Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
Chapter 05
Consolidation of Less-than-Wholly Owned Subsidiaries
Multiple Choice Questions
Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on December
31, 2008, for $300,000. The fair value of the noncontrolling interest at that date was
determined to be $100,000. Silver’s balance sheet immediately before the combination
reflected the following balances:
A careful review of the fair value of Silver’s assets and liabilities indicated that inventory,
land, and buildings and equipment (net) had fair values of $65,000, $100,000, and, $300,000
respectively. Goodwill is assigned proportionately to Bristle and the noncontrolling
shareholders.
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
1. Based on the preceding information, what amount of inventory will be included in the
consolidated balance sheet immediately following the acquisition?
A. $0
B. $65,000
C. $70,000
D. $60,000
2. Based on the preceding information, what amount of land will be included in the
consolidated balance sheet immediately following the acquisition?
A. $0
B. $10,000
C. $90,000
D. $100,000
3. Based on the preceding information, what amount of buildings and equipment (net) will be
included in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $50,000
C. $250,000
D. $300,000
4. Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet immediately following the acquisition?
A. $0
B. $120,000
C. $65,000
D. $20,000
5. Based on the preceding information, what amount will be reported as investment in Silver
Corporation stock in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $210,000
C. $300,000
D. $400,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
6. Based on the preceding information, what amount will be reported as noncontrolling
interest in the consolidated balance sheet immediately following the acquisition?
A. $0
B. $70,000
C. $83,750
D. $100,000
On January 1, 2009, Gulliver Corporation acquired 80 percent of Sea-Gull Company’s
common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was
determined to be $40,000. Data from the balance sheets of the two companies included the
following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull’s net assets and liabilities
approximated fair value except for inventory, which had a fair value of $45,000, and land,
which had a fair value of $60,000.
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
7. Based on the preceding information, what amount of total inventory will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $130,000
B. $135,000
C. $90,000
D. $45,000
8. Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $0
B. $40,000
C. $20,000
D. $15,000
9. Based on the preceding information, what amount of total assets will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $720,000
B. $840,000
C. $825,000
D. $865,000
10. Based on the preceding information, what amount of total liabilities will be reported in the
consolidated balance sheet prepared immediately after the business combination?
A. $395,000
B. $280,000
C. $265,000
D. $195,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
11. Based on the preceding information, what amount will be reported as noncontrolling
interest in the consolidated balance sheet prepared immediately after the business
combination?
A. $0
B. $15,000
C. $40,000
D. $46,000
12. Based on the preceding information, what amount of consolidated retained earnings will
be reported?
A. $205,000
B. $120,000
C. $325,000
D. $310,000
13. Based on the preceding information, what amount will be reported as total stockholders’
equity in the consolidated balance sheet prepared immediately after the business
combination?
A. $445,000
B. $205,000
C. $565,000
D. $550,000
On January 1, 2008, Ramon Corporation acquired 75 percent of Tester Company’s voting
common stock for $300,000. At the time of the combination, Tester reported common stock
outstanding of $200,000 and retained earnings of $150,000, and the fair value of the
noncontrolling interest was $100,000. The book value of Tester’s net assets approximated
market value except for patents that had a market value of $50,000 more than their book
value. The patents had a remaining economic life of ten years at the date of the business
combination. Tester reported net income of $40,000 and paid dividends of $10,000 during
2008.
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
14. Based on the preceding information, what balance will Ramon report as its investment in
Tester at December 31, 2008, assuming Ramon uses the equity method in accounting for its
investment?
A. $318,750
B. $317,500
C. $330,000
D. $326,250
15. Based on the preceding information, all of the following are eliminating entries needed to
prepare a full set of consolidated financial statements at December 31, 2008, except:
A. Choice A
B. Choice B
C. Choice C
D. Choice D
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
On January 1, 2008, Climber Corporation acquired 90 percent of Wisden Corporation for
$180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 2008,
2009, and 2010. On January 1, 2008, Wisden reported common stock outstanding of $100,000
and retained earnings of $60,000, and the fair value of the noncontrolling interest was
$20,000. It held land with a book value of $30,000 and a market value of $35,000 and
equipment with a book value of $50,000 and a market value of $60,000 at the date of
combination. The remainder of the differential at acquisition was attributable to an increase in
the value of patents, which had a remaining useful life of five years. All depreciable assets
held by Wisden at the date of acquisition had a remaining economic life of five years. Climber
uses the equity method in accounting for its investment in Wisden.
16. Based on the preceding information, the increase in the fair value of patents held by
Wisden is:
A. $20,000
B. $25,000
C. $15,000
D. $5,000
17. Based on the preceding information, what balance would Climber report as its investment
in Wisden at January 1, 2010?
A. $230,400
B. $180,000
C. $234,000
D. $203,400
18. Based on the preceding information, what balance would Climber report as its investment
in Wisden at January 1, 2011?
A. $251,100
B. $224,100
C. $215,100
D. $234,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
On January 1, 2008, Wilhelm Corporation acquired 90 percent of Kaiser Company’s voting
stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10
percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting
for its ownership of Kaiser. On December 31, 2009, the trial balances of the two companies
are as follows:
19. Based on the preceding information, what amount would be reported as total assets in the
consolidated balance sheet at December 31, 2009?
A. $805,000
B. $712,000
C. $742,000
D. $1,102,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
20. Based on the preceding information, what amount would be reported as total liabilities in
the consolidated balance sheet at December 31, 2009?
A. $330,000
B. $712,000
C. $318,000
D. $130,000
21. Based on the preceding information, what amount would be reported as retained earnings
in the consolidated balance sheet prepared at December 31, 2009?
A. 314,000
B. 294,000
C. 150,000
D. 424,000
22. Based on the preceding information, what amount would be reported as noncontrolling
interest in the consolidated balance sheet at December 31, 2009?
A. $27,000
B. $4,000
C. $15,000
D. $18,000
23. Based on the preceding information, what amount would be reported as total stockholder’s
equity in the consolidated balance sheet at December 31, 2009?
A. $412,000
B. $394,000
C. $542,000
D. $348,000
24. Based on the preceding information, what amount would be reported as income to
controlling interest in the consolidated financial statements for 2009?
A. $168,000
B. $138,000
C. $164,000
D. $150,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
On January 1, 2008, Bristol Company acquired 80 percent of Animation Company’s common
stock for $280,000 cash. At that date, Animation reported common stock outstanding of
$200,000 and retained earnings of $100,000, and the fair value of the noncontrolling interest
was $70,000. The book values and fair values of Animation’s assets and liabilities were equal,
except for other intangible assets which had a fair value $50,000 greater than book value and
an 8-year remaining life. Animation reported the following data for 2008 and 2009:
Bristol reported net income of $100,000 and paid dividends of $30,000 for both the years.
25. Based on the preceding information, what is the amount of consolidated comprehensive
income reported for 2008?
A. $125,000
B. $123,750
C. $118,750
D. $130,000
26. Based on the preceding information, what is the amount of consolidated comprehensive
income reported for 2009?
A. $145,000
B. $135,000
C. $138,750
D. $128,750
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
27. Based on the preceding information, what is the amount of comprehensive income
attributable to the controlling interest for 2008?
A. $123,750
B. $118,750
C. $119,000
D. $104,000
28. Based on the preceding information, what is the amount of comprehensive income
attributable to the controlling interest for 2009?
A. $138,750
B. $131,000
C. $128,750
D. $135,000
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Chapter 05 – Consolidation of Less-than-Wholly Owned Subsidiaries
On January 1, 2008, Colorado Corporation acquired 75 percent of Denver Company’s voting
common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was
$30,000. Denvers’s balance sheet at the date of acquisition contained the following balances:
At the date of acquisition, the reported book values of Denver’s assets and liabilities
approximated fair value. Eliminating entries are being made to prepare a consolidated balance
sheet immediately following the business combination.
29. Based on the preceding information, in the entry to eliminate the investment balance,
A. retained earnings will be credited for $20,000.
