TB Chapter 5 Key
docx
keyboard_arrow_up
School
Cégep Montmorency *
*We aren’t endorsed by this school
Course
301
Subject
Accounting
Date
May 23, 2024
Type
docx
Pages
71
Uploaded by DoctorFieldAnt14
Chapter 5 Key
1.
Intangible assets with definite useful lives should be amortized:
A.
over their useful lives.
B.
over the time periods provided under IAS 36 Impairment of Assets
which prescribes amortization periods for different classes of assets.
C.
under the applicable capital cost allowance rates provided by the Canada Revenue Agency.
D.
over two years.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #1
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-04 Property, Plant, Equipment, and Intangible Assets with Definite Useful Lives
2.
Testing intangible assets with indefinite useful lives for impairment:
A.
occurs every year.
B.
occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc.
C.
never occurs because the asset has an indefinite useful life.
D.
occurs whenever required by the company's auditors.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #2
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-05 Intangible Assets with Indefinite Useful Lives
3.
Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives?
A.
All intangible assets are written down when their carrying values exceed their fair market values.
B.
With the exception of Goodwill, all intangible assets are written down when their
carrying values exceed their fair market values.
C.
All intangible assets are written down when their carrying values exceed their undiscounted future cash flows.
D.
The recoverable amount is determined and compared to the carrying amount. If
the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #3
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-06 Cash-Generating Units and Goodwill
4.
The rationale behind allocating goodwill across a subsidiary's various cash-
generating units is:
A.
that doing so will result in more accurate asset valuations.
B.
that it is necessary to comply with IASB requirements.
C.
that doing so would facilitate comparisons between operating segments.
D.
that the cash-generating units will benefit from the synergies of the combination.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #4
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-08 Disclosure Requirements
5.
An impairment loss can be reversed when:
A.
there is no indication that the impairment loss no longer exists or has been reduced and there has not been a change in the estimates used to determine the assets recoverable amount.
B.
with the exception of goodwill, all intangible assets carrying values exceed their
fair market values.
C.
the intangible assets carrying values exceed their undiscounted future cash flows.
D.
with the exception of goodwill, the recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the
carrying amount then the impairment loss previously recorded is reversed.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #5
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-07 Reversing an Impairment Loss
6.
Under the Cost Method, which of the following statements is TRUE?
A.
The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B.
The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C.
The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with
its share of the dividends declared by the subsidiary.
D.
The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #6
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
7.
Under the Equity Method, which of the following statements is TRUE?
A.
The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B.
The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C.
The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with
its share of the dividends declared by the subsidiary.
D.
The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #7
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary
8.
Consolidated Net Income would be:
A.
higher if the parent chooses to use Equity Method rather than the Cost Method.
B.
higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.
C.
lower if the parent chooses to use Equity Method rather than the Cost Method.
D.
the same under both the Cost and Equity Methods.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #8
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary
9.
Consolidated Net Income is equal to:
A.
the sum of the net incomes of both the parent and its subsidiaries.
B.
the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends.
C.
the parent's net income excluding any income arising from its investment in the subsidiary.
D.
the parent's net income excluding any income arising from its investment in the
Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #9
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-02 Consolidated Income and Retained Earnings Statement
Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2018. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
Errant Inc.
Grub Inc.
Grub Inc.
(carrying value)
(carrying value)
(fair value)
Cash
$120,000
$76,000
$76,000
Accounts Receivable
$ 80,000
$40,000
$40,000
Inventory
$ 60,000
$34,000
$50,000
Equipment (net)
$400,000
$80,000
$70,000
Trademark
-
$70,000
$84,000
Total Assets
$660,000
$300,000
Current Liabilities
$180,000
$ 80,000
$80,000
Bonds Payable
$320,000
$ 60,000
$64,000
Common Shares
$ 90,000
$100,000
Retained Earnings
$ 70,000
$ 60,000
Total Liabilities and Equity
$660,000
$300,000
The net incomes for Errant and Grub for the year ended December 31, 2018 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2018 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's
inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that Errant Inc. uses the Equity Method unless stated otherwise.
Hilton - Chapter 05
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
10.
The amount of goodwill arising from this business combination is:
A.
Nil
.
B.
$(24,000
).
C.
$12,00
0.
D.
$24,00
0.
Calculation and allocation of acquisition differential:
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #10
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
11.
How much Goodwill will be carried on Grub's balance sheet on December 31, 2018?
A.
Nil
.
B.
$(24,000
).
C.
$20,00
0.
D.
$24,00
0.
On Grub's separate entity financial statement balance sheet, there would be no goodwill (the goodwill is recorded on the consolidated balance sheet).
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #11
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
12.
Which of the following journal entries would be required on December 31, 2018 to record the Impairment of the Goodwill?
A.
No entry is required.
B.
Debit Credit
Equity method income
$4,00
0
Investment in Grub
$4,00
0
C.
Debit Credit
Investment in Grub $4,00
0
Equity method income
$4,00
0
D.
Debit Credit
Equity method income
$4,00
0
Investment in Grub
$4,00
0
Impairment of goodwill = $24,000 carrying value - $20,000 recoverable amount = $4,000 impairment.
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #12
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
13.
What would be the journal entry to record the dividends received by Errant during the year?
A.
Debit Credit
Cash
$9,00
0
Investment in Grub
$9,00
0
B.
Debit Credit
Cash
$9,00
0
Equity method income
$9,00
0
C.
Debit Credit
Cash
$9,00
0
Acquisition Differential
$9,00
0
D.
Debit Credit
Cash
$9,00
0
Goodwi
ll
$9,00
0
Under the equity method, dividends received are a reduction to the Investment in Subsidiary account.
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #13
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
14.
Assuming that Errant uses the Cost Method, what would be the journal entry to record the dividends received by Errant during the year?
A.
Debit Credit
Cash
$9,00
0
Investment in Grub
$9,00
0
B.
Debit Credit
Cash
$9,00
0
Dividend Income
$9,00
0
C.
Debit Credit
Cash
$9,00
0
Acquisition Income
$9,00
0
D.
Debit Credit
Cash
$9,00
0
Goodwi
ll
$9,00
0
Under the cost method, dividends received are recorded in the income statement as revenue.
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #14
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
15.
What would be Errant's journal entry to record the amortization of the acquisition differential (excluding any goodwill impairment) on December 31, 2018? (Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.)
A.
Debit
Credit
Equity method income
$18,80
0
Investment in Grub
$18,80
0
B.
Debit
Credit
Equity method income
$16,00
0
Investment in Grub
$16,00
0
C.
Debit
Credit
Investment in Grub $18,80
0
Equity method income
$18,80
0
D.
Debit
Credit
Investment in Grub $16,00
0
Equity method income
$16,00
0
Schedule of amortization and impairment of acquisition differential:
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #15
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
16.
What would be Errant's journal entry to record Grub's Net Income for 2018?
A.
Debit
Credit
Investment in Grub $81,00
0
Equity method income
$81,00
0
B.
Debit
Credit
Equity method income
$90,00
0
Investment in Grub
$90,00
0
C.
Debit
Credit
Investment in Grub $90,00
0
Equity method income
$90,00
0
D.
No entry is required.
Under the equity method, the subsidiary's net income is recorded as an increase to the investment asset account and as revenue in the income statement.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #16
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
17.
If Errant used the equity method to account for its investment in Grub and had net
income of $160,000 from its own operations (before making any entries to reflect its investment in Grub), what consolidated net income would Errant report in its consolidated income statement for the year ended December 31, 2018?
A.
$90,00
0.
B.
$160,00
0.
C.
$230,00
0.
D.
$250,00
0.
Errant's consolidated net income using the equity method (The parent's separate-
entity net income should be equal to consolidated net income attributable to shareholders of the parent):
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #17
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
18.
The amount of Retained Earnings appearing on the consolidated balance sheet as at January 1, 2018 would be:
A.
$60,00
0.
B.
$70,00
0.
C.
$130,00
0.
D.
$160,00
0.
$70,000. The retained earnings on the consolidated financial statements is equal to the parent's retained earnings on the date of acquisition.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #18
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
19.
If Errant used the equity method to account for its investment in Grub and had net
income of $160,000 from its own operations (before making any entries to reflect its investment in Grub) and paid no dividends in 2018, what amount of consolidated retained earnings would appear on Errant's consolidated balance sheet as at December 31, 2018?
A.
$60,00
0.
B.
$130,00
0.
C.
$160,00
0.
D.
$300,00
0.
consolidated retained earnings = $300,000 = opening retained earnings of parent $70,000 + parent's separate entity net income excluding any investment income from subsidiary $160,000 + subsidiary's net income flowed to the parent $70,000 (= $90,000 net income - $16,000 amortization on inventory acquisition differential
- $4,000 goodwill acquisition differential impairment loss).
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #19
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
20.
Consolidated Retained Earnings include:
A.
consolidated net income less any dividends declared by either the parent or the subsidiary.
B.
consolidated net income less any dividends declared by the parent only.
C.
the parent's net income plus its share of the subsidiary's income less any dividends declared by either the parent or the subsidiary.
D.
the parent's share of consolidated net income less any dividends declared by
the parent.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #20
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
21.
Company A sells inventory to its subsidiary, Company B at a mark-up of 20% on cost. Of what significance is this transaction, should A wish to prepare consolidated financial statements? The inventory is still in B's warehouse at year end.
A.
This is not significant. Any inter-company profits are eliminated during the Consolidation process.
B.
A's net income will be under-
stated.
C.
B's income will be over-
stated.
D.
There will be unrealized profits in inventory which will only be realized once B sells this inventory to outsiders.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #21
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
22.
Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the consolidated balance sheet?
A.
Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income.
B.
Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income less any dividends received from the subsidiary.
C.
No adjustment is required under either the Cost or the Equity methods.
D.
No adjustment is required if the parent has been using the Equity Method.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #22
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
23.
Any excess of fair value over book value attributable to land on the date of acquisition is to be:
A.
allocated to other identifiable assets.
B.
capitalized and amortized.
C.
charged to Retained Earnings on the date of acquisition.
D.
taken into income when the Land is
sold.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #23
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-02 Consolidated Income and Retained Earnings Statement
24.
Consolidated shareholders' equity:
A.
does not include any non-controlling Interest.
B.
is equal to the sum of the Shareholders' Equity Sections of the parent and the
subsidiary.
C.
is equal to that of the parent company under the Equity
Method.
D.
is higher under the Equity Method when the subsidiary does not declare dividends.
Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Gradable: automatic
Hilton - Chapter 05 #24
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
25.
If the parent company used the equity method to account for its investment and the subsidiary company showed a profit for the past year, the consolidation elimination entry required to remove a subsidiary's income from the parent's books prior to the preparation of consolidated financial statements would be:
A.
Debi
t
Credi
t
Equity method income - Parent
$$$
Retained Earnings - Parent
$$$
B.
Debi
t
Credi
t
Equity method income - Parent
$$$
Investment in Subsidiary
$$$
C.
Debi
t
Credi
t
Equity method income - Parent
$$$
Acquisition Differential
$$$
D.
Debi
t
Credi
t
Investment Income - Subsidiary
$$$
Equity method income - Parent
$$$
Blooms: Comprehension
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #25
Learning Objective: 05-08 (Appendix 5B) Prepare consolidated financial statements subsequent to date of acquisition using the
working paper approach.
Topic: 05-22 Year 1 Consolidated Financial Statement Working Paper
26.
The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of consolidated financial statements (assuming that the parent uses the cost method to record its investment in the sub) would be:
A.
Debi
t
Credi
t
Equity method income - Parent
$$$
Retained Earnings - Parent
$$$
B.
Debi
t
Credi
t
Dividend Income - Subsidiary
$$$
Investment in Subsidiary
$$$
C.
Debi
t
Credi
t
Dividend Income - Parent
$$$
Dividends - Subsidiary
$$$
D.
Debi
t
Credi
t
Equity method income - Subsidiary
$$$
Equity method income - Parent
$$$
Blooms: Comprehension
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #26
Learning Objective: 05-08 (Appendix 5B) Prepare consolidated financial statements subsequent to date of acquisition using the
working paper approach.
Topic: 05-22 Year 1 Consolidated Financial Statement Working Paper
27.
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of
$40,000 and paid dividends of $10,000.
Assuming that GNR Inc. uses the Equity Method, what effect would the above information have on GNR's investment in NMX account?
A.
An increase of $10,000.
B.
An increase of $30,000.
C.
An increase of $40,000.
D.
No effect.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #27
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
28.
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of
$40,000 and paid dividends of $10,000.
Assuming that GNR Inc. uses the Cost Method, what effect would the above information have on GNR's investment in NMX account?
A.
An increase of $10,000.
B.
An increase of $30,000.
C.
An increase of $40,000
D.
No effect.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #28
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
29.
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of
$40,000 and paid dividends of $10,000.
Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?
A.
An increase of $24,000.
B.
An increase of $30,000.
C.
An increase of $40,000.
D.
No effect.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #29
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
30.
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of
$40,000 and paid dividends of $10,000.
Assuming that GNR owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the Cost Method?
A.
An increase of $24,000.
B.
An increase of $30,000.
C.
An increase of $40,000.
D.
No effect.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #30
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
31.
GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of
$40,000 and paid dividends of $10,000.
Assuming once again that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method if GNR received $9,000 in dividends from NMX?
A.
An increase of $23,000.
B.
An increase of $1,000
C.
No effect.
D.
A decrease of $1,000.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #31
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had Common Shares and Retained
Earnings worth $180,000 and $90,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Humble's Bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life.
Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
Big Guy
Humble
Humble
(carrying value)
(carrying value)
(fair value)
Cash
$ 820,000
$245,000
$245,000
Accounts Receivable
$ 240,000
$ 40,000
$ 40,000
Inventory
$ 60,000
$ 45,000
$ 50,000
Equipment (net)
$ 900,000
$ 80,000
$ 72,000
Trademark
-
$ 90,000
$193,000
Total Assets
$2,000,000
$500,000
Current Liabilities
$ 200,000
$160,000
$160,000
Bonds Payable
$ 260,000
$ 70,000
$ 40,000
Common Shares
$ 900,000
$180,000
Retained Earnings
$ 640,000
$ 90,000
Total Liabilities and Equity
$2,000,000
$500,000
The following are the Financial Statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
Big Guy
Humbl
e
Sales
$640,00
0
$240,00
0
Investment Revenue
$ 8,480
-
Less: Expenses:
Cost of Goods Sold
$300,00
0
$160,00
0
Depreciation
$ $
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
81,000
34,000
Interest Expense
$ 34,000
$ 26,000
Other Expenses
$ 5,000
$ 8,000
Net Income
$228,48
0
$ 12,000
Retained Earnings Statements
Big Guy
Humb
le
Balance, July 1, 2019
$ 960,560
$48,00
0
Net Income
$ 228,480
$12,00
0
Dividends
$ 20,000
$ 2,000
Balance, June 30, 2020
$1,169,0
40
$58,00
0
Balance Sheets
Big Guy
Humbl
e
Cash
$1,200,0
00
$365,00
0
Accounts Receivable
$ 270,000
$ 55,000
Investment in Humble
$ 319,040
Inventory
$ 70,000
$ 70,000
Equipment (net)
$ 820,000
$ 65,000
Trademark
-
$ 85,000
Total Assets
$2,679,0
40
$640,0
00
Current Liabilities
$ 350,000
$332,00
0
Bonds Payable
$ $
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
260,000
70,000
Common Shares
$ 900,000
$180,00
0
Retained Earnings
$1,169,0
40
$ 58,000
Total Liabilities and Equity
$2,679,0
40
$640,0
00
An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the entity method applies.
Hilton - Chapter 05
32.
The amount of Goodwill arising from this business combination is:
A.
Nil
.
B.
$(40,000
).
C.
$50,00
0.
D.
$64,00
0.
Calculation and allocation of acquisition differential:
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #32
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
33.
The amount of Non-Controlling Interest on Big Guy's consolidated balance sheet on
July 1, 2017 would be:
A.
$0
.
B.
$88,00
0.
C.
$90,00
0.
D.
$270,00
0.
Acquisition cost for 80% = $360,000.Implied acquisition cost for 100% = $450,000
= $360,000 / 0.80.NCI = $450,000 x 20% = $90,000.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #33
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
34.
The amount of depreciation expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:
A.
$113,40
0.
B.
$113,72
0.
C.
$115,00
0.
D.
$116,28
0.
Depreciation expense on consolidated income statement = $113,400.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #34
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
35.
The amount of interest expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:
A.
$36,00
0.
B.
$57,60
0.
C.
$62,40
0.
D.
$63,00
0.
Interest expense on consolidated income statement = $63,000.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #35
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
36.
The amount of other expenses appearing on Big Guy's June 30, 2020 consolidated income statement would be:
A.
$11,60
0.
B.
$12,00
0.
C.
$13,00
0.
D.
$13,40
0.
Other expenses on consolidated income statement = $13,000.
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #36
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
37.
The amount of non-controlling interest appearing on Big Guy's June 30, 2020 consolidated income statement would be:
A.
Nil
.
B.
$2,00
0.
C.
$2,12
0.
D.
$3,60
0.
Calculation of consolidated net income:
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #37
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
38.
The Net Income attributable to Big Guy appearing on Big Guy's consolidated income statement on June 30, 2020 would be:
A.
$216,08
0.
B.
$218,48
0.
C.
$228,48
0.
D.
$279,60
0.
Calculation of consolidated net income:
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #38
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
39.
What amount of dividends would appear on Big Guy's consolidated statement of retained earnings as at June 30, 2020?
A.
$2,00
0.
B.
$20,00
0.
C.
$21,60
0.
D.
$22,00
0.
Dividends on consolidated retained earnings = dividends paid by Big Guy (parent) to parent's shareholders = $20,000.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #39
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
40.
Big Guy's consolidated retained earnings as at June 30, 2020 would be:
A.
$1,169,04
0.
B.
$1,486,40
0.
C.
$1,500,00
0.
D.
$1,508,00
0.
Under the equity method, consolidated retained earnings are equal to the retained
earnings of the parent = $1,169,040.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #40
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
41.
The amount of non-controlling interest appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:
A.
$79,76
0.
B.
$83,60
0.
C.
$90,00
0.
D.
$226,40
0.
NCI on consolidated balance sheet = $79,760.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #41
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
42.
What amount would appear as Big Guy's investment in Humble Corp. on its June 30, 2020 consolidated balance sheet?
A.
$9,60
0.
B.
$12,00
0.
C.
$360,00
0.
D.
The Investment in Humble Account would not appear on the consolidated balance sheet.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #42
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
43.
The amount of goodwill appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:
A.
Nil
.
B.
$30,00
0.
C.
$40,00
0.
D.
$50,00
0.
Consolidated goodwill = $40,000 = $50,000 goodwill on original business combination - $10,000 impairment loss.
Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #43
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
44.
The net amount appearing on Big Guy's consolidated balance sheet for Equipment as at June 30, 2020 would be:
A.
$872,00
0.
B.
$878,60
0.
C.
$881,80
0.
D.
$885,00
0.
Equipment (net) on consolidated balance sheet = $881,800.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #44
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
45.
The amount of Current Liabilities appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:
A.
$350,00
0.
B.
$630,00
0.
C.
$662,00
0.
D.
$682,00
0.
Current Liabilities on consolidated balance sheet = $662,000.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #45
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
46.
The amount of Accounts Receivable appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:
A.
$270,00
0.
B.
$305,00
0.
C.
$314,00
0.
D.
$325,00
0.
Accounts Receivable on consolidated balance sheet = $305,000.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #46
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
47.
The amount of Cash on Big Guy's consolidated balance sheet on June 30, 2020 would be:
A.
$1,200,00
0.
B.
$1,545,00
0.
C.
$1,565,00
0.
D.
$1,585,00
0.
Cash on consolidated balance sheet = $1,565,000.
Blooms: Application
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #47
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
48.
The amount of Common Shares appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:
A.
$900,00
0.
B.
$1,044,00
0.
C.
$1,080,00
0.
D.
$1,800,00
0.
Common Shares on consolidated balance sheet = Common Shares on Big Guy (parent) balance sheet = $900,000.
Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 05 #48
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
49.
The amount of Bonds Payable appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:
A.
$309,00
0.
B.
$317,80
0.
C.
$318,00
0.
D.
$330,00
0.
Bonds Payable on consolidated balance sheet = $309,000.
Blooms: Application
Difficulty: Moderate
Gradable: automatic
Hilton - Chapter 05 #49
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
50.
Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2015, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2015 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted
on December 31, 2016, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2015, Martin reported a net income of $60,000 and paid $12,000 in dividends. Martin's 2016 net income and dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Assuming that Davis purchases 100% of Martin for $300,000, answer the following:
Required:
a) Prepare Davis' Equity Method journal entries for 2015 and 2016.
b) Compute the following as at December 31, 2016:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.
a) Equity Method Journal Entries
2015:
Debit
Credit
Investment in Martin Inc.
$300,00
0
Cash
$300,00
0
Investment in Martin Inc.
$60,000
Investment Income
$60,000
Investment Income
$18,000
Investment in Martin Inc.
$18,000
Cash
$12,000
Investment in Martin Inc.
$12,000
2016:
Debit
Credit
Investment in Martin Inc.
$72,000
Investment Income
$72,000
Investment Income
$4,400
Investment in Martin $4,400
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Inc.
Cash
$15,000
Investment in Martin Inc.
$15,000
b) i) Investment in Martin Inc.:
Cost:
$300,00
0
Add:
2015 Income:
$60,000
Less:
2015 Dividends
($12,00
0)
Less:
2015 Acquisition Differential Amortization:
($18,00
0)
Add:
2016 Income:
$72,000
Less
: 2016 Dividends
($15,00
0)
Less:
2016 Acquisition Differential Amortization:
($4,400)
Investment in Martin Inc., December 31, 2016:
$382,6
00
ii) Goodwill:
Purchase Price of Martin:
$300,000
Less:
book value of Martin's net identifiable assets
($240,00
0)
Acquisition differential
$60,000
Less:
Excess of fair value over book values:
Inventories
($20,000
)
Patent
($16,000
)
Goodwill at date of acquisition
$24,000
Less:
Impairment Loss (10%)
($2,400)
Goodwill
$21,600
iii) The only unamortized acquisition differential remaining would be 8/10 of the excess fair value of the patent, which would be $16,000 plus the goodwill of $21,600 for a total of $37,600.
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #50
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
51.
Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2015, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2015 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted
on December 31, 2016, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2015, Martin reported a net income of $60,000 and paid $12,000 in dividends. Martin's 2016 net income and dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Assuming that Davis purchases 80% of Martin for $300,000, answer the following:
Required:
Prepare Davis' Equity-Method journal entries for 2015 and 2016.
a) Compute the following as at December 31, 2016:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.
a) Equity Method Journal Entries
2015:
Debit
Credit
Investment in Martin Inc.
$300,00
0
Cash
$300,00
0
Investment in Martin Inc.
$48,000
Investment Income
$48,000
Investment Income
$14,400
Investment in Martin Inc.
$14,400
Cash
$9,600
Investment in Martin Inc.
$9,600
2016:
Debit
Credit
Investment in Martin Inc.
$57,600
Investment Income
$57,600
Investment Income
$9,520
Investment in Martin Inc.
$9,520
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Cash
$12,000
Investment in Martin Inc.
$12,000
b) i) Investment in Martin Inc.:
Cost:
$300,00
0
Add:
2015 Income:
$48,000
Less:
2015 Dividends
($9,600)
Less:
2015 Acquisition Differential Amortization:
($14,40
0)
Add:
2016 Income:
$57,600
Less
: 2016 Dividends
($12,00
0)
Less:
2016 Acquisition Differential Amortization:
($9,520)
Investment in Martin Inc., December 31, 2016:
$360,0
80
ii) Goodwill
Purchase Price of Martin: 80%
$300,00
0
Imputed value at 100%
$375,00
0
Less:
book value of Martin's net identifiable assets
$240,00
0
Acquisition differential
$135,00
0
Less:
excess of fair value over book values:
Inventories
($20,00
0)
Patent
($16,00
0)
Goodwill at date of acquisition
$99,00
0
Less:
impairment loss (10%)
($9,900)
Goodwill
$89,10
0
iii) The only unamortized acquisition differential remaining would be 8/10 of the excess fair value of the patent, which would be $16,000 plus the goodwill of $89,100 for a total of $105,100.
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #51
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
52.
Linton Inc. purchased 75% of Marsh Inc. on January 1, 2015 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows:
Tradema
rk
$15,000 (which had not been previously recorded)
Inventory $8,000 (fair value in excess of book value)
The balance was allocated to goodwill. The trademark had an estimated remaining
useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2015, Marsh's net income was $40,000. Marsh paid $5,000 in dividends to shareholders on record as at December 31, 2015. In 2016, Marsh reported a net income of $8,000 and declared $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2015 and 2016.
b) Calculate the value of Marsh's trademark as at December 31, 2016.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2016.
a) Equity Method Journal Entries
2015:
Debit
Credit
Investment in Marsh Inc.
$1,000,0
00
Cash
$1,000,0
00
Investment in Marsh Inc.
$30,000
Investment Income
$30,000
Investment Income
$7,125
Investment in Marsh Inc.
$7,125
Cash
$3,750
Investment in Marsh Inc.
$3,750
2016:
Debit
Credit
Investment in Marsh Inc.
$6,000
Investment Income
$6,000
Investment Income
$1,125
Investment in Marsh Inc.
$1,125
Cash
$750
Investment in Marsh Inc.
$750
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
b) Trademark: $15,000 - ($1,500 x 2) = $12,000
c) Changes in Non-Controlling Interest:
Non-Controlling Interest, January 1, 2015:
($1,333,333 x 25 %)
$333,33
3
2015 Net Income (Non-Controlling Share)
($40,000 x 25%) - ($8,000+$1,500) x 25%
$7,625
Less:
2015 Dividends (Non-Controlling Share)
($5,000 x 25%)
($1,250
)
2016 Net Income (Non-Controlling Share)
($8,000 x 25%) - ($1,500 x 25%)
$1,625
Less:
2016 Dividends (Non-Controlling Share)
($1,000 x 25%)
($250)
Non-Controlling Interest, December
31, 2016
$341,0
83
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #52
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
53.
Selectron Inc. acquired 60% of Insor Inc. on January 1, 2016 for $180,000, when Insor's Common Shares and Retained Earnings were worth $60,000 and $180,000 respectively. Insor's fair values approximated their book values on that date. Selectron currently uses the Equity Method to account for its investment in Insor.
During 2016, investment Income in the amount of $12,000 and Dividends in the amount of $1,200 were recorded in Selectron's investment in Insor account. During 2017, investment income in the amount of $24,000 and Dividends in the amount of $2,400 were recorded in Selectron's investment in Insor account. Typically, Insor declares dividends in the amount of 10% of its earnings.
Required:
a) Compute Insor's net income for 2016 and 2017.
b) Compute the amount of dividends declared by Insor in each year.
c) Compute the balance in the non-controlling interest count as at December 31, 2017.
a) Insor's Net Income for 2016 and 2017 had to be $20,000 and $40,000 respectively.
Insor's Net Income for 2016 is calculated as follows:
2016 Net Income flowing through investment account = $12,000;
$12,000/60% = $20,000
Insor's 2017 net income would be calculated in the same manner, and would be $40,000.
b) Dividends, 2016 = $20,000 x 10 % = $2,000 (or $1,200/60%) Dividends, 2017 = $4,000.
c) Non-Controlling Interest:
Fair value of Insor at date of acquisition:
$300,00
0
Add: 2016 Net Income
$20,000
Less: 2016 Dividends
($2,000
)
Add: 2017 Net Income
$40,000
Less: 2017 Dividends
($4,000
)
Book value of Insor, December 31, 2017
$354,00
0
Non-Controlling Interest (40%)
$141,6
00
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #53
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
54.
Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2017. On
that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
Inventory
$5,000 less than book value
Equipment
$30,000 less than book value
Patent
$24,000 greater than fair value
Bonds Payable
$5,000 less than book value
The balance sheets of both companies, as at December 31, 2017 are disclosed below:
Brand X Inc.
Brand Y Inc.
Cash
$200,000
$ 45,000
Accounts Receivable
$100,000
$ 40,000
Inventory
$ 80,000
$ 55,000
Equipment (net)
$220,000
$100,000
Patent
-
$ 60,000
Investment in Brand Y
$348,000
-
Total Assets
$948,000
$300,000
Current Liabilities
$480,000
$ 53,000
Bonds Payable
$270,000
$ 50,000
Common Shares
$100,000
$180,000
Retained Earnings
$98,000
$ 19,000
Total Liabilities and Equity
$948,000
$300,000
The net incomes for Brand X and Brand Y for the year ended December 31, 2017 were $1,000 and $50,000 respectively. An impairment test conducted on December 31, 2017 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition. Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2022.
Prepare Brand X's consolidated balance sheet as at December 31, 2017, assuming that Brand X purchased 100% of Brand Y for $350,000 and accounts for its investment using the equity method.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Brand X Inc.
Consolidated Balance Sheet
As at December 31, 2017
Cash
$245,000
Accounts Receivable
$140,000
Inventory
(80 + 55 + 5 - 5)
$135,000
Equipment (net)
(220 + 100 - 30 + 3)
$293,000
Patent
(60 + 24 - 4)
$ 80,000
Goodwill
* see below
$154,000
Total Assets
$1,047,0
00
Current Liabilities
$533,000
Bonds Payable
(270 + 50 - 5 + 1)
$316,000
Common Shares
$100,000
Retained Earnings
$ 98,000
Total Liabilities and Equity
$1,047,0
00
The following explanation may help students understand how some of these figures were derived:
Goodwill:
Purchase Price
$350,00
0
Less: Fair value of net identifiable assets acquired:
$194,00
0
Goodwill
$156,00
0
Less: Impairment loss
($2,000
)
Goodwill
$154,0
00
Consolidated Retained Earnings:
Brand X Retained Earnings, January 1, 2017:
$48,00
0
Add
: Brand X Net Income
$50,00
0
Less
: Dividends
n/a
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Consolidated Retained Earnings
$98,0
00
Note: Consolidated Net Income under the Equity Method would be Brand X's net income.
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #54
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
55.
Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2017. On
that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
Inventory
$5,000 less than book value
Equipment
$30,000 less than book value
Patent
$24,000 greater than fair value
Bonds Payable
$5,000 less than book value
The balance sheets of both companies, as at December 31, 2017 are disclosed below:
Brand X Inc.
Brand Y Inc.
Cash
$200,000
$ 45,000
Accounts Receivable
$100,000
$ 40,000
Inventory
$ 80,000
$ 55,000
Equipment (net)
$220,000
$100,000
Patent
-
$ 60,000
Investment in Brand Y
$348,000
-
Total Assets
$948,000
$300,000
Current Liabilities
$480,000
$ 53,000
Bonds Payable
$270,000
$ 50,000
Common Shares
$100,000
$180,000
Retained Earnings
$98,000
$ 19,000
Total Liabilities and Equity
$948,000
$300,000
The net incomes for Brand X and Brand Y for the year ended December 31, 2017 were $1,000 and $50,000 respectively. An impairment test conducted on December 31, 2017 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition. Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2022.
Prepare Brand X's consolidated balance sheet as at December 31, 2017, assuming that Brand X purchased 80% of Brand Y for $350,000 and accounts for its investment using the equity method.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Brand X Inc.
Consolidated Balance Sheet
As at December 31, 2017
Cash
$245,000
Accounts Receivable
$140,000
Inventory
(80 + 55 + 5 - 5)
$135,000
Equipment (net)
(220 + 100 - 30 + 3)
$293,000
Patent
(60 + 24 - 4)
$ 80,000
Goodwill
* see below
$241,500
Total Assets
$1,134,5
00
Current Liabilities
$533,000
Bonds Payable
(270 + 50 - 5 + 1)
$316,000
Non-Controlling Interest
$ 87,500
Common Shares
$100,000
Retained Earnings
$98,000
Total Liabilities and Equity
$1,134,5
00
The following explanations may help students understand how some of the figures were derived:
Non-Controlling Interest:
NCI at acquisition
$87,50
0
Income ($50,000 x .2)
10,000
Dividends ($51,000 x
.2)
(10,20
0)
Inventory
1,000
Equipment
200
Patent
(800)
Bond
200
Goodwill
(400)
$87,50
0
Goodwill
:
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Purchase Price
$437,500 (imputed at 100% = ($350,000
/ 0.8))
Less: Fair value of net identifiable assets acquired: (100% x $194,000)
($194,000)
Goodwill
$243,500
Less: Impairment Loss
($2,000)
Goodwill
$241,500
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #55
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700,000 on July 1, 2015. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2020. The inventory was sold in the year following the acquisition. Both companies
use straight line amortization, and no salvage value is assumed for assets. Par Inc.
and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
Par Inc.
Sub Inc.
Sub Inc.
(carrying value)
(carrying value)
(fair value)
Cash
$ 600,000
$515,000
$515,00
0
Accounts Receivable
$ 140,000
$ 85,000
$ 85,000
Inventory
$ 60,000
$ 45,000
$ 60,000
Investment in Sub Inc.
$ 700,000
-
Equipment (net)
$ 50,000
$180,000
$185,00
0
Land
-
$115,000
$200,00
0
Total Assets
$1,550,000
$940,000
Current Liabilities
$ 100,000
$280,000
$280,00
0
Bonds Payable
$ 160,000
$ 80,000
$ 60,000
Common Shares
$ 800,000
$410,000
Retained Earnings
$ 490,000
$170,000
Total Liabilities and Equity
$1,550,000
$940,000
The following are the financial statements for both companies for the fiscal year ended June 30, 2016:
Income Statements
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Sales
$800,00
0
$300,00
0
Investment Revenue
$ 21,000
-
Less: Expenses:
Cost of Goods Sold
$240,00
0
$180,00
0
Depreciation
$ 10,000
$ 20,000
Interest Expense
$ 12,000
$ 40,000
Other Expenses
$ 8,000
$ 10,000
Net Income
$551,00
0
$ 50,000
Retained Earnings Statements
Balance, July 1, 2015
$ 490,000
$170,00
0
Net Income
$ 551,000
$ 50,000
Dividends
$ (10,000)
$ (5,000)
Balance, June 30, 2016
$1,031,0
00
$215,00
0
Balance Sheets
Par Inc.
Sub Inc.
Cash
$ 647,500
$ 665,000
Accounts Receivable
$ 250,000
$ 35,000
Investment in Sub
$ 717,500
Inventory
$ 90,000
$ 45,000
Equipment (net)
$ 750,000
$ 170,000
Land
-
$ 115,000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Total Assets
$2,455,0
00
$1,030,0
00
Current Liabilities
$ 464,000
$ 325,000
Bonds Payable
$ 160,000
$ 80,000
Common Shares
$ 800,000
$ 410,000
Retained Earnings
$1,031,0
00
$ 215,000
Total Liabilities and Equity
$2,455,0
00
$1,030,0
00
Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2015, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Hilton - Chapter 05
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
56.
Prepare Par's consolidated balance sheet as at the date of acquisition.
Par Inc.
Consolidated Balance Sheet
As at July 1, 2015
Cash
$1,115,0
00
Accounts Receivable
$225,000
Inventory
$120,000
Equipment (net)
$135,000
Land
$200,000
Goodwill*
$295,000
Total Assets
$2,190,0
00
Current Liabilities
$380,000
Bonds Payable
$220,000
Non-Controlling Interest
$300,000
Common Shares
$800,000
Retained Earnings
$490,000
Total Liabilities and Equity
$2,190,0
00
*Purchase Price for 70%
$700,000
Implied value of 100% interest
$1,000,0
00
Less: Fair value of net identifiable assets acquired
$705,000
Goodwill
$295,000
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #56
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent to the date of acquisition.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
57.
Prepare Par's consolidated income statement for the year ended June 30, 2016. Show the allocation of consolidated net income between the controlling and non-
controlling interests.
Par Inc.
Consolidated Income Statement
for the Year ended June 30, 2016
Sales
$1,100,0
00
Less: Expenses:
Cost of Goods Sold:
$435,000 ($240,000 + $180,000) + $15,000
Depreciation
$31,000
($10,000 + $20,000) + $1,000
Interest Expense
$56,000
($12,000 + $40,000) + $4,000
Other Expenses
$18,000
Consolidated Net Income
$560,000
Less:
Non-Controlling Interest
($9,000)
($50,000 - $15,000 - $1,000 - $4,000) x 30%
Parent's Share of CNI
$551,00
0
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #57
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
58.
Prepare Par's statement of consolidated retained earnings for the year ended June 30, 2016.
Par Inc.
Statement of Consolidated Retained Earnings
for the year Ended June 30, 2016
Beginning Retained Earnings:
$490,000
Add:
Parent's share of Consolidated Net Income:
$551,000
Less:
Dividends:
($10,000)
Ending Consolidated Retained Earnings:
$1,031,0
00
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #58
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
Topic: 05-20 Equity Method of Recording
59.
Prepare a statement of changes in Non-Controlling Interest for the year ended June
30, 2016.
Par Inc.
Statement of Changes in Non-Controlling Interest
for the year ended June 30, 2016
Non-controlling interest, July 1, 2015
$300,000
NCI share of consolidated net income
$9,000
NCI share of dividends
($1,500)
Non-controlling interest, June 30, 2016
$307,50
0
The ending balance can be calculated as follows:
Subsidiary's share capital
$410,000
Subsidiary's retained earnings
$215,000
Unamortized acquisition differential
$400,000
Total
$1,025,0
00
Noncontrolling interest at 30%
$307,500
Blooms: Application
Difficulty: Moderate
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Gradable: manual
Hilton - Chapter 05 #59
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
60.
Prepare a consolidated balance sheet for Par Inc. as at June 30, 2016.
Par Inc.
Consolidated Balance Sheet
As at June 30, 2016
Cash
(647.5 + 665) $1,312,5
00
Accounts Receivable
(250 + 35 - 10)
$275,000
Inventory
(90 + 45)
$135,000
Equipment (net)
(750 + 170 + 4)
$924,000
Land
(0 + 115 + 85)
$200,000
Goodwill
$295,000
Total Assets
$3,141,5
00
Current Liabilities
(464 + 325 - 10)
$779,000
Bonds Payable
(160 + 80 - 16)
$224,000
Non-Controlling Interest
$307,500
Common Shares
$800,000
Retained Earnings
$1,031,0
00
Total Liabilities and Equity
$3,141,5
00
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #60
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both an annual and a cumulative
basis.
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-19 Subsidiary Acquired During the Year
Topic: 05-20 Equity Method of Recording
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2015. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2035. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date
of acquisition are shown below:
Remburn Inc.
Stanton Inc.Stanton Inc.
(carrying value)
(carrying value)
(fair value)
Cash
$400,000
$ 5,000
$ 5,000
Accounts Receivable
$240,000
$ 30,000
$30,000
Inventory
$ 60,000
$ 30,000
$50,000
Investment in Stanton Inc.
$ 90,000
-
Equipment (net)
$160,000
$ 25,000
$20,000
Land
-
$ 20,000
$30,000
Trademark
-
$ 10,000
$15,000
Total Assets
$950,000
$120,000
Current Liabilities
$500,000
$ 50,000
$50,000
Bonds Payable
$120,000
$ 20,000
$30,000
Common Shares
$200,000
$ 30,000
Retained Earnings
$130,000
$ 20,000
Total Liabilities and Equity
$950,000
$120,000
The following are the financial statements for both companies for the fiscal year ended December 31, 2015:
Income Statements
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Sales
$295,75
0
$125,00
0
Dividend income
$ 3,600
-
Less: Expenses:
Cost of Goods Sold
$200,00
0
$ 19,000
Depreciation
$ 10,000
$ 25,000
Interest Expense
$ 16,000
$ 36,000
Other Expenses
$ 5,000
$ 28,000
Gain on Sale of Land
$ -
$ (8,000)
Net Income
$ 68,350
$ 25,000
Retained Earnings Statements
Balance, January 1, 2015
$130,00
0
$20,00
0
Net Income
$ 68,350
$25,00
0
Dividends
$(12,00
0)
$(4,00
0)
Balance, December 31, 2015
$186,35
0
$41,00
0
Balance Sheets
Remburn Inc.
Stanton Inc.
Cash
$190,950
$156,000
Accounts Receivable
$200,000
$150,000
Investment in Stanton Inc.
$ 90,000
Inventory
$100,000
$ 30,000
Equipment (net)
$350,000
$ 25,000
Trademark
-
$ 10,000
Total Assets
$930,950
$371,000
Current Liabilities
$424,600
$280,000
Bonds Payable
$120,000
$ 20,000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Common Shares
$200,000
$ 30,000
Retained Earnings
$186,350
$ 41,000
Total Liabilities and Equity
$930,950
$371,000
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2015, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $18,000. Goodwill impairment for 2015 was determined to be $7,000. Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (parent company extension method).
Hilton - Chapter 05
61.
Prepare Remburn's consolidated income statement for the year ended December 31, 2015 and show the allocation of the consolidated net income between the controlling and non-controlling interests.
Remburn Inc.
Consolidated Income Statement
For the Year ended December 31, 2015
Sales
$420,75
0
Less: Expenses:
Cost of Goods Sold
(200,000 + 19,000 + 20,000)
$ 239,000
Depreciation
(10,000 + 25,000 - 500)
$34,500
Interest Expense
(16,000 + 36,000 - 500)
$51,500
Other Expenses
(5,000 + 28,000 + 1,000)
$34,000
Loss on Sale of Land
(-8,000 + 10,000)
$2,000
Goodwill impairment
$7,000
Consolidated Net Income
$52,75
0
Less:
Non-Controlling Interest
($1,100)
Parent's share of Consolidated Net Income
$51,65
0
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #61
Learning Objective: 05-04 Prepare consolidated financial statements using parent company extension theory subsequent to the date
of acquisition.
Topic: 05-16 Parent Company Extension Theory
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
62.
Prepare Remburn's statement of consolidated retained earnings as at December 31, 2015.
Remburn Inc.
Statement of Retained Earnings
As at December 31, 2015
Beginning Retained Earnings:
$130,00
0
Add:
Parent's share of Consolidated Net Income:
$51,650
Less:
Dividends:
($12,00
0)
Ending Consolidated Retained Earnings:
$169,6
50
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #62
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under the equity method.
Topic: 05-20 Equity Method of Recording
63.
Prepare a statement of changes in Non-Controlling Interest for the year ended December 31, 2015.
Remburn Inc.
Statement of Non-Controlling Interest
For the year ended December 31, 2015
Non-Controlling interest at acquisition
$7,00
0
NCI share of consolidated net income
$1,10
0
NCI share of dividends
($ 400)
Non-Controlling Interest:
$7,70
0
Blooms: Application
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #63
Learning Objective: 05-04 Prepare consolidated financial statements using parent company extension theory subsequent to the date
of acquisition.
Topic: 05-16 Parent Company Extension Theory
Topic: 05-17 Acquisition Differential Assigned to Liabilities
Topic: 05-18 Intercompany Receivables and Payables
Topic: 05-19 Subsidiary Acquired During the Year
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
64.
Prepare a consolidated balance sheet for Remburn Inc. as at December 31, 2015.
Remburn Inc.
Consolidated Balance Sheet
As at December 31, 2015
Cash
(190,950 + 156,000)
$346,950
Accounts Receivable
(200,000 + 150,000 - 20,000)
$330,000
Inventory
(100,000 + 30,000)
$130,000
Equipment (net)
(350,000 + 25,000 - 4,500)
$370,500
Trademark
(0 + 10,000 + 4,000)
$14,000
Goodwill
* see below
$20,000
Total Assets
$1,211,4
50
Current Liabilities
(424,600 + 280,000 - 20,000)
$684,600
Bonds Payable
(120,000 + 20,000 + 9,500)
$149,500
Non-Controlling Interest
$7,700
Common Shares
$200,000
Retained Earnings
$169,650
Total Liabilities and Equity
$1,211,4
50
*Purchase Price (90%)
$90,00
0
Value assigned to NCI
$7,000
(10% of $70,000 fair value of identifiable net assets)
$97,00
0
Less: Fair value of net identifiable assets acquired
$50,00
0
$47,00
0
Allocated:
Inventory $20,000
Equipment (5,000)
Land 10,000
Trademark 5,000
Bonds payable (10,000)
$20,00
0
Goodwill (parent's share)
$27,00
0
Amortization/impairment of acquisition differential:
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
At acq'n
2015
Balanc
e
Inventory
$20,000 ($20,00
0)
$0
Equipment
($5,000)$500
($4,50
0)
Land
$10,000 ($10,00
0)
$0
Trademark
$5,000
($1,000)$4,000
Bonds payable
($10,00
0)
$500
($9,50
0)
Goodwill
$27,000 ($7,000)$20,00
0
Blooms: Application
Difficulty: Difficult
Gradable: manual
Hilton - Chapter 05 #64
Learning Objective: 05-04 Prepare consolidated financial statements using parent company extension theory subsequent to the date
of acquisition.
Topic: 05-16 Parent Company Extension Theory
Topic: 05-17 Acquisition Differential Assigned to Liabilities
Topic: 05-18 Intercompany Receivables and Payables
Topic: 05-19 Subsidiary Acquired During the Year
65.
Assume that Stanton's Equipment, Land and Trademark on the date of acquisition form part of a single asset group. Assume also that these assets are expected to generate future cash flows of $40,000. Does this mean that Stanton will have to recognize an impairment loss? Explain.
Not necessarily. Given the above information, Stanton has "failed" the first part of the required two-part impairment test required for long-lived assets since the expected future cash flows of this asset group of $40,000 falls well short of the carrying values of the assets within the group, which total $55,000. Given this information, the second part of the two-part impairment test must be applied.
The second part of the impairment test requires that an impairment loss be recognized if Stanton fails the first part of the impairment test and the fair values of the assets within the group are less than their total carrying values. However, since the fair values of the assets are higher than their carrying values ($65,000 vs. $55,000 respectively), there would be no impairment loss in this case.
Blooms: Application
Blooms: Comprehension
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #65
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-06 Cash-Generating Units and Goodwill
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
66.
Assume that Stanton had other Intangible assets with indefinite lives on its books at the date of acquisition. How would the impairment test differ from that which would apply to its amortizable assets, if at all? A simple explanation is required. Please do not use any numbers to support your answer.
Only the second part of the two-part impairment test would be required. Thus, an impairment loss would have to be recognized only if the fair value of the relevant asset group were less than their carrying values.
Blooms: Application
Blooms: Comprehension
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #66
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-04 Property, Plant, Equipment, and Intangible Assets with Definite Useful Lives
67.
Assume that Stanton Inc.'s common shares had a fair market value of $51,000 on December 31, 2015. Assume also that the fair values of Stanton's identifiable net assets amounted to $36,000. Assuming that Rembrandt's fair values equaled its book values on the date of acquisition, has the consolidated Goodwill calculated above been impaired, and if so, by how much?
Yes, goodwill has been impaired. Stanton's net assets had a carrying value of $81,000, $30,000 more than their fair values, which indicates that the second part
of the two step impairment test for goodwill must be performed. This is essentially a recalculation of the consolidated goodwill, which in this case would amount to $15,000 ($51,000 - $36,000). Since consolidated goodwill is currently $20,000, an impairment loss of $5,000 will have to be recognized.
Blooms: Application
Blooms: Comprehension
Difficulty: Moderate
Gradable: manual
Hilton - Chapter 05 #67
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill.
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
Topic: 05-04 Property, Plant, Equipment, and Intangible Assets with Definite Useful Lives
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Chapter 5 Summary
Category
#
of
Questi
ons
Accessibility: Keyboard Navigation
28
Blooms: Application
44
Blooms: Comprehension
19
Blooms: Knowledge
7
Difficulty: Difficult
1
Difficulty: Easy
25
Difficulty: Moderate
41
Gradable: automatic
49
Gradable: manual
18
Hilton - Chapter 05
71
Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and
goodwill.
13
Learning Objective: 05-02 Prepare schedules to allocate and amortize the acquisition differential on both
an annual and a cumulative basis.
12
Learning Objective: 05-03 Prepare consolidated financial statements using the entity theory subsequent t
o the date of acquisition.
25
Learning Objective: 05-04 Prepare consolidated financial statements using parent company extension the
ory subsequent to the date of acquisition.
3
Learning Objective: 05-05 Prepare journal entries and calculate balance in the investment account under t
he equity method.
22
Learning Objective: 05-08 (Appendix 5B) Prepare consolidated financial statements subsequent to date of
acquisition using the working paper approach.
2
Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary
3
Topic: 05-02 Consolidated Income and Retained Earnings Statement
2
Topic: 05-03 Testing Goodwill and Other Assets for Impairment
8
Topic: 05-04 Property, Plant, Equipment, and Intangible Assets with Definite Useful Lives
3
Topic: 05-05 Intangible Assets with Indefinite Useful Lives
1
Topic: 05-06 Cash-Generating Units and Goodwill
2
Topic: 05-07 Reversing an Impairment Loss
1
Topic: 05-08 Disclosure Requirements
1
Topic: 05-09 Consolidation of a 100%-Owned Subsidiary
11
Topic: 05-12 Consolidation of an 80%-Owned SubsidiaryDirect Approach
25
Topic: 05-16 Parent Company Extension Theory
3
Topic: 05-17 Acquisition Differential Assigned to Liabilities
2
Topic: 05-18 Intercompany Receivables and Payables
2
Topic: 05-19 Subsidiary Acquired During the Year
3
Topic: 05-20 Equity Method of Recording
22
Topic: 05-22 Year 1 Consolidated Financial Statement Working Paper
2
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Documents
Related Questions
How is the goodwill impairment calculated? I thought it was by adding assets and subtracting the accounts payable for net assets. Then adding goodwill and subtracting the fair value
arrow_forward
Uramilaben
arrow_forward
Sh11
Please help me.
Thankyou
arrow_forward
Required information
[The following information applies to the questions displayed below.]
While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a
technology support company called eSys Answers. During year 1, they bought the following assets and incurred the
following start-up fees:
Year 1 Assets
Purchase Date
Basis
Computers (5-year)
Office equipment (7-year)
Furniture (7-year)
Start-up costs
October 30, Year 1
October 30, Year 1
October 30, Year 1
October 30, Year 1
$16,400
10,000
5,800
19,520
In April of year 2, they decided to purchase a customer list from a company providing virtually the same services, started
by fellow information systems students preparing to graduate. The customer list cost $12,520, and the sale was completec
on April 30. During their summer break, Dallin and Michael passed on internship opportunities in an attempt to really grow
their business into something they could do full time after…
arrow_forward
Question 31
arrow_forward
lod X
* CengageNOWv2 | On x
6 Cengage Learning
B Milestone Two Guidel x
G module 5 problem set x
lrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=..
向
еВBook
Show Me How
Units-of-activity Depreciation
A truck acquired at a cost of $180,000 has an estimated residual value of $9,850, has an estimated useful life of 41,000 miles,
was driven 3,300
miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places.
(a) The depreciable cost
(b) The depreciation rate
per mile
(c) The units-of-activity depreciation for the year
Next
Previous
33
Check My Work
A O E O 11/2
56°F Mostly cloudy
%23
arrow_forward
CengageNOWv2 | Online teachin x +
/ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSession Locator=&inprogress=... A
Print Item
A
Determining Fixed Asset's Book Value
The balance in the equipment account is $3,240,000, and the balance in the accumulated depreciation-equipment account is $2,134,000.
a. What is the book value of the equipment?
X
b. Does the balance in the accumulated depreciation account mean that the equipment's loss of value is $2,134,000?
✓, because depreciation is an allocation of the cost
No
of the equipment to the periods benefiting from its use.
E
00
arrow_forward
Vishu
arrow_forward
Exercise 8-3A (Static) Classifying tangible and intangible assets LO 8-1
Required:
Identify each of the following long-term operational assets as either tangible (T) or intangible (1).
a. Pizza oven
b. Land
c. Franchise
d. Filing cabinet
e. Copyright
f. Silver mine
g. Office building
h. Drill press
i. Patent
j. Oil well
k. Desk
1. Goodwill
Answers
arrow_forward
only need d and e , thanks
arrow_forward
Problem: Module 2 Textbook Problem 14
Learning Objectives:
. 2-9 Calculate straight-line depreciation and show how it affects financial statements
• 2-10 Calculate double-declining-balance depreciation and show how it affects financial statements
At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $200,000. It is expected to have a five-year life
and a $30,000 salvage value.
Required
a. Compute the depreciation for each of the five years, assuming that the company uses
(1) Straight-line depreciation.
(2) Double-declining-balance depreciation.
b. Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double-
declining-balance methods in a financial statements model.
Complete this question by entering your answers in the tabs below.
Reg A1
Req B
Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double-declining-
balance methods in a…
arrow_forward
MODULE 5 USE OF ASSET NO SALVAGE VALUE
Please explain how to solve this transaction when there is not a salvage value.
Truck is $40,000
Life is 3 years
Depreciation is straight line
Please solve and journalize.
arrow_forward
#31
arrow_forward
ng Objective 1
S10-1 Determining the cost of an asset
Highland Clothing purchased land, paying $96,000 cash and signing a $300,000 note
payable. In addition, Highland paid delinquent property tax of $1,100, title insurance
costing $600, and $4,600 to level the land and remove an unwanted building. Record
the journal entry for purchase of the land.
arrow_forward
Please help
arrow_forward
Tutor Need Your Help
arrow_forward
Solutions only thank you
arrow_forward
This is one question please answer all or better to skip need correct and complete answer with all work remember answer all please answer with steps and show full work as explanation computation formula thanks answer all please
arrow_forward
#30
arrow_forward
Question 11: What argument in the double-declining balance depreciation function may equal zero?
Answer:
A.
O Cost
B.
O Salvage Value
C.
O Useful Life
D.
O Period
Copynight 2022 - Labyrih Leaning- AI Rights Reserved
ab
49F Mas
End
PrtSon
Home
FA
&
6.
R
T
Y.
arrow_forward
* CengageNOW2 | Online teachin x
+
ignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress=false
它 ☆
SU login
O Digital University |..
Tenant Portal - Login
围
eBook
Show Me How
E Print Item
Straight-Line Depreciation
A building acquired at the beginning of the year at a cost of $93,600 has an estimated residual value of $3,600 and an estimated useful life
of 10 years. Determine the following:
a. The depreciable cost
90,000
10
b. The straight-line rate
c. The annual straight-line depreciation
90,000
X
Feedback
V Check My Work
ifference betwee
the asset's initial cost and its residual value. The residual value is the estimated value at
Depreciable cost is the
the end of the useful life.
Straight-line depreciation allocates the depreciable cost of the asset equally over the expected useful life.
10:22 PM
46%
-2°F
12/16/2021
F11
F10
F8
F7
1%/
6.
4.
R.
* CO
5
arrow_forward
QS 8-14 (Algo) Classifying assets LO P3, P4
Identify the following as intangible assets, natural resources, or some other asset.
a. Coal mine
Natural resources
b. Equipment
C. Salt mine
Natural resources
d. Gold mine
Natural resources
e. Franchise
Intangible assets
Intangible assets
f. Patent
g. Trucks
h. Building
Other asset
i. Gas field
ere to search
99+
of
144
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Related Questions
- Required information [The following information applies to the questions displayed below.] While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets and incurred the following start-up fees: Year 1 Assets Purchase Date Basis Computers (5-year) Office equipment (7-year) Furniture (7-year) Start-up costs October 30, Year 1 October 30, Year 1 October 30, Year 1 October 30, Year 1 $16,400 10,000 5,800 19,520 In April of year 2, they decided to purchase a customer list from a company providing virtually the same services, started by fellow information systems students preparing to graduate. The customer list cost $12,520, and the sale was completec on April 30. During their summer break, Dallin and Michael passed on internship opportunities in an attempt to really grow their business into something they could do full time after…arrow_forwardQuestion 31arrow_forwardlod X * CengageNOWv2 | On x 6 Cengage Learning B Milestone Two Guidel x G module 5 problem set x lrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=.. 向 еВBook Show Me How Units-of-activity Depreciation A truck acquired at a cost of $180,000 has an estimated residual value of $9,850, has an estimated useful life of 41,000 miles, was driven 3,300 miles during the year. Determine the following. If required, round your answer for the depreciation rate to two decimal places. (a) The depreciable cost (b) The depreciation rate per mile (c) The units-of-activity depreciation for the year Next Previous 33 Check My Work A O E O 11/2 56°F Mostly cloudy %23arrow_forward
- CengageNOWv2 | Online teachin x + /ilrn/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSession Locator=&inprogress=... A Print Item A Determining Fixed Asset's Book Value The balance in the equipment account is $3,240,000, and the balance in the accumulated depreciation-equipment account is $2,134,000. a. What is the book value of the equipment? X b. Does the balance in the accumulated depreciation account mean that the equipment's loss of value is $2,134,000? ✓, because depreciation is an allocation of the cost No of the equipment to the periods benefiting from its use. E 00arrow_forwardVishuarrow_forwardExercise 8-3A (Static) Classifying tangible and intangible assets LO 8-1 Required: Identify each of the following long-term operational assets as either tangible (T) or intangible (1). a. Pizza oven b. Land c. Franchise d. Filing cabinet e. Copyright f. Silver mine g. Office building h. Drill press i. Patent j. Oil well k. Desk 1. Goodwill Answersarrow_forward
- only need d and e , thanksarrow_forwardProblem: Module 2 Textbook Problem 14 Learning Objectives: . 2-9 Calculate straight-line depreciation and show how it affects financial statements • 2-10 Calculate double-declining-balance depreciation and show how it affects financial statements At the beginning of Year 1, Copeland Drugstore purchased a new computer system for $200,000. It is expected to have a five-year life and a $30,000 salvage value. Required a. Compute the depreciation for each of the five years, assuming that the company uses (1) Straight-line depreciation. (2) Double-declining-balance depreciation. b. Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double- declining-balance methods in a financial statements model. Complete this question by entering your answers in the tabs below. Reg A1 Req B Record the purchase of the computer system and the depreciation expense for the first year under straight-line and double-declining- balance methods in a…arrow_forwardMODULE 5 USE OF ASSET NO SALVAGE VALUE Please explain how to solve this transaction when there is not a salvage value. Truck is $40,000 Life is 3 years Depreciation is straight line Please solve and journalize.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you