Hoyle 13e TB Chapter-4 PDF

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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.File: Chapter 04 - Consolidated Financial Statements and Outside OwnershipMultiple Choice:[QUESTION] For business combinations involving less than 1...

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File: Chapter 04 - Consolidated Financial Statements and Outside Ownership Multiple Choice: [QUESTION] 1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: A) Identifiable assets acquired, at fair value. B) Liabilities assumed, at book value. C) Non-controlling interest, at fair value. D) Goodwill, or a gain from bargain purchase. E) None of these choices is correct. Answer: B Learning Objective: 04-02 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement REFERENCE: 04-01 When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. [QUESTION] REFER TO: 04-01 2. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date? A) $ 52,500. B) $ 70,000. C) $ 75,000. D) $ 92,500. E) $100,000. Answer: E Learning Objective: 04-02 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: $100,000 FV of Land at Acquisition [QUESTION] REFER TO: 04-01 3. What is the total amount of excess land allocation at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $25,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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E) $17,500. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $100,000 – BV $70,000 = $30,000 [QUESTION] REFER TO: 04-01 4. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $25,000. E) $17,500. Answer: C Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV – BV ($30,000) × .75 = $22,500 [QUESTION] REFER TO: 04-01 5. What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $ 7,500. E) $17,500. Answer: D Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV – BV ($30,000) × .25 = $7,500 [QUESTION] 6. Which of the following methods is not used to value a noncontrolling interest under circumstances Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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where a control premium is applied to determine the appropriate value for such interest? A) Valuation models based on subsidiary discounted cash flows. B) Valuation models based on subsidiary residual income projections. C) Comparison with comparable investments. D) The application of a safe harbor discount rate. E) Fair value based on market trades. Answer: D Learning Objective: 04-02 Learning Objective: 04-07 Topic: Acquisition-date―Fair value of subsidiary Topic: Goodwill―With control premium Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement REFERENCE: 04-02 Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The noncontrolling interest shares of Float Corp. are not actively traded. [QUESTION] REFER TO: 04-02 7. What is the total amount of goodwill recognized at the date of acquisition? A) $150,000. B) $250,000. C) $ 0. D) $120,000. E) $170,000. Answer: A Learning Objective: 04-03 Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $1,850,000 – FV of 100% of Float’s Stock based on Purchase Price ($1,600,000 / .80) $2,000,000 = ($150,000) Goodwill [QUESTION] REFER TO: 04-02 8. What amount of goodwill should be attributed to Perch at the date of acquisition? A) $150,000. B) $250,000. C) $ 0. D) $120,000. E) $170,000. Answer: D Learning Objective: 04-03 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: (Purchase Price for 80%) $1,600,000 – (FV $1,850,000 × .80 = $1,480,000) = $120,000 [QUESTION] REFER TO: 04-02 9. What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition? A) $ 0. B) $ 20,000. C) $ 30,000. D) $100,000. E) $120,000. Answer: C Learning Objective: 04-03 Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: $150,000 Goodwill × .20 = $30,000 to Noncontrolling Interest [QUESTION] REFER TO: 04-02 10. What is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition? A) $350,000. B) $300,000. C) $400,000. D) $370,000. E) $0. Answer: C Learning Objective: 04-02 Learning Objective: 04-05 Learning Objective: 04-06 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value of subsidiary Topic: Noncontrolling interest―Calculate balance Topic: Noncontrolling interest―Statement presentation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of Stock at Acquisition Date for 100% ($1,600,000 / .80) $2,000,000 × .20 = $400,000 [QUESTION] Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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REFER TO: 04-02 11. What is the dollar amount of Float Corp.’s net assets that would be represented in a consolidated balance sheet prepared at the date of acquisition? A) $1,600,000. B) $1,480,000. C) $1,200,000. D) $1,780,000. E) $1,850,000. Answer: E Learning Objective: 04-02 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of Assets Acquired = $1,850,000 [QUESTION] REFER TO: 04-02 12. What is the dollar amount of fair value over book value differences attributed to Perch at the date of acquisition? A) $120,000. B) $150,000. C) $280,000. D) $350,000. E) $370,000. Answer: C Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $1,850,000 – BV $1,500,000 = $350,000 × .80 = $280,000 REFERENCE: 04-03 Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019. During 2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of fair value allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own revenues of $4,500,000 and expenses of $3,000,000 for the year 2019. [QUESTION] REFER TO: 04-03 13. The noncontrolling interest's share of the earnings of Harbor Corp. for 2019 is calculated to be A) $132,000. B) $150,000. C) $168,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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D) $160,000. E) $0. Answer: A Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $2,500,000 – Expenses $2,000,000 = $500,000 – $60,000 = $440,000 × .30 = $132,000 [QUESTION] REFER TO: 04-03 14. What amount would Femur Co. report as consolidated net income for 2019? A) $440,000. B) $500,000. C) $1,500,000. D) $1,940,000. E) $2,000,000. Answer: D Learning Objective: 04-04 Topic: Consolidated net income Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Femur Net Income (Femur Revenue $4,500,000 less Femur Expenses $3,000,000 = $1,500,000) + Harbor Net Income (Harbor Revenue $2,500,000 – Harbor Expenses $2,000,000 – Amortizations for Excess Fair Value over Book Value = $500,000 – $60,000 = $440,000) = $1,500,000 + $440,000 = $1,940,000 [QUESTION] REFER TO: 04-03 15. What amount of consolidated net income for 2019 should be allocated to Femur’s controlling interest in Harbor? A) $ 582,000 B) $1,050,000 C) $1,358,000 D) $1,808,000 E) $2,140,000 Answer: D Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Feedback: Total Consolidated Net Income ($1,940,000 – 132,000 to NCI) = $1,808,000 REFERENCE: 04-04 Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2019. For 2019, Kailey reported revenues of $810,000 and expenses of $630,000, not including its investment in Denber, and all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. [QUESTION] REFER TO: 04-04 16. In consolidation, the total amount of expenses related to Kailey, and to Denber’s acquisition of Kailey, for 2019 is determined to be A) $153,750. B) $161,250. C) $205,000. D) $210,000. E) $215,000. Answer: E Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Expenses $630,000 × 4/12 = $210,000; Amortization $15,000 × 4/12 = $5,000 = $215,000 [QUESTION] REFER TO: 04-04 17. What is the effect of including Kailey in consolidated net income for 2019? A) $31,000. B) $33,000. C) $55,000. D) $60,000. E) $39,000. Answer: C Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 [QUESTION] REFER TO: 04-04 18. What is the amount of Kailey’s net income to the controlling interest for 2019? A) $31,000. B) $33,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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C) $55,000. D) $60,000. E) $39,000. Answer: B Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .60 = $33,000 [QUESTION] REFER TO: 04-04 19. What is the amount of the noncontrolling interest's share of Kailey’s income for 2019? A) $22,000. B) $24,000. C) $48,000. D) $66,000. E) $72,000. Answer: A Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Total Income for September-December = $55,000 – Controlling Interest Portion $33,000 = $22,000. Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .40 = $22,000 [QUESTION] 20. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition? A) $250,000. B) $150,000. C) $600,000. D) $360,000. E) $460,000. Answer: C Learning Objective: 04-02 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of the Land $600,000 [QUESTION] 21. Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of Raxston’s liability should be eliminated? A) $375,000 B) $125,000 C) $300,000 D) $500,000 E) $0. Answer: D Learning Objective: 04-05 Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: BV & FV of the Existing Receivable $500,000 REFERENCE: 04-05 Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid.

Current assets Equipment Buildings Liabilities Revenues Expenses Investment income

Royce Co. Park Co. Book Book Fair Value Value Value $ 868,000 $ 420,000 $ 448,000 364,000 280,000 400,000 574,000 210,000 210,000 ( 546,000) ( 168,000) ( 168,000) ( 1,260,000) ( 560,000) 700,000 420,000 Not Given

[QUESTION] REFER TO: 04-05 22. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest? A) $686,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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B) $560,000. C) $644,000. D) $635,600. E) $691,600. Answer: D Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Income ($1,260,000 - $700,000 = $560,000)] + [Sub’s Income ($560,000 - $420,000) × .60 = $84,000] – [Excess Equipment Amortization for 2020 ($140,000 / 10) × .60 = $8,400] = $635,600 [QUESTION] REFER TO: 04-05 23. What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31, 2020 and what is the ending balance of the noncontrolling interest in the subsidia ry at December 31, 2020? A) $56,000 and $280,000. B) $50,400 and $218,400. C) $56,000 and $224,000. D) $56,000 and $336,000. E) $50,400 and $330,400. Answer: E Learning Objective: 04-04 Learning Objective: 04-05 Topic: Consolidated net income―Allocation Topic: Noncontrolling interest―Calculate balance Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Sub’s Income ($560,000 - $420,000) × .40 = $56,000] - [Excess Equipment Amortization for 2020 ($140,000 / 10) × .40 = $5,600] = $50,400 [Noncontrolling Interest at Acquisition (FV $700,000 × .40) = $280,000] + [Noncontrolling Interest 2020 Income $56,000] – [Excess Equipment Amortization ($140,000 / 10) × .40] = $330,400 [QUESTION] REFER TO: 04-05 24. What is the consolidated balance of the Equipment account at December 31, 2020? A) $644,400. B) $784,000. C) $719,600. D) $770,000. E) $775,600. Answer: D Learning Objective: 04-05 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Topic: Consolidated totals―Individual items Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Equipment $364,000] + [Sub’s Equipment $280,000] + [Fair value allocation less one year of Amortization $140,000 - $14,000] = $770,000 REFERENCE: 04-06 On January 1, 2019, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:

Current assets Noncurrent assets

Palk Corp. $ 99,000 $ 125,000

Spraz Corp. $ 28,000 $ 56,000

Total assets

$ 224,000

$

84,000

Current liabilities Long-term debt Stockholders' equity

$ 42,000 $ 70,000 $ 112,000

$ $ $

14,000 70,000

Total liabilities and stockholders' equity

$ 224,000

$

84,000

On January 2, 2019, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. Shares of Spraz are not actively traded on the market. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2019. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. [QUESTION] REFER TO: 04-06 25. What amount represents consolidated current assets at January 2, 2019? A) $127,000. B) $129,800. C) $143,800. D) $148,000. E) $135,400. Answer: D Learning Objective: 04-02 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value allocation Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Topic: Consolidated totals―Individual items Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Current Assets $99,000] + [Sub’s Current Assets $28,000] + [Excess Consideration to Inventory ($105,000 - $70,000 = $35,000 × .60) $21,000] = $148,000 [QUESTION] REFER TO: 04-06 26. What is the amount attributable to consolidated noncurrent assets at January 2, 2...