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Exam 4: Consolidated Financial Statements After Acquisition

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Question 1

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Use the following information to answer questions 26 and 27 On January 1, 2014, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000.On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value.The difference was due to the increased value of buildings with a remaining life of 10 years.During 2014 Slume reported net income of $25,000 and paid dividends of $10,000.Puma uses the equity method. -What will be the balance in the Investment account as of Dec 31, 2014?

A) $150,000
B) $157,500
C) $154,500
D) $153,000

E) A) and C)
F) B) and D)

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Question 2

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An investor adjusts the investment account for the amortization of any difference between cost and book value under the

A) cost method.
B) complete equity method.
C) partial equity method.
D) complete and partial equity methods.

E) B) and D)
F) None of the above

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Question 3

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P Company purchased 80% of the outstanding common stock of S Company on May 1, 2014, for a cash payment of $1,272,000.S Company's December 31, 2013 balance sheet reported common stock of $800,000 and retained earnings of $540,000.During the calendar year 2014, S Company earned $840,000 evenly throughout the year and declared a dividend of $300,000 on November 1.What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2015?

If a parent company elects to use the partial equity method rather than the cost method to record its investments in subsidiaries, what effect will this choice have on the consolidated financial statements? If the parent company elects the complete equity method?

Describe two methods for treating the preacquisition revenue and expense items of a subsidiary purchased during a fiscal period.

What do potential voting rights refer to, and how do they affect the application of the equity method for investments under IFRS? Under U.S.GAAP? What is the term generally used for equity method investments under IFRS?

Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2013, for $380,000.During 2014 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000.Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2014 of:

P Company purchased 80% of the outstanding common stock of S Company on May 1, 2014, for a cash payment of $318,000.S Company's December 31, 2013 balance sheet reported common stock of $200,000 and retained earnings of $180,000.During the calendar year 2014, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1.What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2014?

Use the following information to answer questions 26 and 27 On January 1, 2014, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000.On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value.The difference was due to the increased value of buildings with a remaining life of 10 years.During 2014 Slume reported net income of $25,000 and paid dividends of $10,000.Puma uses the equity method. -What amount of investment income will be reported by Puma for the year 2014?

Pine, Inc.owns 40% of Supra Corporation.During the year, Supra had net earnings of $200,000 and paid dividends of $50,000.Masters used the cost method of accounting.What effect would this have on the investment account, net earnings, and retained earnings, respectively?

P Company purchased 90% of the common stock of S Company on January 2, 2014 for $900,000.On that date, S Company's stockholders' equity was as follows: $\begin{array}{lr}\text { Common stock, } \$ 20 \text { par value } & \$ 400,000 \\\text { Other contributed capital } & 100,000 \\\text { Retaned earnings } & 450,000\end{array}$ During 2014, S Company earned $200,000 and declared a $100,000 dividend.P Company uses the partial equity method to record its investment in S Company.The difference between implied and book value relates to land. Required: Prepared, in general journal form, all eliminating entries for the preparation of a consolidated statements workpaper on December 31, 2014.

Is the recognition of a deferred tax asset or deferred tax liability when allocating the difference between book value and the value implied by the purchase price affected by whether or not the affiliates file a consolidated income tax re-turnreturn?

A principal limitation of consolidated financial statements is their lack of separate financial in-formation about the assets, liabilities, revenues, and expenses of the individual companies included in the consolidation.Identify some that the reader of consolidated financial statements would encounter as a result of this limitation.

Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company's

Pure Company acquired 80% of the outstanding common stock of Saxxon Company on January 2, 2013 for $675,000.At that time, Saxxon's total stockholders' equity amounted to $1,000,000.Saxxon Company reported net income and dividends for the last two years as follows: Required: Prepare journal entries for Pure Company for 2013 and 2014 assuming Pure uses: A.The cost method to record its investment B.The complete equity method to record its investment.The difference between implied value and the book value of equity acquired was attributed solely to a building, with a 20-year expected life.

On October 1, 2014, Perma Company acquired for cash all of the voting common stock of Street Company.The purchase price of Street's stock equaled the book value and fair value of Street's net assets.The separate net income for each company, excluding Perma's share of income from Street was as follows: During September, Street paid $150,000 in dividends to its stockholders.For the year ended December 31, 2014, Perma issued parent company only financial statements.These statements are not considered those of the primary reporting entity.Under the partial equity method, what is the amount of net income reported in Perma's income statement?

In the preparation of a consolidated statement of cash flows, what adjustments are necessary because of the existence of a noncontrolling interest? (AICPA adapted)

On the consolidated statement of cash flows, the parent's acquisition of additional shares of the subsidiary's stock directly from the subsidiary is reported as

On a consolidated work paper for a parent and its partially owned subsidiary, the noncontrolling interest column accumulates the non controlling interests' share of several account balances.What are these accounts?

Park Company acquired a 90% interest in Southwestern Company on December 31, 2013, for $320,000.During 2014 Southwestern had a net income of $22,000 and paid a cash dividend of $7,000.Applying the cost method would give a debit balance in the Investment in Stock of Southwestern Company account at the end of 2014 of: