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Question 1   On December 31, 20X8, Polaris Corporation acquired 100 percent ownership of Star Corporation

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Question 1  

On December 31, 20X8, Polaris Corporation acquired 100 percent ownership of Star Corporation. On that date, Star reported assets and liabilities with book values of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and retained earnings of $150,000. The book values and fair values of Star's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had decreased by $5,000.

Based on the preceding information, what amount of goodwill will be reported if the acquisition price was $195,000?

Question 2  

On January 1, 20X4, Pony Company acquired 25% of Stallion Company's common stock at underlying book value of $200,000. Stallion has 80,000 shares of $10 par value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears. Stallion reported net income of $270,000 for 20X4 and paid total dividends of $140,000. Pony uses the equity method to account for this investment.

Based on the preceding information, what amount of investment income will Pony Company report from its investment in Stallion for the year?

  

Question 3  

Which of the following is true? When companies employ push-down accounting:

  

Question 4  

A statutory consolidation is a type of business combination in which:

Question 5  

Prime Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000. Immediately prior to the acquisition, Prime reported total assets of $500,000, liabilities of $280,000, and stockholders' equity of $220,000. At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000. Included in Standard's liabilities was an account payable to Prime in the amount of $20,000, which Prime included in its accounts receivable.

Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?

  

Question 6  

Slide Corporation reported net income for the current year of $370,000 and paid cash dividends of $50,000. Power Company holds 40 percent of the outstanding voting stock of Slide. However, another corporation holds the other 60 percent ownership and does not take Power's input into consideration when making financing and operating decisions for Slide. What investment income should Power recognize for the current year?

  

Question 7  

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively.

Based on the preceding information, what is the fair value of Seel's net assets if goodwill of $20,000 is recorded in the acquisition?

  

Question 8  

On January 1, 20X8, Pullman Company acquired 30 percent of Skate Company's common stock, at underlying book value of $100,000. Skate has 100,000 shares of $2 par value, 5 percent cumulative preferred stock outstanding. No dividends are in arrears. Skate reported net income of $150,000 for 20X8 and paid total dividends of $72,000. Pullman uses the equity method to account for this investment.

Based on the preceding information, what amount of investment income will Pullman Company report from its investment in Skate for the year?

  

Question 9  

Perimeter, Inc. acquired 30 percent of South Co.'s (South) voting stock for $200,000 on January 1, 20X1. Perimeter's 30 percent interest in South gave Perimeter the ability to exercise significant influence over South's operating and financial policies. On that date, South reported assets of $500,000 and liabilities of $100,000. South had equipment with a book value of $60,000 that was actually worth $160,000. The equipment had a remaining useful life of five years. During 20X1, South reported net income of $80,000 and paid dividends of $50,000. What amount of income should Perimeter recognize in 20X1 as a result of this investment?

  

Question 10  

The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, which includes $60,000 of goodwill. If the fair value of the reporting unit as a whole is $335,000, what amount of goodwill impairment will be recognized for this unit?

  

Question 11  

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo. Company Esstwo owns 100 percent of Company Essthree. Consolidated financial statements should be prepared to report the financial status and results of operations for:

  

Question 12  

Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the book value of Jupiter's net assets was $250,000. The fair value of Jupiter's net assets was $280,000 on the acquisition date.

Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Mercury paid $295,000 for the acquisition?

  

Question 13  

On December 31, 20X1, Pine Corporation acquired 100 percent ownership of Sap Corporation.  On that date, Sap reported assets and liabilities with books values of $450,000 and $200,000, respectively, common stock outstanding of $150,000, and retained earnings of $100,000. The book values and fair values of Sap's assets and liabilities were identical except for land which had increased in value by $15,000 and inventories which had decreased by $5,000.

Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet on the acquisition date if the acquisition price was $280,000?

  

Question 14  

Which of the following situations best describes a business combination to be accounted for as a statutory merger?

  

Question 15  

ASC 805 is related to the Consolidation of Variable Interest Entities. Describe what a Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when these entities are consolidated?

Question 16

Ace Co. owns 30% of the voting common stock of Becker Services Inc. Ace uses the equity method to account for its investment. On January 1, year 1, the balance in the investment account was $624,000. During year 1, Becker Services reported net income of $120,000 and paid dividends of $30,000. 

What is the balance in the investment account as of December 31, year 1? Be sure to show all work to receive full credit.

Question 17

Dear Corporation acquired 100 percent of the voting shares of Therry Inc. by issuing 10,000 new shares of $5 par value common stock with a $30 market value.

 

Required:

1. Which company is the parent and which is the subsidiary?

2. Define a subsidiary corporation.

3. Define a parent corporation.

4. Which entity prepares consolidated worksheet?

5. Why are consolidation entries used?