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Exam 11: Consolidation Theories,push-Down Accounting,and Corporate Joint Ventures

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Question 1

Multiple Choice

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Use the following information to answer the question(s) below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1,2014,when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings.The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income) of Pascoe and Sarabet for 2014 were $600,000 and $100,000,respectively.Dividends declared and paid during 2014 were $250,000 for Pascoe and $50,000 for Sarabet.Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Goodwill was reported in the December 31,2014 consolidated balance sheet at

A) $170,000.
B) $180,000.
C) $200,000.
D) $210,000.

E) None of the above
F) A) and D)

Correct Answer

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C

Question 2

Multiple Choice

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Use the following information to answer the question(s) below. Pascoe Corporation paid $450,000 for a 90% interest in Sarabet Corporation on January 1,2014,when Sarabet's stockholders' equity consisted of $250,000 Common Stock and $50,000 Retained Earnings.The book values and fair values of Sarabet's assets and liabilities were equal when Pascoe acquired its interest. The separate net incomes (excluding investment income) of Pascoe and Sarabet for 2014 were $600,000 and $100,000,respectively.Dividends declared and paid during 2014 were $250,000 for Pascoe and $50,000 for Sarabet.Pascoe uses the entity theory in consolidating its financial statements with those of Sarabet. -Noncontrolling interest share was reported in the 2014 consolidated income statement at

A) $5,000.
B) $6,000.
C) $8,000.
D) $10,000.

E) B) and D)
F) C) and D)

Correct Answer

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D

Question 3

Multiple Choice

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Use the following information to answer the question(s) below. Paris Corporation purchased 80% of the outstanding voting common stock of Sanders Corporation on January 1,2014,at a cost of $400,000.The stockholders' equity of Sanders Corporation on this date consisted of $200,000 of Capital Stock and $100,000 of Retained Earnings.Book values were equal to fair values except for land and inventory.The book value of Sanders' land was $10,000,and fair value was $22,000.The book value of Sanders' inventory was $30,000,and fair value was $25,000. -Under the parent company theory,what amount of goodwill was reported on the consolidated balance sheet at December 31,2014?

Partel Corporation purchased 75% of Sandford Corporation on January 1,2014,for $230,000.Balance sheets for the two companies on this date,prepared just prior to the purchase,are provided below. Required: 1.Prepare a consolidated balance sheet using the entity theory of consolidation. 2.Prepare a consolidated balance sheet using the parent company theory of consolidation.

On January 1,2014,Jeff Company acquired a 90% interest in Marian Company for $198,000 cash.On January 1,2014,Marian Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2014. 2.Assume both companies use the parent company theory.Prepare the elimination entry(ies)on consolidating work papers on January 1,2014.

Johnsen Corporation paid $225,000 for a 70% interest in Jonas Corporation on January 1,2014.On that date,Jonas's balance sheet accounts,at book value and fair value,were as follows: Required: 1.Prepare the journal entry necessary on January 1,2014 on Jonas Corporation's books.Both companies use push-down accounting and the entity theory. 2.Prepare the balance sheet for Jonas Corporation immediately after the acquisition on January 1,2014.

On January 1,2014,Gregory Company acquired a 90% interest in Subway Company for $200,000 cash.On January 1,2014,Subway Company had the following assets and liabilities: The plant assets have 20 years of useful life remaining.Straight-line depreciation is used.The excess fair value over book value associated with Accounts Receivable and Inventory is realized in 2014. In 2014,Subway reported net income of $35,000 and declared and paid common dividends of $10,000.Gregory reported Income from Subway in 2014 of $17,100. Required: Assume both companies use the entity theory.Prepare the elimination entry(ies)on consolidating work papers for the year ending December 31,2014.

Use the following information to answer the question(s) below. On January 1,2014,Penelope Company acquired a 90% interest in Leah Company for $180,000 cash.On January 1,2014,Leah Company had the following assets and liabilities: Push-down accounting is used for the acquisition. -Assume the parent company theory is used.On January 2,2014,Leah Company will report Goodwill of ________ and Accounts Receivable of ________ on Leah's balance sheet.

Which of the following statements about variable interest entities (VIE) is false?

Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.

Under parent company theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.

On January 1,2014,Penny Company acquired a 90% interest in Lampire Company for $180,000 cash.On January 1,2014,Lampire Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory.Record the push-down adjustment on Lampire's separate books on January 1,2014. 2.Assume both companies use the parent company theory.Record the push-down adjustment on Lampire's separate books on January 1,2014.

A parent company acquired 100% of the outstanding common stock of another corporation.The parent is going to use push-down accounting.The fair market value of each of the acquired corporation's assets is lower than its respective book value.The fair market value of each of the acquired corporation's liabilities is higher than its respective book value.The acquired corporation has a deficit in the Retained Earnings account.Which one of the following statements is correct?

On January 1,2014,Brody Company acquired an 80% interest in Kristin Company for $240,000 cash.On January 1,2014,Kristin Company had the following assets and liabilities: Push-down accounting is used for the acquisition.Both companies use the entity theory. Required: 1.What is the goodwill associated with Kristin Company on January 1,2014? 2.Prepare the journal entry(ies)on Kristin's books on January 1,2014. 3.Prepare the journal entry(ies)on Brody's books on January 1,2014. 4.Prepare the elimination entry(ies)on the consolidating working papers on January 1,2014.

Paroz Corporation acquired a 70% interest in Sandberg Corporation for $900,000 when Sandberg's stockholders' equity consisted of $600,000 of Capital Stock and $600,000 of Retained Earnings.The fair values of Sandberg's net assets were equal to their recorded book values.At the time of acquisition,on Paroz's books,Paroz will record

Anthony and Cleopatra create a joint venture to distribute artifacts.Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company.How would Anthony report information about Cleopatra on Anthony's financial statements?

Under GAAP,the ________ will include the variable interest entity in consolidated financial statements.

Noncontrolling interest share is viewed as an expense under ________ theory.

Under parent company theory,the amount of consolidated net income is equal to the amount of ________ under entity theory.

On January 1,2014,Jeff Company acquired a 90% interest in Margaret Company for $198,000 cash.On January 1,2014,Margaret Company had the following assets and liabilities: Push-down accounting is used for the acquisition. Required: 1.Assume both companies use the entity theory. a.Record the journal entry on Margaret's separate books on January 1,2014. b.Record the journal entry on Jeff's separate books on January 1,2014. 2.Assume both companies use the parent company theory. a.Record the journal entry on Margaret's separate books on January 1,2014. b.Record the journal entry on Jeff's separate books on January 1,2014.