Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.2.2E
To determine
Concept Introduction:
Equity Method of valuation of investment: In this method parent company value investment on the historical cost of the investment plus apportioned profit in the associate company less dividend paid by the associate company. The difference in the historical value and the amount paid for investment is debited to
Consolidation of accounts: When a company acquires significant influence in another company then that company known as holding company. Holding company is needed to consolidate its accounts with the subsidiary.
To choose: The correct option.
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Choose the correct. A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?a. It is a relatively easy method to apply.b. Operating results appearing on the parent’s financial records reflect consolidated totals.c. GAAP now requires the use of this particular method for internal reporting purposes.d. Consolidation is not required when the parent uses the initial value method.
Choose the correct. A subsidiary has a debt outstanding that was originally issued at a discount. At the beginning of the current year, the parent company acquired the debt at a slight premium from outside parties. Which of the following statements is true?a. Whether the balances agree or not, both the subsequent interest income and interest expense should be reported in a consolidated income statement.b. The interest income and interest expense will agree in amount and should be offset for consolidation purposes.c. In computing any noncontrolling interest allocation, the interest income should be included but not the interest expense.d. Although subsequent interest income and interest expense will not agree in amount, both balances should be eliminated for consolidation purposes.
Choose the letter of the correct answer:
1. What amount of allocated excess/purchase differential amortization is recognized in the consolidated financial statements subsequent to the subsidiary’s acquisition?
A. The noncontrolling interest percentage ownership in the subsidiary
B. 100 percent of the purchase differential amortization
C. Allocated excess/purchase differentials are not amortized
D. The parent percentage ownership in the subsidiary
2. What amount of allocated excess/purchase differential amortization is recognized in the consolidated financial statements subsequent to the subsidiary’s acquisition?
A. Allocated excess/purchase differentials are not amortized
B. The parent percentage ownership in the subsidiary
C. The noncontrolling interest percentage ownership in the subsidiary
D. 100 percent of the purchase differential amortization
Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
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- At the date of acquisition, business combination resulting in a parent-subsidiary relationship, the difference between current fair values and carrying amounts of the subsidiary’s net assets is: Group of answer choices Recorded in the applicable asset and liability accounts of the subsidiary Reflected in a consolidation elimination Ignored and not accounted for Accounted for in some other manner Recorded in the applicable asset and liability accounts of the parentarrow_forwardQuestion 11 Subsequent to an acquisition, the parent company and consolidated financial statement amounts would not be the same for Answers: A. investments in consolidated subsidiaries. B. ending retained earnings. C. investments in unconsolidated subsidiaries. D. capital stock. Question 12 Under the provisions of ASC 805-30, in a business combination, when the investment cost exceeds the total fair value of identifiable net assets acquired, which of the following statements is correct? Answers: A. The difference is allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit. B. The difference is allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain. C. The…arrow_forwardIn a share acquisition business combination resulting in a parent- subsidiaryrelationship, the difference between the current fair values and book values ofthe subsidiary’s identifiable net assets on acquisition date are: A. Provided in a consolidated statement worksheet elimination.B. DisregardedC. Account for in appropriately titled ledger accounts in the parent company’saccounting recordsD. Entered in the accounting records of the subsidiaryarrow_forward
- A) When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when selling affiliate is a. The parent, and the subsidiary is less than wholly owned. b. The subsidiary, and the subsidiary are less than wholly owned c. A wholly owned subsidiary d. The parent of a wholly owned subsidiary. B) Gain or loss returning from an intercompany sale of equipment between a parent and a subsidiary is a. Considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidation statements. b. Considered to be unrealized in the consolidated statements until the equipment is sold to a third party c. Amortized over a period not less than 2 years and not greater than 40 years. d. Recognized in the consolidated statements in the year of the salearrow_forwardOutlook Inc. merges with Pinnacle Inc. Only Pinnacle remains. Refer to Fact Pattern 31-1. Outlook held rights in certain real property. With regard to these assets, in the merger Pinnacle assumes a. all of Outlook’s assets. b. an amount of assets equal to the ratio of the firms’ pre-merger market values. c. none of Outlook’s assets. d. only those assets acquired after the merger was proposed.arrow_forwardS1: Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase price of the acquired company, the excess should be accounted for goodwill. S2: With an acquisition, direct and indirect expenses are considered a par of the total cost of the acquired company. Both statements are Only S1 is Only S2 is Both statements are 2. Following the completion of a business combination in the form of a statutory consolidation, what is the balance in the new corporation’s Retained earningsaccount? The acquirer retained earnings accountbalance Thesum of the acquirer and acquiree retained earnings account The acquiree retained earnings accountbalance Zero 3. S1: The acquisition-related costs in a business combination to be expensed immediately include cost of issuing debt securities. S2: In a business combination any “gain on bargain purchase” shall be recognized in other comprehensive income. Only S2 is Both statements are Both statements…arrow_forward
- Choose the letter of the correct answer. 1. Which of the following is not correct with regard to a parent’s ownership of 100 percent of a subsidiary’s stock subsequent to a book value acquisition? A. Consolidated Investment in Subsidiary balance equals the parent’s Investment in Subsidiary balance B. Consolidated Retained Earnings equals the parent’s Retained Earnings C. Consolidated dividends equal the parent’s dividends D. Consolidated net income equals the parent’s net income 2. What amount of allocated excess/purchase differential amortization is recognized in the parent’s financial records subsequent to the subsidiary’s acquisition? A. The noncontrolling interest percentage ownership in the subsidiary B. 100 percent of the purchase differential amortization C. Allocated excess/purchase differentials are not amortized D. The parent percentage ownership in the subsidiaryarrow_forwardA company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision? It is a relatively easy method to apply. Operating results appearing on the parent’s financial records reflect consolidated totals. GAAP now requires the use of this particular method for internal reporting purposes. Consolidation is not required when the parent uses the equity method.arrow_forward
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