Chapter 8 advanced accounting PDF

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Advanced Accounting 12th Edition Beams Test BankDescriptionAdvanced Accounting, 12e (Beams et al.) Chapter 8 Consolidations Changes in Ownership Interests8 Multiple Choice Questions Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the p...

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Advanced Accounting 12th Edition Beams Test Bank Description Advanced Accounting, 12e (Beams et al.) Chapter 8 Consolidations Changes in Ownership Interests 8.1 Multiple Choice Questions 1) Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary A) decreases the parents interest and decreases the noncontrolling shareholders interest. B) decreases the parents interest and increases the noncontrolling shareholders interest. C) increases the parents interest and increases the noncontrolling shareholders interest. D) increases the parents interest and decreases the noncontrolling shareholders interest. Answer: D Objective: LO3 Difficulty: Moderate Use the following information to answer the question(s) below. On December 31, 2013, Giant Corporations Investment in Penguin Corporation account had a balance of $500,000. The balance consisted of 80% of Penguins $625,000 stockholders equity on that date. Giant owns 80% of Penguin. On January 2, 2014, Penguin increased its outstanding common stock from 15,000 to 18,000 shares. 2) Assume that Penguin sold the additional 3,000 shares directly to Giant for $150,000 on January 2, 2014. Giants percentage ownership in Penguin immediately after the purchase of the additional stock is A) 66-2/3%. B) 80%. C) 83-1/3%. D) 86-2/3% Answer: C Explanation: C) (Parent had 80% of 15,000 shares, or 12,000 shares. They now hold 15,000 of 18,000 shares) = 83.33% Objective: LO3 Difficulty: Moderate 3) Assume that Penguin sold the additional 3,000 shares to outside interests for $150,000 on January 2, 2014. Giants percentage ownership immediately after the sale of additional stock would be A) 66-2/3%. B) 75%. C) 80%. D) 83-1/3%. Answer: A Explanation: A) (12,000 shares/18,000 shares) = 66.67% Objective: LO3 Difficulty: Moderate

Use the following information to answer the question(s) below. Bird Corporation purchased an 80% interest in Brush Corporation on July 1, 2013 at its book value, and on January 1, 2014 its Investment in Brush account was $300,000, equal to its book value. Brushs net income for 2014 was $99,000 (earned uniformly); no dividends were declared. On March

1, 2014, Bird reduced its interest in Brush by selling a 20% interest, one-fourth of its investment, for $84,000. 4) If Bird uses a beginning-of-the-year sale assumption, its gain on sale and income from Brush for 2014 will be A) Gain on Sale Income from Brush $5,700 $59,400 B) Gain on Sale Income from Brush $5,700 $62,700 C) Gain on Sale Income from Brush $9,000 $59,400 D) Gain on Sale Income from Brush $9,000 $62,700 Answer: C Explanation: C) Selling price $84,000 Book value of interest sold $300,000 (20% / 80%) = 75,000 Gain on sale $9,000 Income from Brush $99,000 (80% 20%) = $59,400 Objective: LO2 Difficulty: Moderate

5) If Bird uses the actual-sale-date sales assumption, its gain on the sale and income from Brush for 2014 will be A) Gain on Sale Income from Brush $5,700 $59,400 B) Gain on Sale Income from Brush $5,700 $62,700 C) Gain on Sale Income from Brush $21,360 $59,400 D) Gain on Sale Income from Brush $21,360 $62,700 Answer: B Explanation: B) Selling price $84,000 Book value of interest sold: Beginning balance $300,000 Income for 2 months $99,000 1/6 80% = 13,200 Adjusted book value 313,200 Percentage of interest sold 1/4 Book value applied 78,300 78,300 Gain on sale $5,700 Income from Brush: Jan 1 Mar 1 $99,000 2/12 80% = $13,200 Mar 1 Dec 31 $99,000 10/12 60% = 49,500 Income from Brush $62,700 Objective: LO2 Difficulty: Moderate

6) Jersey Company acquired 90% of York Company on April 1, 2014. Both Jersey Company and York Company have December 31 fiscal year ends. Under current GAAP, which of the following statements is false? A) The consolidated income statement in 2014 should not include Yorks revenues and expenses prior

to April 1, 2014. B) When preparing consolidating work papers in 2014, Yorks revenues prior to April 1, 2014 are eliminated. C) Yorks earnings prior to April 1, 2014 should appear as a deduction on the consolidated income statement in 2014. D) The consolidated income statement in 2014 should include Yorks revenues and expenses after April 1, 2014. Answer: C Objective: LO1 Difficulty: Moderate

7) Utah Company holds 80% of the stock of a subsidiary company. The subsidiary issues 100 additional shares of stock to Utah Company at a price above book value per share. The subsidiary does not issue any additional shares at the same time. How will Utah Company record the purchase? A) Utah Company records a gain on sale of stock. B) Utah Company increases additional paid-in capital. C) Utah Company decreases additional paid-in capital. D) Utah Company assigns any excess cost over book value acquired to increase undervalued identifiable assets or goodwill as appropriate. Answer: D Objective: LO3 Difficulty: Moderate Use the following information to answer the question(s) below. Goldberg Corporation owned a 70% interest in Savannah Corporation on December 31, 2013, and Goldbergs Investment in Savannah account had a balance of $3,900,000. Savannahs stockholders equity on this date was as follows: Capital stock, $10 par value $3,000,000 Retained Earnings 2,400,000 Total Stockholders Equity $5,400,000 On January 1, 2014, Savannah issues 80,000 new shares of common stock to Goldberg for $16 each. 8) What is Goldbergs percentage ownership in Savannah after Savannah issues its stock to Goldberg? A) 76.32% B) 80.43% C) 82.57% D) 83.43% Answer: A Explanation: A) (210,000 + 80,000)/380,000 Objective: LO3 Difficulty: Moderate

9) On January 1, 2014, assume the fair values of Savannahs identifiable assets and liabilities equal book values. What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places.) A) Increase goodwill $38,176. B) Decrease goodwill $38,176. C) Increase goodwill $384,000. D) Decrease goodwill $384,000. Answer: B

Explanation: B) Savannahs equity after the issuance of the new shares ($5,400,000 + $1,280,000) $6,680,000 Goldbergs ownership percentage 76.32% Goldbergs share of Savannahs equity now $5,098,176 Goldbergs previous share of Savannahs equity ($5,400,000 70%) 3,780,000 Savannahs equity acquired in the purchase $1,318,176 Amount spent to acquire stock 1,280,000 Excess book value acquired over cost $ 38,176 Objective: LO3 Difficulty: Difficult Use the following information to answer the question(s) below. Great Corporation acquired a 90% interest in SOS Corporation at its $810,000 book value on December 31, 2013. A summary of the stockholders equity for SOS at the end of 2013 and 2014 is as follows: 12/31/13 12/31/14 Capital stock, $10 par $600,000 $600,000 Additional paid-in capital 30,000 30,000 Retained Earnings 270,000 420,000 Total stockholders equity $900,000 $1,050,000 On January 1, 2015, SOS sold 10,000 new shares of its $10 par value common stock for $45 per share. 10) If SOS sold the additional shares to the general public, Greats Investment in SOS account after the sale would be ________. (Use four decimal places.) A) $945,000 B) $1,157,100 C) $1,225,000 D) $1,245,000 Answer: B Explanation: B) SOSs stockholders equity prior to the stock issuance $1,050,000 Plus: Capital received from new stock issued 450,000 New stockholders equity $1,500,000 Greats ownership (54,000/(60,000 + 10,000)) 77.14% Greats adjusted investment in SOS $1,157,100 Objective: LO3 Difficulty: Moderate 11) If SOS sold the additional shares directly to Great, Greats Investment in SOS account after the sale would be A) $1,350,000. B) $1,395,000. C) $1,425,000. D) $1,500,000. Answer: B Explanation: B) Investment balance at 12/31/2014 ($1,050,000 90%) $945,000 Additional investment (10,000 shares $45) 450,000 Investment account balance, 12/31/2014 $1,395,000 Objective: LO3 Difficulty: Moderate 12) Consider a sale of stock by a subsidiary to parties outside the consolidated entity. This transaction requires an adjustment of the parents investment and additional paid-in capital accounts except when A) the shares are sold below book value per share.

B) the shares are sold above book value per share. C) the shares are sold at book value per share. D) All of the above are correct. Answer: C Objective: LO3 Difficulty: Moderate 13) If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably), then A) there will be an adjustment to additional paid-in capital if the stock is sold above book value. B) there will be no adjustment to additional paid-in capital regardless whether the stock is sold above or below book value. C) there will be an adjustment to additional paid-in capital if the stock is sold below book value. D) there will be the elimination of a gain. Answer: B Objective: LO3 Difficulty: Easy 14) A subsidiary split its stock 2 for 1. Which of the following statements is false? A) A stock split does not affect the amount of net assets of the subsidiary. B) A stock split does not affect parent and noncontrolling interest ownership percentages. C) A stock split does not affect consolidation procedures. D) A 2 for 1 stock split decreases the number of shares outstanding. Answer: D Objective: LO3 Difficulty: Moderate

Use the following information to answer the question(s) below. Bower Corporation purchased a 70% interest in Stage Corporation on June 1, 2013 at a purchase price of $350,000. On June 1, 2013, the book values of Stages assets and liabilities were equal to fair values. On June 1, 2013, Stages stockholders equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to goodwill. During 2013, Stage earned $120,000 of net income, earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1. 15) Noncontrolling interest share for 2013 is A) $21,000. B) $32,400. C) $36,000. D) $50,000. Answer: A Explanation: A) ($120,000 7/12 30%) Objective: LO2 Difficulty: Moderate 16) Preacquisition income for 2013 is A) $50,000. B) $35,000. C) $44,000. D) $36,000. Answer: A Explanation: A) ($120,000 5/12) Objective: LO2 Difficulty: Moderate

17) Anthony Company declared and paid $20,000 of dividends during 2014. The schedule of dividends follows: Date Dividend Declared & Paid Amount Paid March 31, 2014 $5,000 June 30, 2014 $5,000 September 30, 2014 $5,000 December 31, 2014 $5,000 Anthony Company was acquired on June 1, 2014 by Google Company. Google acquired 100 percent of Anthony Company. Both companies have a December 31 fiscal year end. What is the amount of preacquisition dividends in 2014? A) 0 B) $5,000 C) $10,000 D) $15,000 Answer: B Objective: LO1 Difficulty: Moderate

18) On April 1, 2014, Paramount Company acquires 100% of the outstanding stock of Yester Company on the open market. Paramount and Yester have December 31 fiscal year ends. Under GAAP, a consolidated income statement for the year ending December 31, 2014, will include A) 100 percent of the revenues and expenses in 2014 of Yester Company after January 1, 2014. B) no revenues and expenses in 2014 of Yester Company. C) 80 percent of the revenues and expenses in 2014 of Yester Company. D) 100 percent of the revenues and expenses in 2014 of Yester Company after April 1, 2014. Answer: D Objective: LO1 Difficulty: Moderate 19) The acquisition of treasury stock by a subsidiary from noncontrolling shareholders at a price above book value A) decreases the parents share of subsidiary book value and decreases the parents ownership percentage. B) decreases the parents share of subsidiary book value and increases the parents ownership percentage. C) increases the parents share of subsidiary book value and decreases the parents ownership percentage. D) increases the parents share of subsidiary book value and increases the parents ownership percentage. Answer: B Objective: LO3 Difficulty: Moderate 20) A 15% stock dividend by a subsidiary causes A) the parent company investment account to decrease. B) the parent company investment account to remain the same. C) the parent company investment account to increase. D) the noncontrolling interest equity to increase. Answer: B Objective: LO3 Difficulty: Moderate

8.2 Exercises

1) At December 31, 2013, the stockholders equity of Gost Corporation and its 80%-owned subsidiary, Tree Corporation, are as follows: Gost Tree Common stock, $10 par value $20,000 $12,000 Retained earnings 8,000 6,000 Totals $28,000 $18,000 Gosts Investment in Tree is equal to 80 percent of Trees book value. Tree Corporation issued 225 additional shares of common stock directly to Gost on January 1, 2014 at $18 per share. Required: 1. Compute the balance in Gosts Investment in Tree account on January 1, 2014 after the new investment is recorded. 2. Determine the increase or decrease in goodwill from Gosts new investment in the 225 Tree shares. Use four decimal places for the ownership percentage. Assume the fair values of Trees assets and liabilities are equal to book values. Answer: Requirement 1 Cost of investment ($18,000 80%) $14,400 Plus: Purchase of 225 Tree shares at $18 on January 1, 2014 4,050 Investment account balance $18,450 Requirement 2 Trees stockholders equity at January 1, 2014 $18,000 Plus: Additional capital from the shares issued 4,050 Total stockholders equity after issuance of the new shares $22,050 Gosts percentage (960 + 225)/1425 = 0.8316 Gosts share of Trees equity after issuance $18,337 Gosts share of Trees equity before stock issuance 14,400 Equity acquired in the purchase 3,937 Cost of interest acquired 4,050 Increase goodwill $ 113 Objective: LO3 Difficulty: Moderate

2) At December 31, 2013, the stockholders equity of Godwin Corporation and its 80%-owned subsidiary, Goldberg Corporation, are as follows: Godwin Goldberg Common stock, $10 par value $20,000 $12,000 Retained earnings 8,000 6,000 Totals $28,000 $18,000 Godwins Investment in Goldberg is equal to 80 percent of Goldbergs book value. Goldberg Corporation issued 225 additional shares of common stock directly to Godwin on January 1, 2014 at $28 per share. Required: 1. Compute the balance in Godwins Investment in Goldberg account on January 1, 2014 after the new investment is recorded. 2. Determine the increase or decrease in goodwill from Godwins new investment in the 225 Goldberg shares. Use four decimal places for the ownership percentage. Assume the fair value and book value

of Goldbergs assets and liabilities are equal. Answer: Requirement 1 Cost of investment ($18,000 80%) $14,400 Plus: Purchase of 225 Goldberg shares at $28 on January 1, 2014 6,300 Investment account balance $20,700 Requirement 2 Goldbergs stockholders equity at January 1, 2014 $18,000 Plus: Additional capital from the shares issued 6,300 Total stockholders equity after issuance of the new shares $24,300 Godwins percentage (960 + 225)/1425 = 0.8316 Godwins share of Goldbergs equity after issuance $20,208 Godwins share of Goldbergs equity before stock issuance 14,400 Equity acquired in the purchase 5,808 Cost of interest acquired 6,300 Increase in goodwill $ 492 Objective: LO3 Difficulty: Moderate 3) At December 31, 2013, the stockholders equity of Pearson Corporation and its 80%-owned subsidiary, Trompeter Corporation, are as follows: Pearson Trompeter Common stock, $10 par value $20,000 $12,000 Retained earnings 8,000 6,000 Totals $28,000 $18,000 Pearsons Investment in Trompeter is equal to 80 percent of Trompeters book value. Trompeter Corporation issued 400 additional shares of common stock directly to Pearson on January 1, 2014 at $10 per share. Required: 1. Compute the balance in Pearsons Investment in Trompeter account on January 1, 2014 after the new investment is recorded. 2. Determine the increase or decrease in goodwill from Pearsons new investment in the 400 Trompeter shares. Use four decimal places for the ownership percentage. Assume the fair value and book value of Trompeters assets and liabilities are equal. Answer: Requirement 1 Cost of investment ($18,000 80%) $14,400 Plus: Purchase of 400 Trompeter shares at $10 on January 1, 2014 4,000 Investment account balance $18,400 Requirement 2 Trompeters stockholders equity at January 1, 2014 $18,000 Plus: Additional capital from the shares issued 4,000 Total stockholders equity after issuance of the new shares $22,000 Pearsons percentage (960 + 400)/1600 = 0.85 Pearsons share of Trompeters equity after issuance $18,700 Pearsons share of Trompeters equity before stock issuance 14,400 Equity acquired in the purchase 4,300 Cost of interest acquired 4,000 Reduce goodwill or identifiable assets (Since no goodwill is associated with the investment, should reduce overvalued identifiable assets.) $ 300

Objective: LO3 Difficulty: Moderate 4) On January 1, 2013, Starling Corporation held an 80% interest in Twig Corporation and the investment account balance was $900,000. On January 1, 2013, Twigs total stockholders equity was $1,125,000. During 2013, Twig uniformly earned $234,000 and paid dividends of $37,500 on April 1 and again on October 1. On August 1, 2013, Starling sold 30% of its investment in Twig for $262,500, thereby reducing its interest in Twig to 56%. Required: Compute the following using the actual sales date assumption: 1. Gain or loss on sale. 2. Income from Twig for 2013. 3. Noncontrolling interest share for 2013. Answer: Preliminary computations Investment balance, January 1 $900,000 Income from Twig ($234,000 7/12 80%) 109,200 Less: April 1 dividends ($37,500 80%) (30,000) Book value at July 31, 2013 $979,200 Requirement 1 Proceeds from sale $262,500 Book value of interest sold ($979,200 30%) (293,760) Loss on sale $ (31,260) Requirement 2 Income from Twig from Jan 1 through July 31 (from above) $109,200 Income from August 1 December 31 ($234,000 5/12 56%) 54,600 Income from Twig for 2013 $ 163,800 Requirement 3 Noncontrolling interest share: Jan 1 to Jul 31 ($234,000 7/12 20%) $27,300 Aug 1 to Dec 31 ($234,000 5/12 44%) 42,900 Noncontrolling interest share $ 70,200 Objective: LO2 Difficulty: Moderate 5) On January 1, 2014, Fly Corporation held a 60% interest in Liptin Corporation. The investment account balance was $2,100,000, consisting of 60% of Liptins $3,500,000 of net assets. During 2014, Liptin earned $300,000 uniformly and paid dividends of $110,000 on November 1. On October 1, 2014, Fly sold 10% of its investment in Liptin for $364,000, thereby reducing its interest in Liptin to 54%. Required: Compute the following using the actual sales date assumption: 1. Gain or loss on sale. 2. Income from Liptin for 2014.

3. Noncontrolling interest share for 2014. Answer: Preliminary computations Investment balance, January 1 $2,100,000 Income from Liptin ($300,000 9/12 60%) 135,000 Book value at September 30, 2014 $2,235,000 Requirement 1 Proceeds from sale $364,000 Book value of interest sold ($2,235,000 10%) (223,500) Gain on sale $140,500 Requirement 2 Income from Liptin from Jan 1 through September 30 (from above) $135,000 Income from October 1-December 31 ($300,000 3/12 54%) 40,500 Income from Liptin for 2014 $175,500 Requirement 3 Noncontrolling interest share: Jan 1 to Sep 30 ($300,000 9/12 40%) $90,000 Oct 1 to Dec 31 ($300,000 3/12 46%) 34,500 Noncontrolling interest share $124,500 Objective: LO2 Difficulty: Moderate 6) At December 31, 2015 year-end, Lapwing Corporations investment in Ground Inc. was $200,000 consisting of 80% of Grounds $250,000 stockholders equity on that date. On April 1, 2016, Lapwing sold 20% interest (one-fourth of its holdings) in Ground for $65,000. During 2016, Ground had net income of $75,000(earned uniformly) and on July 1, 2016, Ground paid dividends of $40,000. Lapwing uses the equity method to account for the investment. Required: 1. What is the gain or loss on sale of the 20% interest? 2. Record the journal entries for Lapwing for the year ending December 31, 2016. Use the actual-saledate assumption. Answer: Requirement 1 Selling price $65,000 Book value of interest sold: Beginning balance $200,000 Income for 3 months $75,000 1/4 80% = 15,000 Adjusted book value 215,000 Percentage of i...