporting unit and its associated implied goodwill fall below
their respective carrying values.
C.  The fair value of the entity declines significantly.
D. The fair value of a reporting unit falls below the original consideration transferred for
the acquisition.
E.  The entity is investigated by the SEC and its reputation has been severely damaged.
 
70. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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, 2011? 
 

A. $1,080,000.
B. $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
71. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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 partial equity method in accounting for Kenneth, what is the
consolidated balance for the Equipment account as of December 31, 2011? 
 

A. $1,080,000.
B. $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
72. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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 initial value method in accounting for Kenneth, what is the
consolidated balance for the Equipment account as of December 31, 2011? 
 

A. $1,080,000.
B. $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
73. How is the fair value allocation of an intangible asset allocated to expense when the asset
has no legal, regulatory, contractual, competitive, economic, or other factors that limit its
life? 
 

A. Equally over 20 years.

B. Equally over 40 years.
C.  Equally over 20 years with an annual impairment review.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
E.  No amortization over an indefinite period time.
 
74. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison
estimates that there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of money. The fair
value of $16,500 at 5%, using a probability weighted approach, is $3,142.

What will Harrison record as its Investment in Rhine on January 1, 2010? 

 

A. $400,000.
B. $403,142.
C.  $406,000.
D. $409,142.
E.  $416,500.
 
75. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison
estimates that there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of money. The fair
value of $16,500 at 5%, using a probability weighted approach, is $3,142.

Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will
Harrison record the $16,500 payment of cash on April 15, 2011 in satisfaction of its
contingent obligation? 
 

A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.

B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of
contingent performance obligation $13,358, and Credit Cash $16,500.
C.  Debit Investment in Subsidiary and Credit Cash, $16,500.
D. Debit Goodwill and Credit Cash, $16,500.
E.  No entry.
 
76. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison
estimates that there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of money. The fair
value of $16,500 at 5%, using a probability weighted approach, is $3,142.

When recording consideration transferred for the acquisition of Rhine on January 1, 2010,
Harrison will record a contingent performance obligation in the amount of: 
 

A. $628.40
B. $2,671.60
C.  $3,142.00
D. $13,358.00
E.  $16,500.00
 
77. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for
$500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux
generates cash flows from operations of $26,500 or more in the next year. Beatty
estimates that there is a 30% probability that Gataux 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.

What will Beatty record as its Investment in Gataux on January 1, 2010? 

 

A. $500,000.
B. $503,461.
C.  $512,000.
D. $515,461.
E.  $526,500.
 
78. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for
$500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux
generates cash flows from operations of $26,500 or more in the next year. Beatty
estimates that there is a 30% probability that Gataux 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.

Assuming Gataux generates cash flow from operations of $27,200 in 2010, how will
Beatty record the $12,000 payment of cash on April 1, 2011 in satisfaction of its
contingent obligation? 
 

A. Debit Contingent performance obligation $3,461, debit Goodwill $8,539, and Credit
Cash $12,000.
B. Debit Contingent performance obligation $3,461, debit Loss from revaluation of
contingent performance obligation $8,539, and Credit Cash $12,000.
C.  Debit Goodwill and Credit Cash, $12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation $15,200, and
Credit Cash $12,000.
E.  No entry.
 
79. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for
$500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux
generates cash flows from operations of $26,500 or more in the next year. Beatty
estimates that there is a 30% probability that Gataux 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.

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for
$500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux
generates cash flows from operations of $26,500 or more in the next year. Beatty
estimates that there is a 30% probability that Gataux 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.

When recording consideration transferred for the acquisition of Gataux on January 1,

2010, Beatty will record a contingent performance obligation in the amount of: 
 

A. $692.20
B. $3,040.00
C.  $3,461.00
D. $12,000.00
E.  $15,200.00
 
80. Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred
exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a
book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a
book value of $400,000 and fair value of $500,000.

If push-down accounting is used, what amounts in the Building account appear in

Duchess' separate balance sheet and in the consolidated balance sheet immediately after
acquisition? 
 

A. $400,000 and $1,600,000.

B. $500,000 and $1,700,000.
C.  $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E.  $500,000 and $1,600,000.
 
81. Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred
exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a
book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a
book value of $400,000 and fair value of $500,000.

If push-down accounting is not used, what amounts in the Building account appear on
Duchess' separate balance sheet and on the consolidated balance sheet immediately after
acquisition? 
 

A. $400,000 and $1,600,000.

B. $500,000 and $1,700,000.
C.  $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E.  $500,000 and $1,600,000.
 
82. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. 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 Building in a consolidation at December 31, 2012, assuming the book value
of the building at that date is still $200,000? 
 

A. $200,000.
B. $285,000.
C.  $290,000.
D. $295,000.
E.  $300,000.
 
83. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $400,000 in cash for Glen, what amount would be represented as the
subsidiary's Building in a consolidation at December 31, 2012, assuming the book value
of the building at that date is still $200,000? 
 

A. $200,000.
B. $285,000.
C.  $260,000.
D. $268,000.
E.  $300,000.
 
84. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. 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, 2012, assuming the book value
of the equipment at that date is still $80,000? 
 

A. $70,000.
B. $73,500.
C.  $75,000.
D. $76,500.
E.  $80,000.
 
85. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net
of amortization, should be attributed to the subsidiary's Equipment in consolidation at
December 31, 2012? 
 

A. $(5,000.)
B. $80,000.
C.  $75,000.
D. $73,500.
E.  $(3,500.)
 
86. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's
Building be represented in a January 2, 2010 consolidation? 
 

A. $200,000.
B. $225,000.
C.  $273,000.
D. $279,000.
E.  $300,000.
 
87. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory
acquired be represented in a December 31, 2010 consolidated balance sheet? 
 

A. $40,000.
B. $50,000.
C.  $0.
D. $10,000.
E.  $90,000.
 
88. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and
pays $20,000 in dividends during 2010, what amount would be reflected in consolidated
net income for 2010 as a result of the acquisition? 
 

A. $20,000 under the initial value method.

B. $30,000 under the partial equity method.
C.  $50,000 under the partial equity method.
D. $44,500 under the equity method.
E.  $45,500 regardless of the internal accounting method used.
 
89. According to the FASB ASC regarding the testing procedures for Goodwill Impairment,
the proper procedure for conducting impairment testing is: 
 

A. Goodwill recognized in consolidation may be amortized uniformly and only tested if

the amortization method originally chosen is changed.
B. Goodwill recognized in consolidation must only be impairment tested prior to disposal
of the consolidated unit to eliminate the impairment of goodwill from the gain or loss
on the sale of that specific entity.
C.  Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by quantitative assessment of the possible impairment of the fair value
of the unit relative to the book value, and then a qualitative assessment as to why the
impairment, if any, occurred for disclosure.
D. Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by qualitative assessment of the possibility of impairment of the unit
fair value relative to the book value, and then quantitative assessments as to how much
impairment, if any, occurred for disclosure.
E.  Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by qualitative assessment of the possibility of impairment of the unit
fair value relative to the book value, and then quantitative assessments as to how much
impairment, if any, occurred for asset write-down.
 
90. When is a goodwill impairment loss recognized? 
 

A. Only after both a quantitative and qualitative assessment of the fair value of goodwill
of a reporting unit.
B. After only definitive quantitative assessments of the fair value of goodwill is
completed.
C.  After only definitive qualitative assessments of the fair value of goodwill is completed.
D. If the fair value of a reporting unit falls to zero or below its original acquisition price.
E.  Never.
 
 

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

 
92. 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? 
 

 
93. For an acquisition when the subsidiary maintains its incorporation, under the partial equity
method, what adjustments are made to the balance of the investment account? 
 

 
94. From which methods can a parent choose for its internal recordkeeping related to the
operations of a subsidiary? 
 

 
95. What accounting method requires a subsidiary to record acquisition fair value allocations
and the amortization of allocations in its internal accounting records? 
 

 
96. What is the partial equity method? How does it differ from the equity method? What are
its advantages and disadvantages compared to the equity method? 
 

 
97. What advantages might push-down accounting offer for internal reporting? 
 

 
98. What is the basic objective of all consolidations? 
 

 
99. 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. 
 

 
100. Paperless Co. acquired Sheetless Co. and in effecting this business combination, there
was a cash-flow performance contingency to be paid in cash, and a market-price
performance contingency to be paid in additional shares of stock. In what accounts and in
what section(s) of a consolidated balance sheet are these contingent consideration items
shown? 
 

 
101. Avery Company acquires Billings Company in a combination accounted for as an
acquisition and adopts the equity method to account for Investment in Billings. At the
end of four years, the Investment in Billings account on Avery's books is $198,984. What
items constitute this balance? 
 

 
102. Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate
incorporation. How would this loan be treated on a consolidated balance sheet? 
 

 
103. 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. 
 

 
104. Why is push-down accounting a popular internal reporting technique? 
 

 
 

Short Answer Questions

 
105. On January 1, 2010, Jumper Co. acquired all of the common stock of Cable Corp. for
$540,000. Annual amortization associated with the purchase amounted to $1,800. During
2010, Cable earned net income of $54,000 and paid dividends of $24,000. Cable's net
income and dividends for 2011 were $86,000 and $24,000, respectively.

Required:

Assuming that Jumper decided to use the partial equity method, prepare a schedule to
show the balance in the investment account at the end of 2011. 
 

 
106. Hanson Co. acquired all of the common stock of Roberts Inc. on January 1, 2010,
transferring consideration in an amount slightly more than the fair value of Roberts' net
assets. At that time, Roberts had buildings with a twenty-year useful life, a book value of
$600,000, and a fair value of $696,000. On December 31, 2011, Roberts had buildings
with a book value of $570,000 and a fair value of $648,000. On that date, Hanson had
buildings with a book value of $1,878,000 and a fair value of $2,160,000.

Required:

What amount should be shown for buildings on the consolidated balance sheet dated
December 31, 2011? 
 

 
107. Carnes Co. decided to use the partial equity method to account for its investment in
Domino Corp. An unamortized trademark associated with the acquisition was $30,000,
and Carnes decided to amortize the trademark over ten years. For 2011, Carnes' Equity in
Subsidiary Earnings was $78,000.

Required:

What balance would have been in the Equity in Subsidiary Earnings account if Carnes
had used the equity method? 
 

 
108. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January
1, 2010. Annual amortization of $22,000 resulted from this transaction. On the date of
the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2010
and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett
reported net income of $24,000 in 2010 and $36,000 in 2011, and paid dividends of
$10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the equity method, what were the consolidated
retained earnings on December 31, 2011? 
 

 
109. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January
1, 2010. Annual amortization of $22,000 resulted from this transaction. On the date of
the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2010
and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett
reported net income of $24,000 in 2010 and $36,000 in 2011, and paid dividends of
$10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the partial equity method, what were the
consolidated retained earnings on December 31, 2011? 
 

 
110. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January
1, 2010. Annual amortization of $22,000 resulted from this transaction. On the date of
the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2010
and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett
reported net income of $24,000 in 2010 and $36,000 in 2011, and paid dividends of
$10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the initial value method, what were the
consolidated retained earnings on December 31, 2011? 
 

 
111. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair value of assets and
liabilities is assigned to an unrecorded patent to be amortized over ten years.

   

What balance would Jaynes' Investment in Aaron Co. account have shown on December
31, 2010, when the equity method was applied for this acquisition? 
 

  

 
112. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair value of assets and
liabilities is assigned to an unrecorded patent to be amortized over ten years.

   

What was consolidated net income for the year ended December 31, 2011? 
 

  

 
113. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair value of assets and
liabilities is assigned to an unrecorded patent to be amortized over ten years.

   

What was consolidated equipment as of December 31, 2011? 

 

 
114. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair value of assets and
liabilities is assigned to an unrecorded patent to be amortized over ten years.

   

What was the total for consolidated patents as of December 31, 2011? 
 

 
115. Utah Inc. acquired all of the outstanding common stock of Trimmer Corp. on January 1,
2009. At that date, Trimmer owned only three assets and had no liabilities:

   

If Utah paid $300,000 in cash for Trimmer, what allocation should have been assigned to
the subsidiary's Building account and its Equipment account in a December 31, 2011
consolidation? 
 

 
116. Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2010. As
of that date, Jackson had the following trial balance:

   

During 2010, Jackson reported net income of $96,000 while paying dividends of
$12,000. During 2011, Jackson reported net income of $132,000 while paying dividends
of $36,000.
Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in
cash. As of January 1, 2010, Jackson's land had a fair value of $102,000, its buildings
were valued at $188,000, and its equipment was appraised at $216,000. Any excess of
consideration transferred over fair value of assets and liabilities acquired is due to an
unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.

Required:

(A.) Prepare consolidation worksheet entries for December 31, 2010.

(B.) Prepare consolidation worksheet entries for December 31, 2011. 
 

 
117. On January 1, 2009, Rand Corp. issued shares of its common stock to acquire all of the
outstanding common stock of Spaulding Inc. Spaulding's book value was only $140,000
at the time, but Rand issued 12,000 shares having a par value of $1 per share and a fair
value of $20 per share. Rand was willing to convey these shares because it felt that
buildings (ten-year life) were undervalued on Spaulding's records by $60,000 while
equipment (five-year life) was undervalued by $25,000. Any consideration transferred
over fair value of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies for the year ended
December 31, 2012.

   

Required:

Prepare a consolidation worksheet for this business combination. 

 

 
  

 
118. 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 2011
annual review for impairment:

   

Which of Pritchett's reporting units require both steps to test for goodwill impairment? 
 

 
119. 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 2011
annual review for impairment:

   

How much goodwill impairment should Pritchett report for 2011? 

 

 
120. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a remaining
useful life of 8 years and the equipment had a remaining useful life of 4 years. Any
excess fair value over consideration transferred is allocated to an undervalued patent and
is amortized over 5 years.

Determine the amortization expense related to the combination at the year-end date of
12/31/09. 
 

 
121. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a remaining
useful life of 8 years and the equipment had a remaining useful life of 4 years. Any
excess fair value over consideration transferred is allocated to an undervalued patent and
is amortized over 5 years.

Determine the amortization expense related to the combination at the year-end date of
12/31/13. 
 

 
122. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a remaining
useful life of 8 years and the equipment had a remaining useful life of 4 years. Any
excess fair value over consideration transferred is allocated to an undervalued patent and
is amortized over 5 years.

Determine the amortization expense related to the consolidation at the year-end date of
12/31/19. 
 

 
123. For each of the following situations, select the best answer that applies to consolidating
financial information subsequent to the acquisition date:

(A) Initial value method.

(B) Partial equity method.
(C) Equity method.
(D) Initial value method and partial equity method but not equity method.
(E) Partial equity method and equity method but not initial value method.
(F) Initial value method, partial equity method, and equity method.

_____1. Method(s) available to the parent for internal record-keeping.

_____2. Easiest internal record-keeping method to apply.
_____3. Income of the subsidiary is recorded by the parent when earned.
_____4. Designed to create a parallel between the parent's investment accounts and
changes in the underlying equity of the acquired company.
_____5. For years subsequent to acquisition, requires the *C entry.
_____6. Uses the cash basis for income recognition.
_____7. Investment account remains at initially recorded amount.
_____8. Dividends received by the parent from the subsidiary reduce the parent's
investment account.
_____9. Often referred to in accounting as a single-line consolidation.
_____10. Increases the investment account for subsidiary earnings, but does not decrease
the subsidiary account for equity adjustments such as amortizations. 
 

  

 
 Chapter 03 Consolidations - Subsequent to the Date of Acquisition Answer Key

Multiple Choice Questions

 

1. Which one of the following accounts would not appear in the consolidated financial
statements at the end of the first fiscal period of the combination? 
 

A. Goodwill.
B.  Equipment.
C. Investment in Subsidiary.
D. Common Stock.
E.  Additional Paid-In Capital.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
 
2. Which of the following internal record-keeping methods can a parent choose to account
for a subsidiary acquired in a business combination? 
 

A. initial value or book value.

B.  initial value, lower-of-cost-or-market-value, or equity.
C. initial value, equity, or partial equity.
D. initial value, equity, or book value.
E.  initial value, lower-of-cost-or-market-value, or partial equity.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
3. Which one of the following varies between the equity, initial value, and partial equity
methods of accounting for an investment? 
 

A. the amount of consolidated net income.

B.  total assets on the consolidated balance sheet.
C.  total liabilities on the consolidated balance sheet.
D. the balance in the investment account on the parent's books.
E.  the amount of consolidated cost of goods sold.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
 
4. Under the partial equity method, the parent recognizes income when 
 

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.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
5. Push-down accounting is concerned with the 
 

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.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
 Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers
maintained its incorporation. Which of Racer's account balances would vary between
the equity method and the initial value method? 
 

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.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
7. How does the partial equity method differ from the equity method? 
 

A. In the total assets reported on the consolidated balance sheet.

B.  In the treatment of dividends.
C.  In the total liabilities reported on the consolidated balance sheet.
D. Under the partial equity method, subsidiary income does not increase the balance in
the parent's investment account.
E.  Under the partial equity method, the balance in the investment account is not
decreased by amortization on allocations made in the acquisition of the subsidiary.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
8. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1,
2010, for $257,000. Annual amortization of $19,000 resulted from this acquisition.
Jansen reported net income of $70,000 in 2010 and $50,000 in 2011 and paid $22,000
in dividends each year. Merriam reported net income of $40,000 in 2010 and $47,000
in 2011 and paid $10,000 in dividends each year. What is the Investment in Merriam
Co. balance on Jansen's books as of December 31, 2011, if the equity method has been
applied? 
 

A. $286,000.
B.  $295,000.
C.  $276,000.
D. $344,000.
E.  $324,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the
fair value of the subsidiary's net assets. On that date, Velway had equipment with a
book value of $500,000 and a fair value of $640,000. Joker had equipment with a book
value of $400,000 and a fair value of $470,000. Joker decided to use push-down
accounting. Immediately after the acquisition, what Equipment amount would appear
on Joker's separate balance sheet and on Velway's consolidated balance sheet,
respectively? 
 

A. $400,000 and $900,000

B.  $400,000 and $970,000
C.  $470,000 and $900,000
D. $470,000 and $970,000
E.  $470,000 and $1,040,000
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
10. Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price
in excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life)
had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-
year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the
partial equity method to record its investment in Jones. On December 31, 2011, Parrett
had equipment with a book value of $250,000 and a fair value of $400,000. Jones had
equipment with a book value of $170,000 and a fair value of $320,000. What is the
consolidated balance for the Equipment account as of December 31, 2011? 
 

A. $387,000.
B.  $497,000.
C.  $508.000.
D. $537,000.
E.  $570,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
11. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during
the year.

The 2010 total amortization of allocations is calculated to be 

 

A. $4,000.
B.  $6,400.
C.  $(2,400).
D. $(1,000).
E.  $3,800.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
12. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during
the year.

In Cale's accounting records, what amount would appear on December 31, 2010 for
equity in subsidiary earnings? 
 

A. $77,000.
B.  $79,000.
C.  $125,000.
D. $127,000.
E.  $81,800.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
13. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during
the year.

What is the balance in Cale's investment in subsidiary account at the end of 2010? 
 

A. $1,099,000.
B.  $1,020,000.
C.  $1,096,200.
D. $1,098,000.
E.  $1,144,400.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
14. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during
the year.

At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's
earnings would include a credit to Investment in Kaltop Co. for 
 

A. $124,400.
B.  $126,000.
C. $127,000.
D. $76,400.
E.  $0.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
15. On January 1, 2010, 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:

   

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during
the year.

If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is
the amount of consolidated net income? 
 

A. $569,000.
B.  $570,000.
C. $571,000.
D. $566,400.
E.  $444,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
16. On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For
2010, 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 initial value
method of internal recordkeeping? 
 

A. $190,000.
B.  $360,000.
C. $164,000.
D. $354,000.
E.  $150,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
17. On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For
2010, 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? 
 

A. $170,000.
B.  $354,000.
C.  $164,000.
D. $6,000.
E.  $174,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
 subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
18. Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on
January 1, 2010. Janex's reported earnings for 2010 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 for 2010, what amount should have been
shown for Equity in Subsidiary Earnings? 
 

A. $432,000.
B.  $-0-
C.  $408,000.
D. $120,000.
E.  $288,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
19. Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on
January 1, 2010. Janex's reported earnings for 2010 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 for 2010, what amount should have been
shown for consolidated dividends? 
 

A. $900,000.
B.  $1,020,000.
C.  $876,000.
D. $996,000.
E.  $948,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
20. Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1,
2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk's
financial records by $46,000. Tysk also owned an unrecorded customer list with an
assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends
of $70,000 were paid in each of these two years. Selected account balances as of
December 31, 2011, for the two companies follow.

   

If the partial equity method had been applied, what was 2011 consolidated net income? 
 

A. $840,000.
B.  $768,400.
C. $822,000.
D. $240,000.
E.  $600,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
21. Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1,
2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk's
financial records by $46,000. Tysk also owned an unrecorded customer list with an
assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends
of $70,000 were paid in each of these two years. Selected account balances as of
December 31, 2011, for the two companies follow.

   

If the equity method had been applied, what would be the Investment in Tysk Corp.
account balance within the records of Jans at the end of 2011? 
 

A. $612,100.
B.  $744,000.
C.  $774,150.
D. $372,000.
E.  $844,150.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
22. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had
inventory with a book value of $42,000 and a fair value of $52,000. This inventory had
not yet been sold at December 31, 2010. Also, on the date of acquisition, Green had a
building with a book value of $200,000 and a fair value of $390,000. Green had
equipment with a book value of $350,000 and a fair value of $280,000. The building
had a 10-year remaining useful life and the equipment had a 5-year remaining useful
life. How much total expense will be in the consolidated financial statements for the
year ended December 31, 2010 related to the acquisition allocations of Green? 
 

A. $43,000.
B.  $33,000.
C.  $5,000.
D. $15,000.
E.  0.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
23. All of the following are acceptable methods to account for a majority-owned
investment in subsidiary except 
 

A. The equity method.

B.  The initial value method.
C.  The partial equity method.
D. The fair-value method.
E.  Book value method.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
24. Under the equity method of accounting for an investment, 
 

A. The investment account remains at initial value.

B.  Dividends received are recorded as revenue.
C.  Goodwill is amortized over 20 years.
D. Income reported by the subsidiary increases the investment account.
E.  Dividends received increase the investment account.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
25. Under the partial equity method of accounting for an investment, 
 

A. The investment account remains at initial value.

B.  Dividends received are recorded as revenue.
C.  The allocations for excess fair value allocations over book value of net assets at date
of acquisition are applied over their useful lives to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in
regard to the investment account.
E.  Dividends received increase the investment account.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
26. Under the initial value method, when accounting for an investment in a subsidiary, 
 

A. Dividends received by the subsidiary decrease the investment account.

B.  The investment account is adjusted to fair value at year-end.
C.  Income reported by the subsidiary increases the investment account.
D. The investment account remains at initial value.
E.  Dividends received are ignored.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
 Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
27. According to GAAP regarding amortization of goodwill and other intangible assets,
which of the following statements is true? 
 

A. Goodwill recognized in consolidation must be amortized over 20 years.

B.  Goodwill recognized in consolidation must be expensed in the period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual
test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E.  Goodwill recognized in consolidation must be amortized over 40 years.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
28. When a company applies the initial method in accounting for its investment in a
subsidiary and the subsidiary reports income in excess of dividends paid, what entry
would be made for a consolidation worksheet?

    
 

A. A above
B.  B above
C.  C above
D. D above
E.  E above
 
AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
29. When a company applies the initial value method in accounting for its investment in a
subsidiary and the subsidiary reports income less than dividends paid, what entry
would be made for a consolidation worksheet?

    
 

A. A above
B.  B above
C.  C above
D. D above
E.  E above
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
30. When a company applies the partial equity method in accounting for its investment in a
subsidiary and the subsidiary's equipment has a fair value greater than its book value,
what consolidation worksheet entry is made in a year subsequent to the initial
acquisition of the subsidiary?

    
 

A. A above
B.  B above
C.  C above
D. D above
E.  E above
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
31. When a company applies the partial equity method in accounting for its investment in a
subsidiary and initial value, book values, and fair values of net assets acquired are all
equal, what consolidation worksheet entry would be made?

    
 

A. A above
B.  B above
C.  C above
D. D above
E.  E above
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
32. When consolidating a subsidiary under the equity method, which of the following
statements is true? 
 

A. Goodwill is never recognized.

B.  Goodwill required is amortized over 20 years.
C.  Goodwill may be recorded on the parent company's books.
D. The value of any goodwill should be tested annually for impairment in value.
E.  Goodwill should be expensed in the year of acquisition.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
33. When consolidating a subsidiary under the equity method, which of the following
statements is true with regard to the subsidiary subsequent to the year of acquisition? 
 

A. All net assets are revalued to fair value and must be amortized over their useful
lives.
B.  Only net assets that had excess fair value over book value when acquired by the
parent must be amortized over their useful lives.
C. All depreciable net assets are revalued to fair value at date of acquisition and must
be amortized over their useful lives.
D. Only depreciable net assets that have excess fair value over book value must be
amortized over their useful lives.
E.  Only assets that have excess fair value over book value must be amortized over their
useful lives.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
34. Which of the following statements is false regarding push-down accounting? 
 

A. Push-down accounting simplifies the consolidation process.

B.  Fewer worksheet entries are necessary when push-down accounting is applied.
C.  Push-down accounting provides better information for internal evaluation.
D. Push-down accounting must be applied for all business combinations under a
pooling of interests.
E.  Push-down proponents argue that a change in ownership creates a new basis for
subsidiary assets and liabilities.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
35. Which of the following is false regarding contingent consideration in business
combinations? 
 

A. Contingent consideration payable in cash is reported under liabilities.

B.  Contingent consideration payable in stock shares is reported under stockholders'
equity.
C. Contingent consideration is recorded because of its substantial probability of
eventual payment.
D. The contingent consideration fair value is recognized as part of the acquisition
regardless of whether eventual payment is based on future performance of the target
firm or future stock price of the acquirer.
E.  Contingent consideration is reflected in the acquirer's balance sheet at the present
value of the potential expected future payment.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
36. Factors that should be considered in determining the useful life of an intangible asset
include 
 

A. Legal, regulatory, or contractual provisions.

B.  The residual value of the asset.
C.  The entity's expected use of the intangible asset.
D. The effects of obsolescence, competition, and technological change.
E.  All of the above choices are used in determining the useful life of an intangible
asset.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
 
37. Consolidated net income using the equity method for an acquisition combination is
computed as follows: 
 

A. Parent company's income from its own operations plus the equity from subsidiary's
income recorded by the parent.
B.  Parent's reported net income.
C.  Combined revenues less combined expenses less equity in subsidiary's income less
amortization of fair-value allocations in excess of book value.
D. Parent's revenues less expenses for its own operations plus the equity from
subsidiary's income recorded by parent.
E.  All of the above.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
38. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the consideration transferred in excess of book value acquired at January 1,

2010. 
 
 A. $150.
B.  $700.
C.  $2,200.
D. $550.
E.  $2,900.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
39. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute goodwill, if any, at January 1, 2010. 

 

A. $150.
 B.  $250.
C.  $700.
D. $1,200.
E.  $550.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
40. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's inventory that would be reported in a January 1, 2010,
consolidated balance sheet. 
 
 A. $800.
B.  $100.
C. $900.
D. $150.
E.  $0.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
41. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a December 31,
2010, consolidated balance sheet. 
 
 A. $1,560.
B.  $1,260.
C.  $1,440.
D. $1,160.
E.  $1,140.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
42. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a December 31,
2010, consolidated balance sheet. 
 
 A. $1,000.
B.  $1,250.
C.  $875.
D. $1,125.
E.  $750.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
43. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of total expenses reported in an income statement for the year
ended December 31, 2010, in order to recognize acquisition-date allocations of fair
value and book value differences, 
 
 A. $140.
B.  $190.
C.  $260.
D. $285.
E.  $310.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
44. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be reported in a

December 31, 2010, consolidated balance sheet. 
 
 A. $1,800.
B.  $1,700.
C. $1,725.
D. $1,675.
E.  $3,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
45. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a December 31,
2011, consolidated balance sheet. 
 
 A. $1,620.
B.  $1,380.
C. $1,320.
D. $1,080.
E.  $1,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
46. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a December 31,
2011, consolidated balance sheet. 
 
 A. $0.
B.  $1,000.
C.  $1,250.
D. $1,125.
E.  $1,200.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
47. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's land that would be reported in a December 31, 2011,
consolidated balance sheet. 
 
 A. $900.
B.  $1,300.
C.  $400.
D. $1,450.
E.  $2,200.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
48. Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010,
for $3,800 cash. As of that date Hurley has the following trial balance;

   

Any excess of consideration transferred over fair value of net assets acquired is
considered goodwill with an indefinite life. FIFO inventory valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be reported in a

December 31, 2011, consolidated balance sheet. 
 
 A. $1,700.
B.  $1,800.
C.  $1,650.
D. $1,750.
E.  $3,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
49. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2011 and paid dividends of $100.

Assume the equity method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations? 
 

A. $400 increase.
B.  $300 increase.
C. $380 increase.
D. $280 increase.
E.  $480 increase.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
50. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2011 and paid dividends of $100.

Assume the partial equity method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations? 
 

A. $400 increase.
B.  $300 increase.
C.  $380 increase.
D. $280 increase.
E.  $480 increase.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
51. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2011 and paid dividends of $100.

Assume the initial value method is applied. How much will Kaye's income increase or
decrease as a result of Fiore's operations? 
 

A. $400 increase.
B.  $300 increase.
C.  $380 increase.
D. $100 increase.
E.  $210 increase.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
52. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2011 and paid dividends of $100.

Assume the partial equity method is used. In the years following acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required
for the equity method?

    
 

A. Entry A.
B.  Entry B.
C.  Entry C.
D. Entry D.
E.  Entry E.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
53. Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid
$1,000 excess consideration over book value which is being amortized at $20 per year.
Fiore reported net income of $400 in 2011 and paid dividends of $100.

Assume the initial value method is used. In the year subsequent to acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required
for the equity method?

    
 

A. Entry A.
B.  Entry B.
C. Entry C.
D. Entry D.
E.  Entry E.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
54. Hoyt Corporation agreed to the following terms in order to acquire the net assets of
Brown Company on January 1, 2011:

(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.

On the date of acquisition, the consideration transferred for Hoyt's acquisition of

Brown would be 
 

A. $18,000.
B.  $16,500.
C.  $20,000.
D. $18,500.
E.  $19,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
55. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2009. 

 

A. $997,500.
B.  $857,500.
C.  $1,200,000.
D. $1,600,000.
E.  $827,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
56. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated revenues. 

 

A. $1,400,000.
B.  $800,000.
C.  $500,000.
D. $1,590,375.
E.  $1,390,375.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
 Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
57. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated total expenses. 

 

A. $620,000.
B.  $280,000.
C.  $900,000.
D. $909,625.
E.  $299,625.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
 Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
58. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated buildings. 

 

A. $1,037,500.
B.  $1,007,500.
C.  $1,000,000.
D. $1,022,500.
E.  $1,012,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
59. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated equipment. 

 

A. $800,000.
B.  $808,000.
C. $840,000.
D. $760,000.
E.  $848,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
 Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
60. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated land. 

 

A. $220,000.
B.  $180,000.
C. $670,000.
D. $630,000.
E.  $450,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
 Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
61. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated trademark. 

 

A. $50,000.
B.  $46,875.
C.  $0.
D. $34,375.
E.  $37,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
62. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated common stock. 

 

A. $450,000.
B.  $530,000.
C.  $555,000.
D. $635,000.
E.  $525,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
 Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
63. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013, consolidated additional paid-in capital. 

 

A. $210,000.
B.  $75,000.
C.  $1,102,500.
D. $942,500.
E.  $525,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
 Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
64. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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, 2013 consolidated retained earnings. 

 

A. $1,645,375.
B.  $1,350,000.
C.  $1,565,375.
D. $1,840,375.
E.  $1,265,375.
 
AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
65. Following are selected accounts for Green Corporation and Vega Company as of
December 31, 2013. Several of Green's accounts have been omitted.

   

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10
par value common stock with a fair value of $95 per share. On January 1, 2009, 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 equity in Vega's income to be included in Green's consolidated income

statement for 2013. 
 

A. $500,000.
B.  $300,000.
C. $190,375.
D. $200,000.
E.  $290,375.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
 Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
66. One company acquires another company in a combination accounted for as an
acquisition. The acquiring company decides to apply the initial value method in
accounting for the combination. What is one reason the acquiring company might have
made this decision? 
 

A. It is the only method allowed by the SEC.

B.  It is relatively easy to apply.
C.  It is the only internal reporting method allowed by generally accepted accounting
principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E.  When the initial method is used, no worksheet entries are required in the
consolidation process.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
67. One company acquires another company in a combination accounted for as an
acquisition. The acquiring company decides to apply the equity method in accounting
for the combination. What is one reason the acquiring company might have made this
decision? 
 

A. It is the only method allowed by the SEC.

B.  It is relatively easy to apply.
C.  It is the only internal reporting method allowed by generally accepted accounting
principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E.  When the equity method is used, no worksheet entries are required in the
consolidation process.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
68. When is a goodwill impairment loss recognized? 
 

A. Annually on a systematic and rational basis.

B.  Never.
C. If both the fair value of a reporting unit and its associated implied goodwill fall
below their respective carrying values.
D. If the fair value of a reporting unit falls below its original acquisition price.
E.  Whenever the fair value of the entity declines significantly.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
69. Which of the following will result in the recognition of an impairment loss on
goodwill? 
 

A. Goodwill amortization is to be recognized annually on a systematic and rational

basis.
B.  Both the fair value of a reporting unit and its associated implied goodwill fall below
their respective carrying values.
C.  The fair value of the entity declines significantly.
D. The fair value of a reporting unit falls below the original consideration transferred
for the acquisition.
E.  The entity is investigated by the SEC and its reputation has been severely damaged.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
70. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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, 2011? 
 

A. $1,080,000.
B.  $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
71. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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 partial equity method in accounting for Kenneth, what is the
consolidated balance for the Equipment account as of December 31, 2011? 
 

A. $1,080,000.
B.  $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
72. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an
amount 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, 2011, 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 initial value method in accounting for Kenneth, what is the
consolidated balance for the Equipment account as of December 31, 2011? 
 

A. $1,080,000.
B.  $1,104,000.
C.  $1,100,000.
D. $1,468,000.
E.  $1,475,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
73. How is the fair value allocation of an intangible asset allocated to expense when the
asset has no legal, regulatory, contractual, competitive, economic, or other factors that
limit its life? 
 

A. Equally over 20 years.

B.  Equally over 40 years.
C.  Equally over 20 years with an annual impairment review.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
E.  No amortization over an indefinite period time.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
 
74. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year.
Harrison estimates that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted approach, is
$3,142.

What will Harrison record as its Investment in Rhine on January 1, 2010? 

 

A. $400,000.
B.  $403,142.
C.  $406,000.
D. $409,142.
E.  $416,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
75. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year.
Harrison estimates that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted approach, is
$3,142.

Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will
Harrison record the $16,500 payment of cash on April 15, 2011 in satisfaction of its
contingent obligation? 
 

A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.

B.  Debit Contingent performance obligation $3,142, debit Loss from revaluation of
contingent performance obligation $13,358, and Credit Cash $16,500.
C.  Debit Investment in Subsidiary and Credit Cash, $16,500.
D. Debit Goodwill and Credit Cash, $16,500.
E.  No entry.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
76. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010
for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if
Rhine generates cash flows from operations of $27,000 or more in the next year.
Harrison estimates that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted approach, is
$3,142.

When recording consideration transferred for the acquisition of Rhine on January 1,

2010, Harrison will record a contingent performance obligation in the amount of: 
 

A. $628.40
B.  $2,671.60
C. $3,142.00
D. $13,358.00
E.  $16,500.00
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
77. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010
for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if
Gataux generates cash flows from operations of $26,500 or more in the next year.
Beatty estimates that there is a 30% probability that Gataux 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.

What will Beatty record as its Investment in Gataux on January 1, 2010? 

 

A. $500,000.
B.  $503,461.
C.  $512,000.
D. $515,461.
E.  $526,500.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
78. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010
for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if
Gataux generates cash flows from operations of $26,500 or more in the next year.
Beatty estimates that there is a 30% probability that Gataux 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.

Assuming Gataux generates cash flow from operations of $27,200 in 2010, how will
Beatty record the $12,000 payment of cash on April 1, 2011 in satisfaction of its
contingent obligation? 
 

A. Debit Contingent performance obligation $3,461, debit Goodwill $8,539, and Credit
Cash $12,000.
B.  Debit Contingent performance obligation $3,461, debit Loss from revaluation of
contingent performance obligation $8,539, and Credit Cash $12,000.
C.  Debit Goodwill and Credit Cash, $12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation $15,200, and
Credit Cash $12,000.
E.  No entry.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
79. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010
for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if
Gataux generates cash flows from operations of $26,500 or more in the next year.
Beatty estimates that there is a 30% probability that Gataux 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.

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010
for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if
Gataux generates cash flows from operations of $26,500 or more in the next year.
Beatty estimates that there is a 30% probability that Gataux 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.

When recording consideration transferred for the acquisition of Gataux on January 1,

2010, Beatty will record a contingent performance obligation in the amount of: 
 

A. $692.20
B.  $3,040.00
C. $3,461.00
D. $12,000.00
E.  $15,200.00
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
80. Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration
transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a
building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a
building with a book value of $400,000 and fair value of $500,000.

If push-down accounting is used, what amounts in the Building account appear in

Duchess' separate balance sheet and in the consolidated balance sheet immediately after
acquisition? 
 

A. $400,000 and $1,600,000.

B.  $500,000 and $1,700,000.
C.  $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E.  $500,000 and $1,600,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
81. Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration
transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a
building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a
building with a book value of $400,000 and fair value of $500,000.

If push-down accounting is not used, what amounts in the Building account appear on
Duchess' separate balance sheet and on the consolidated balance sheet immediately
after acquisition? 
 

A. $400,000 and $1,600,000.

B.  $500,000 and $1,700,000.
C. $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E.  $500,000 and $1,600,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
82. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. 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 Building in a consolidation at December 31, 2012, assuming the book
value of the building at that date is still $200,000? 
 

A. $200,000.
B.  $285,000.
C.  $290,000.
D. $295,000.
E.  $300,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
83. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $400,000 in cash for Glen, what amount would be represented as the
subsidiary's Building in a consolidation at December 31, 2012, assuming the book
value of the building at that date is still $200,000? 
 

A. $200,000.
B.  $285,000.
C.  $260,000.
D. $268,000.
E.  $300,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
84. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. 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, 2012, assuming the book
value of the equipment at that date is still $80,000? 
 

A. $70,000.
B.  $73,500.
C.  $75,000.
D. $76,500.
E.  $80,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
85. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation,
net of amortization, should be attributed to the subsidiary's Equipment in consolidation
at December 31, 2012? 
 

A. $(5,000.)
B.  $80,000.
C.  $75,000.
D. $73,500.
E.  $(3,500.)
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
86. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's
Building be represented in a January 2, 2010 consolidation? 
 

A. $200,000.
B.  $225,000.
C.  $273,000.
D. $279,000.
E.  $300,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
87. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory
acquired be represented in a December 31, 2010 consolidated balance sheet? 
 

A. $40,000.
B.  $50,000.
C. $0.
D. $10,000.
E.  $90,000.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
88. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1,
2010. At that date, Glen owns only three assets and has no liabilities:

   

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and
pays $20,000 in dividends during 2010, what amount would be reflected in
consolidated net income for 2010 as a result of the acquisition? 
 

A. $20,000 under the initial value method.

B.  $30,000 under the partial equity method.
C.  $50,000 under the partial equity method.
D. $44,500 under the equity method.
E.  $45,500 regardless of the internal accounting method used.
 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
89. According to the FASB ASC regarding the testing procedures for Goodwill
Impairment, the proper procedure for conducting impairment testing is: 
 

A. Goodwill recognized in consolidation may be amortized uniformly and only tested

if the amortization method originally chosen is changed.
B.  Goodwill recognized in consolidation must only be impairment tested prior to
disposal of the consolidated unit to eliminate the impairment of goodwill from the
gain or loss on the sale of that specific entity.
C.  Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by quantitative assessment of the possible impairment of the fair
value of the unit relative to the book value, and then a qualitative assessment as to
why the impairment, if any, occurred for disclosure.
D. Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by qualitative assessment of the possibility of impairment of the unit
fair value relative to the book value, and then quantitative assessments as to how
much impairment, if any, occurred for disclosure.
E.  Goodwill recognized in consolidation may be impairment tested in a two-step
approach, first by qualitative assessment of the possibility of impairment of the unit
fair value relative to the book value, and then quantitative assessments as to how
much impairment, if any, occurred for asset write-down.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
90. When is a goodwill impairment loss recognized? 
 

A. Only after both a quantitative and qualitative assessment of the fair value of
goodwill of a reporting unit.
B.  After only definitive quantitative assessments of the fair value of goodwill is
completed.
C.  After only definitive qualitative assessments of the fair value of goodwill is
completed.
D. If the fair value of a reporting unit falls to zero or below its original acquisition
price.
E.  Never.
 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
 Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
 

Essay Questions
 

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

The initial value method is the easiest to use.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
92. 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? 
 

The equity method gives the most accurate portrayal of the results for the combined
entity.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
93. For an acquisition when the subsidiary maintains its incorporation, under the partial
equity method, what adjustments are made to the balance of the investment account? 
 

The balance of the investment account is increased for the subsidiary's net income. It is
decreased for subsidiary dividends and losses. The amortization of excess fair value
allocations does not affect the account balance.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
94. From which methods can a parent choose for its internal recordkeeping related to the
operations of a subsidiary? 
 

The parent can choose from among the initial value method, equity method, and partial
equity method.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
95. What accounting method requires a subsidiary to record acquisition fair value
allocations and the amortization of allocations in its internal accounting records? 
 

The appropriate method is termed push-down accounting.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
  
96. What is the partial equity method? How does it differ from the equity method? What
are its advantages and disadvantages compared to the equity method? 
 

The partial equity method is a compromise between the initial value method and the
equity method. It provides some of the advantages of the equity method but is easier to
use. Under the partial equity method, the balance in the investment account is increased
by the accrual of the subsidiary's income and decreased when the subsidiary pays
dividends. The method is simpler than the equity method because amortization of
excess fair value allocations is not done.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
97. What advantages might push-down accounting offer for internal reporting? 
 

Push-down accounting requires the subsidiary to record acquisition fair value

allocations and amortizations in its accounting records. One advantage that the method
offers to internal reporting is that it simplifies the consolidation process. More
important, it provides better information for internal evaluation.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
98. What is the basic objective of all consolidations? 
 

The basic objective of all consolidations is to combine asset, liability, revenue,

expense, and stockholders' equity accounts in a manner consistent with the concepts of
the acquisition method to reflect substance over form in financial reporting for
consolidations. When a parent has control (substance) over a subsidiary and separate
incorporation is maintained (form), the consolidated financial statements will reflect
results as if the multiple entities were one entity.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
 
99. 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. 
 

The initial balance in the investment account would be the acquisition value implied by
the fair value of consideration transferred. This would not include consideration paid
for costs to effect the combination. After the acquisition, the balance in the account is
increased by the parent's accrual of the subsidiary's income and decreased by the
dividends paid by the subsidiary.

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
 
100. Paperless Co. acquired Sheetless Co. and in effecting this business combination, there
was a cash-flow performance contingency to be paid in cash, and a market-price
performance contingency to be paid in additional shares of stock. In what accounts and
in what section(s) of a consolidated balance sheet are these contingent consideration
items shown? 
 

A cash-flow performance contingency is shown as a contingent performance obligation

which is in the liability section of the consolidated balance sheet. A market-price
performance contingency to be paid in stock is shown as additional paid-in capital -
contingent equity outstanding which is in the stockholders' equity section of the
consolidated balance sheet.

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to a business acquisition.
 
101. Avery Company acquires Billings Company in a combination accounted for as an
acquisition and adopts the equity method to account for Investment in Billings. At the
end of four years, the Investment in Billings account on Avery's books is $198,984.
What items constitute this balance? 
 

Since the equity method has been applied by Avery, the $198,984 is composed of four
items:

(a.) The acquisition value of consideration transferred by the parent;

(b.) The annual accruals made by Avery to recognize income as it is earned by the
subsidiary;
(c.) The reductions that are created by the subsidiary's payment of dividends;
(d.) The periodic amortization recognized by Avery in connection with the excess fair
value allocations identified with its acquisition.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
 subsidiary account in its internal records.
 
102. Dutch Co. has loaned $90,000 to its subsidiary, Hans Corp., which retains separate
incorporation. How would this loan be treated on a consolidated balance sheet? 
 

The loan represents an intra-entity payable for Hans and receivable for Dutch, and each
receivable and payable would be eliminated in preparing a consolidated balance sheet.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
 
103. 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. 
 

The $90,000 attributed to goodwill is reported at its original amount unless a portion of
goodwill is impaired or a unit of the business where goodwill resides is sold.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
 
104. Why is push-down accounting a popular internal reporting technique? 
 

Push-down accounting has become popular for the parent's internal reporting purposes
for two reasons. First, this method simplifies the consolidation process each year. If
acquisition value allocations and subsequent amortization are recorded by the
subsidiary, they do not need to be repeated each year on a consolidation worksheet.
Second, recording of amortization by the subsidiary enables that company's
information to provide a good representation of the impact that the acquisition has on
the earnings of the business combination. For example, if the subsidiary earns $100,000
each year but annual amortization is $80,000, the acquisition is only adding $20,000 to
the income of the combination each year rather than the $100,000 that is reported by
the subsidiary unless push-down accounting is used.

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is appropriate.
 
 

Short Answer Questions

 
105. On January 1, 2010, Jumper Co. acquired all of the common stock of Cable Corp. for
$540,000. Annual amortization associated with the purchase amounted to $1,800.
During 2010, Cable earned net income of $54,000 and paid dividends of $24,000.
Cable's net income and dividends for 2011 were $86,000 and $24,000, respectively.

Required:

Assuming that Jumper decided to use the partial equity method, prepare a schedule to
show the balance in the investment account at the end of 2011. 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
106. Hanson Co. acquired all of the common stock of Roberts Inc. on January 1, 2010,
transferring consideration in an amount slightly more than the fair value of Roberts' net
assets. At that time, Roberts had buildings with a twenty-year useful life, a book value
of $600,000, and a fair value of $696,000. On December 31, 2011, Roberts had
buildings with a book value of $570,000 and a fair value of $648,000. On that date,
Hanson had buildings with a book value of $1,878,000 and a fair value of $2,160,000.

Required:

What amount should be shown for buildings on the consolidated balance sheet dated
December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
107. Carnes Co. decided to use the partial equity method to account for its investment in
Domino Corp. An unamortized trademark associated with the acquisition was $30,000,
and Carnes decided to amortize the trademark over ten years. For 2011, Carnes' Equity
in Subsidiary Earnings was $78,000.

Required:

What balance would have been in the Equity in Subsidiary Earnings account if Carnes
had used the equity method? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
108. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on
January 1, 2010. Annual amortization of $22,000 resulted from this transaction. On the
date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett
reported a $240,000 balance for retained earnings. Fesler reported net income of
$100,000 in 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends
each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, and
paid dividends of $10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the equity method, what were the
consolidated retained earnings on December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
109. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on
January 1, 2010. Annual amortization of $22,000 resulted from this transaction. On the
date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett
reported a $240,000 balance for retained earnings. Fesler reported net income of
$100,000 in 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends
each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, and
paid dividends of $10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the partial equity method, what were the
consolidated retained earnings on December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: c. The partial equity method.
 
110. Fesler Inc. acquired all of the outstanding common stock of Pickett Company on
January 1, 2010. Annual amortization of $22,000 resulted from this transaction. On the
date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett
reported a $240,000 balance for retained earnings. Fesler reported net income of
$100,000 in 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends
each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, and
paid dividends of $10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.

If the parent's net income reflected use of the initial value method, what were the
consolidated retained earnings on December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: b. The initial value method.
 
111. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration transferred over fair value
of assets and liabilities is assigned to an unrecorded patent to be amortized over ten
years.

   

What balance would Jaynes' Investment in Aaron Co. account have shown on
December 31, 2010, when the equity method was applied for this acquisition? 
 

An allocation of the acquisition value (based on the fair value of the shares issued)
must first be made.
    

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
112. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration transferred over fair value
of assets and liabilities is assigned to an unrecorded patent to be amortized over ten
years.

   

What was consolidated net income for the year ended December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
 Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
113. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration transferred over fair value
of assets and liabilities is assigned to an unrecorded patent to be amortized over ten
years.

   

What was consolidated equipment as of December 31, 2011? 

 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
 Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
114. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2010, by issuing
11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair
value. On that date, Aaron reported a net book value of $120,000. However, its
equipment (with a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration transferred over fair value
of assets and liabilities is assigned to an unrecorded patent to be amortized over ten
years.

   

What was the total for consolidated patents as of December 31, 2011? 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
 Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
115. Utah Inc. acquired all of the outstanding common stock of Trimmer Corp. on January
1, 2009. At that date, Trimmer owned only three assets and had no liabilities:

   

If Utah paid $300,000 in cash for Trimmer, what allocation should have been assigned
to the subsidiary's Building account and its Equipment account in a December 31, 2011
consolidation? 
 

Since Utah paid more than the $288,000 fair value of Trimmer's net assets, all
allocations are based on fair value with the excess $12,000 assigned to goodwill.

   

   

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
 Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
116. Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2010. As
of that date, Jackson had the following trial balance:

   

During 2010, Jackson reported net income of $96,000 while paying dividends of
$12,000. During 2011, Jackson reported net income of $132,000 while paying
dividends of $36,000.
Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in
cash. As of January 1, 2010, Jackson's land had a fair value of $102,000, its buildings
were valued at $188,000, and its equipment was appraised at $216,000. Any excess of
consideration transferred over fair value of assets and liabilities acquired is due to an
unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.

Required:

(A.) Prepare consolidation worksheet entries for December 31, 2010.

(B.) Prepare consolidation worksheet entries for December 31, 2011. 
 
   

   
    

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
117. On January 1, 2009, Rand Corp. issued shares of its common stock to acquire all of the
outstanding common stock of Spaulding Inc. Spaulding's book value was only
$140,000 at the time, but Rand issued 12,000 shares having a par value of $1 per share
and a fair value of $20 per share. Rand was willing to convey these shares because it
felt that buildings (ten-year life) were undervalued on Spaulding's records by $60,000
while equipment (five-year life) was undervalued by $25,000. Any consideration
transferred over fair value of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies for the year
ended December 31, 2012.

   

Required:

Prepare a consolidation worksheet for this business combination. 

 

Consolidation Worksheet for Rand and Spaulding:

    

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method.
 
118. 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 2011 annual review for impairment:

   

Which of Pritchett's reporting units require both steps to test for goodwill impairment? 
 

Goodwill Impairment Test—Step 1

   

Therefore, the Apple and the Carrot reporting units require both steps to test for
goodwill impairment.

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
 
119. 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 2011 annual review for impairment:

   

How much goodwill impairment should Pritchett report for 2011? 

 

Goodwill Impairment Test—Step 2 (Apple and Carrot only)

    

Total impairment loss $5,000 + $75,000 = $80,000

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
 
120. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining useful life of 4
years. Any excess fair value over consideration transferred is allocated to an
undervalued patent and is amortized over 5 years.

Determine the amortization expense related to the combination at the year-end date of
12/31/09. 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
121. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining useful life of 4
years. Any excess fair value over consideration transferred is allocated to an
undervalued patent and is amortized over 5 years.

Determine the amortization expense related to the combination at the year-end date of
12/31/13. 
 

   

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
122. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets
included land that was undervalued by $300,000, a building that was undervalued by
$400,000, and equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining useful life of 4
years. Any excess fair value over consideration transferred is allocated to an
undervalued patent and is amortized over 5 years.

Determine the amortization expense related to the consolidation at the year-end date of
12/31/19. 
 

By 2019, all of the fair value adjustments and the patent will have been fully amortized.
The amortization expense for 2019 related to the combination will be $0.

 
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments has no effect on the
resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.
 
123. For each of the following situations, select the best answer that applies to consolidating
financial information subsequent to the acquisition date:

(A) Initial value method.

(B) Partial equity method.
(C) Equity method.
(D) Initial value method and partial equity method but not equity method.
(E) Partial equity method and equity method but not initial value method.
(F) Initial value method, partial equity method, and equity method.

_____1. Method(s) available to the parent for internal record-keeping.

_____2. Easiest internal record-keeping method to apply.
_____3. Income of the subsidiary is recorded by the parent when earned.
_____4. Designed to create a parallel between the parent's investment accounts and
changes in the underlying equity of the acquired company.
_____5. For years subsequent to acquisition, requires the *C entry.
_____6. Uses the cash basis for income recognition.
_____7. Investment account remains at initially recorded amount.
_____8. Dividends received by the parent from the subsidiary reduce the parent's
investment account.
_____9. Often referred to in accounting as a single-line consolidation.
_____10. Increases the investment account for subsidiary earnings, but does not
decrease the subsidiary account for equity adjustments such as amortizations. 
 

(1) F; (2) A; (3) E; (4) C; (5) D; (6) A; (7) A; (8) E; (9) C; (10) B

 
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to maintain its investment in
subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent has applied in its internal
records: a. The equity method; b. The initial value method; c. The partial equity method.