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Chapter 3: Consolidated Financial Statements Subsequent to the Date of Acquisition Multiple Choice Multiple Choice – Theory Topic: Bargain Purchase LO: 3 1. A bargain purchase occurs when: a.  The purchase price of a subsidiary is less than the fair value of the investee's net assets b.  The purchase price of a subsidiary is less than the.
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Topic: Consolidated Financial Statements LO: 2 5.On January 2, 2012, Ceaver, Inc. acquired CeligEnterprises as a wholly-owned subsidiary, paying an excess of $400,000 over the book value of Celig'snet assets.  Part of the excess was attributable to a building with a 10-year life undervalued by $250,000. The rest was goodwill.  The 2014financial.
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Chapter 2: Introduction to the Consolidation Process Multiple Choice Multiple Choice – Theory Topic: Distinguishing Business Combination from Asset Acquisition LO: 1 1.All of the following are necessary to distinguish a business combination from a simple asset acquisition except: a.  The entity has initiated planned activities. b.  The entity has human and material resources, as.
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Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 21.At what amount is the investment recorded on Richland'sbooks? a.  $120,000 b.  $600,000 c.  $540,000 d. $660,000 Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 22. Compute the consolidated balance in Cash. a.  $147,850 b.  $  47,850 c.  $  30,550 d.  $ 17,300 Topic: Acquisition-Date Consolidation when Purchase Price Exceeds.
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. Problems Topic: Intercompany Inventory Sales LO: 1 1.Parent purchased Subsidiary on January 1, 2013. The excess of investment cost over book value was allocated as follows: Equipment (20-year life)$110,000 Customer list (10-year life)  192,500 Patent (10-year life)  137,500 Goodwill  110,000 Total$550,000 Parent regularly sells merchandise to Subsidiary.  In 2015, inter-company sales amounted to $48,070, with $14,253 of deferred profit.
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Topic: Intercompany Sales of Inventory LO: 5 4.McGuinn, Inc. owns a 40% interest in CervantesCo., giving it representation on the investee’s board of directors.  At the beginning of the year, the Equity Investment was carried on McGuinn’s balance sheet at $750,000.  During the year, Cervantes reported net income of $240,000 and paid.
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Chapter 5:Consolidated Financial Statements with Less than 100% Ownership Multiple Choice Multiple Choice – Theory Topic: Goodwill Impairment Allocation LO: 2 1.Allocation of goodwill impairment losses to the parent and the noncontrollinginterests should be based on: a.Relative interests of parent and noncontrolling interests in the carrying value of goodwill b. Parent and noncontrollinginterests relative ownership percentages in.
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Topic: Equity Method Acquisition and Consolidating Entries LO:1, 2 2. On January 1, 2014, MeyerCompany acquired MacNeillCorporation by issuing 42,500 shares of its $1 par common Stock with a market value of $7.50per share.  A building on MacNeill'sbooks was undervalued by $20,000, resulting in annual amortization of $1,000. Also, there was an.
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Topic: GAAP Approaches to Business Combinations LO: 4 11.  Current GAAP identifies three approaches to assigning values to assets acquired in a business combination.  Which of the following is not a recognized valuation technique for allocating the acquisition price to specific assets?  a.  Market Approach b.  Book Value Approach c. Cost Approach d.  Income Approach Topic:.
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Exercises Topic: Intercompany Sale of Land LO: 2 1.  During 2013, Subsidiary sells land to Parent for $84,500.  The land had a book value of $65,000.The land is then sold to a third party for $123,500 in 2017. Parent uses the equity method for the 100% investment. Required: a. Prepare the consolidation entry related to.
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Topic: Intercompany Sale of Land LO: 2 3.  During 2015, Parent sells land to Subsidiary for $92,950.  The land had a book value of $71,500.The land is then sold to a third party for $135,850 in 2019. Required: a.Prepare the consolidation entry related to the land sale for 2015. b. Prepare the consolidation entry related.
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Chapter 4:Consolidated Financial Statements and Intercompany Transactions Multiple Choice Multiple Choice – Theory Topic: Intercompany Inventory Sales LO:1 1.During 2015, MajorCompany sold merchandise to its 100%-owned subsidiary, Minor Company.During that year, all of the merchandise was resold to outside customers.  If no consolidation entries are made, which of the following will be incorrect in consolidated.
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Topic: Consolidated Financial Statements LO: 2 4.On January 2, 2015, Billions, Inc. acquired Fay & Sons as a wholly-owned subsidiary, paying an excess of $300,000 over the book value of Fay's net assets.  One-half of the excess was attributable to equipment with a 15-year life, leaving the remainder as goodwill.  The 2016financial.
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Questions 31-33 are based on the following set of facts. On January 1, 2014Perez Company purchased 100% of the common stock Hinske Enterprises for $280,000.  On that date, Hinske had common stock of $50,000 and retained earnings of $190,000.  Equipment and land were both undervalued by $10,000 on Hinske's books. There.
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Topic: Goodwill LO: 3 11. If the fair value of a reporting unit with goodwill falls below its book value, which of the following statements is true? a.  No additional impairment testing is required. b.  A goodwill impairment loss is recognized for the excess of book value over fair value of the reporting unit. c. .
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Exercises Topic: Goodwill LO: 3 1.Meager, Inc. purchases all of the common stock of QuintonCompany for $152,000 cash.  At the acquisition date, Quinton's stockholders' equity consisted of Common Stock, $80,000, and Retained Earnings, $10,000.  It was determined that the investee's balance sheet included land undervalued by $20,000 and equipment undervalued by $2,000.  Meagerestimates.
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Problems Topic: Accounting for Equity Investments When the Purchase Price Exceeds Book Value LO: 4 1.On January 1, 2013, ComptonCo. paid $20,000 for a 20% interest in General Enterprises.  General’s stockholders’ equity amounted to $40,000 on that date.  The excess of purchase price over book values was due to an unrecorded patent.
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Topic: Accounting for Equity Investments When the Purchase Price Exceeds Book Value LO: 4 21.  On December 31, 2013, Ohare, Inc. paid $430,000 for all of the common stock of HighCorp. On that date, Highhad assets and liabilities with book values of $400,000 and $90,000; and fair values of $420,000 and $70,000,.
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Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 4.  Parent Company acquires a subsidiary by issuing 55,000 common shares with a market value of $20 per share for all of the subsidiary's common stock.  The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment.
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Topic: Acquisition-Related Costs and Contingent Consideration LO: 5, Appendix 3.  HRLCorporation had the following selected account balances and fair values at December 31, 2013when it was acquired by KieferEnterprises. Book Values Fair Values Receivables $20,000 $20,000 Customer relationships 25,000 125,000 Patents -0- 350,000 In-process R& D -0- 75,000 Liabilities 100,000 100,000 Common Stock 25,000 Additional paid-in capital 75,000 KieferEnterprises acquired all of the common shares of HRLCorporation by issuing 5,000 shares of its own.
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Irmgard Louise Sales revenue   $3,600,000 $1,950,000 Cost of goods sold (2,520,000) (1,170,000) Gross profit      1,080,000 780,000 Operating expenses       (684,000)         (507,000) Equity income 198,000 _ Net Income $   594,000 $273,000 Retained Earnings, 1/1/13    $1,830,500 $1,007,500 Net income 594,000 273,000 Dividends      (32,040)      (40,950) Retained Earnings, 12/31/13 $2,392,460 $1,239,550 Cash and receivables    $   772,275 $   954,850 Inventory         698,400 581,100 Equity investment 2,357,050 Property, plant & equipment (Net)    3,719,520 1,075,100 Total Assets $7,547,245 $2,611,050 Accounts payable     $   281,020 $185,900 Accrued liabilities          313,200 243,100 Notes payable 1,250,000 650,000 Common stock 407,000 130,000 Additional paid-in capital 2,903,565 162,500 Retained Earnings, 12/31/13 2,392,460 1,239,550 Total Liabilities.
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Topic: Intercompany Sales of Inventory LO: 5 3.  BIG, Inc. bought 30% of SmallCompany on January 1, 2012for $135,000.  The equity method was used.  No amortization was required.  In 2012, Small shipped to BIG merchandise with a cost of $9,000 and a selling price of $13,500.  One-third of the merchandise remained.
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Billions Fay Sales   $2,750,000 $300,000 Cost of goods sold   (1,980,000) (180,000) Gross profit        770,000 120,000 Operating expenses       (412,500) (78,000) Equity income 32,000         Net Income $  389,500 $ 42,000 Retained Earnings, 1/1/16    $1,855,900 $155,000 Net income 389,500 42,000 Dividends (86,800) (6,300) Retained Earnings, 12/31/16 $2,158,600 $190,700 Cash and receivables    $1,218,025 $146,900 Inventory      1,067,000 89,400 Equity investment 515,700 Property, plant &equipment (Net) 5,682,600 165,400 Total Assets $8,483,325 $401,700 Accounts payable     $   305,750 $  28,600 Accrued liabilities 381,650 37,400 Notes payable       3,500,000 100,000 Common stock 256,225 20,000 Additional paid-in capital       1,881,100 25,000 Retained Earnings, 12/31/16 2,158,600 190,700 Total Liabilities and Equities $8,483,325 $ 401,700   .
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  Topic: Intercompany Sale of Land LO: 2 3. Parent acquired Subsidiary on January 1, 2013at a price $150,000 in excess of book value. Of that excess, $100,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill.  In 2014, Subsidiary sold to Parent land having a book.
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The following information applies to questions 21-23 Slanger, Inc. paid $200,000 to acquire all of the common stock of BeurdixCorp. on January 1, 2013.  Beurdix'sreported earnings for 2014totaled $36,000, and it paid $10,000 in dividends during the year. The amortization of allocations related to undervalued assets was $2,000.  Slanger'snet income, not.
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Topic: Consolidated Financial Statements and Goodwill Impairment LO: 2, 3 4.  HubertEnterprises acquired Lyons, Inc. on January 1, 2014.  The $450,000 excess of cost over book value of Lyons' net assets was partly attributable to a patent undervalued by $200,000. The patent has a 10-year life.  The remaining excess is considered goodwill. .
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Chapter 1: Accounting for Intercorporate Investments Multiple Choice Multiple Choice– Theory Topic: Accounting for Investments Using the Equity Method with Less Than 100% Ownership LO: 6 1.GrandCorporation uses the equity method of accounting for its investment in a 30%-owned investee that earned $48,000 and paid $12,000 in dividends.  As a result, GrandCorporation made the following.
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Problems Topic: Equity Method Acquisition and Consolidating Entries LO:1, 2 1.  IovineCo. acquires, at book value, AriasEnterprises on January 2, 2013, by issuing 35,000 common shares, $1 par, with a market value on the acquisition date of $4per share.  The separate financial statements of the parent and subsidiary, for the year ended December.
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Topic: Goodwill LO: 3 3.On July 1, 2013, WinderCompany paid $1,125,000 for all of the common stock of Querve, Inc.Querve'sidentifiable net assets had a fair value of $1,031,250 at that date. After acquisition, Quervewas identified as a reporting unit and the goodwill from the acquisition was assigned to that reporting unit. Required:  a. .
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Topic: Consolidated Assets after Acquisition LO: 2 31.What amount of Mahl'sbuilding would be included on the consolidated balance sheet at December 31, 2015? a.  $360,000 b.  $405,000 c.  $324,000 d.  $288,000 Topic: Consolidated Assets after Acquisition LO: 2 32.What amount of Mahl'sequipment would be included on the consolidated balance sheet at December 31, 2015? a.  $225,000 b. $180,000 c.  $240,000 d.  $300,000 Topic: Consolidated.
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Topic: Consolidated Financial Statements LO: 2 3.  On January 1, 2013, IrmgardCompany acquired Louise Co. by issuing 55,000 shares of its common Stock with a market value of $40 per share.  A building on Louise's books was undervalued by $200,000, resulting in annual amortization of $20,000. Also, there was an unrecorded customer.
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Topic:Accounting for Investments Using the Equity Method when Purchase Price Exceeds Book Value LO: 4, 6 11.  If a 30% acquisition is made at a price above book value due to an undervalued patent, what will be the relationship between the Equity Investment account and the investee's stockholders' equity? a.  There is no.
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The following information applies to Questions 21 - 25. On January 1, 2013, Sheldon, Inc. acquired the outstanding voting common stock of SteffenCorp. for $472,500. Of this payment, $35,000 was allocated to undervalued equipment (with a five-year life).  Any remaining excess was attributable to goodwill. During 2013, Sheldon bought inventory for $70,000.
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Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 3.  On January 1, 2013, Parent Company purchased all of the common stock of Subsidiary Company for $700,000 cash.  On that date, Subsidiary had common stock of $40,000, additional paid-in capital of $160,000, and retained earnings of $300,000.  The difference between.
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The following information applies to Questions 31-35. On April 1, 2014, NarrowCompany sold equipment to its wholly owned subsidiary, ThatchCorporation.At the time of the transfer, the asset had a cost of $240,000 and accumulated depreciation of $90,000.The selling price was $204,000. The two companies agreed on a ten-year estimated remaining life. Thatch's.
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Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 4.  On January 2,2013, McCoyCorporation's stockholders' equity accounts were as follows: Common Stock, $1 par$50,000 Additional paid-in- capital100,000 Retained Earnings 225,000 McCoy's assets and liabilities had book values equal to market values except for inventory,land and building which were undervalued by $30,000, $20,000, and $25,000,.
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Exercises Topic: Equity Method Accounting When Less Than 100% Ownership LO: 6, 7 1.On January 1, 2013, SamuelCorporation acquired a 30% interest in Blanton, Inc. for $315,000, which was equal to book value of Blanton’s net assets.  During 2013, Blanton reported net income of $120,000 and paid total dividends of $37,500. Required:  a.How much.
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Topic: Intercompany Sales of Inventory LO: 5 31.  Assume the facts in Question 29.  Which of the following is the correct equity method entry to record the realization of the gross profit in 2013? a. Equity Income4,800 Equity Investment4,800 b. Equity Investment4,800 Equity Income4,800 c. Equity Investment16,000 Cost of Goods Sold16,000 d. Equity Income16,000 Equity Investment16,000 Topic: Intercompany Sales of Inventory LO:.
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Exercises Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 1.  MackeyCorporation exchanges 2,000 shares of $10 par value common stock, with a market value of $100 per share for all of the shares of Richardson, Inc.  On the acquisition date, Richardsonhad $100,000 of Common Stock and $50,000 of Retained Earnings. .
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Topic: Intercompany Profit Elimination LO: 3 11.On November 8, 2013, Power Corp. sold land to Wood Co., its wholly owned subsidiary. The land cost $61,500 and was sold to Wood for $89,000. From the perspective of the combination, when is the gain on the sale of the land realized? a.Proportionately over a designated.
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Ceaver Celig Sales revenue   $1,250,000 $750,000 Cost of goods sold    (900,000) (450,000) Gross profit        350,000 300,000 Operating expenses           (187,500) (195,000) Equity income 80,000             _ Net Income $   242,500 $  105,000 Retained Earnings, 1/1/14    $1,608,000 $387,500 Net income 242,500 105,000 Dividends      (38,000)   (15,750) Retained Earnings, 12/31/14 $1,812,500 $476,750 Cash and receivables    $   402,050 $367,250 Inventory         485,000 223,500 Equity investment 914,250 Property, plant & equipment (Net)    2,583,000 413,500 Total Assets $4,384,300 $1,004,250 Accounts payable     $   304,000 $71,500 Accrued liabilities 338,625 93,500 Notes payable          250,000 250,000 Common stock 222,000 50,000 Additional paid-in capital       1,457,175 62,500 Retained.
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Topic: Acquisition-Date Consolidation when Purchase Price Exceeds Book Value LO: 3 2.  MendolCorporation purchased 100% of the common stock of CarburyInc. on January 2, 2014. Carnac's balance sheet on January 2, 2014was as follows: Accounts receivable-net   $  180,000    Current liabilities    $  70,000 Inventory  360,000    Long term debt  160,000 Land   40,000    Common stock ($1 par)    20,000 Building-net.
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Topic: Intercompany Sale of Depreciable Assets LO: 3 4.Parent acquired Subsidiary on January 1, 2014at a price $150,000 in excess of book value.  Of that excess, $100,000 was allocated to an unrecorded Customer List with a 10-year life, with the remainder to Goodwill.  On January 2017, Subsidiary sold equipment to Parent for.
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a. Sales b.  Equity Income c.Operating Expenses d.  Accounts Payable e.  Equity Investment f.Property, Plant and Equipment (net of accumulated depreciation) g.  Goodwill h. Additional Paid-In Capital i.  Retained Earnings .
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Problems Topic: Acquisition-Date Consolidation LO: 2 1.  On January 2, 2013, IllinoisCorporation issued 200,000 new shares of its $5 par value common stock valued at $19 a share for all of NorthDakota Company’s outstanding common shares.  The fair value and book value of NorthDakota's identifiable assets and liabilities were the same.  Summarized balance.
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Topic: Intercompany Inventory Sales LO: 1 2.Parent purchased Subsidiary on January 1, 2014. The excess of investment cost over book value of $210,000 was allocated entirely to a 10-year royalty agreement. Subsidiary regularly sells merchandise to Parent.  In 2015, inter-company sales amounted to $123,960, with $27,558 of deferred profit remaining in ending inventory. .
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