File: Chapter 04 – Consolidated Financial Statements and Outside Ownership
Multiple Choice:
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.
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.
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.
E) $17,500.
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.
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.
6. Which of the following methods is not used to value a noncontrolling interest under circumstances
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.
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.
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.
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Page 4-4
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.
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.
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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.
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.
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.
D) $160,000.
E) $0.
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.
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
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Education.
Page 4-7
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.
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.
18. What is the amount of Kailey’s net income to the controlling interest for 2019?
A) $31,000.
B) $33,000.
C) $55,000.
D) $60,000.
E) $39,000.
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.
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.
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Page 4-9
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.
22. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest?
A) $686,000.
B) $560,000.
C) $644,000.
D) $635,600.
E) $691,600.
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 subsidiary 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.
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.
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:
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) $135,400.
Palk Corp. Spraz Corp.
Current assets 99,000$ 28,000$
Noncurrent assets 125,000$ 56,000$
Total assets 224,000$ 84,000$
Current liabilities 42,000$ 14,000$
Long-term debt 70,000$ –$
Stockholders’ equity 112,000$ 70,000$
Total liabilities and stockholders’ equity 224,000$ 84,000$
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Education.
Page 4-12
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, 2019?
A) $195,000.
B) $192,200.
C) $186,600.
D) $181,000.
E) $169,800.
27. What are the total consolidated current liabilities at January 2, 2019?
A) $53,200.
B) $56,000.
C) $64,400.
D) $42,000.
E) $70,000.
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Page 4-13
Feedback: [Parent’s Current Liabilities $42,000] + [Sub’s Current Liabilities $14,000] + [Current Portion
of Acquisition Loan ($84,000 / 10) = $8,400] = $64,400
[QUESTION]
REFER TO: 04-06
28. What is consolidated stockholders’ equity at January 2, 2019?
A) $112,000.
B) $133,000.
C) $168,000.
D) $182,000.
E) $203,000.
29. In measuring the noncontrolling interest immediately following the date of acquisition, which of the
following would not be indicative of the value attributed to the noncontrolling interest?
A) Fair value based on stock trades of the acquired company.
B) Subsidiary cash flows discounted to present value.
C) Book value of subsidiary net assets.
D) Projections of residual income.
E) Consideration transferred by the parent company that implies a total subsidiary value.
30. When a parent uses the equity method throughout the year to account for its 80% investment in an
acquired subsidiary, which of the following statements is false at the date immediately preceding the date
on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals controlling interest in consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equals consolidated dividends.
E) Goodwill is not recorded on the parent’s books.
31. When a parent uses the initial value method throughout the year to account for its 80% investment in
an acquired subsidiary, which of the following statements is true at the date immediately preceding the
date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equal consolidated dividends.
E) Goodwill is recorded on the parent’s books.
32. When a parent uses the partial equity method throughout the year to account for its 80% investment
in an acquired subsidiary, which of the following statements is true at the date immediately preceding the
date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equal consolidated dividends.
E) Goodwill is recorded on the parent’s books.
33. In a step acquisition, which of the following statements is false?
A) The acquisition method views a step acquisition essentially the same as a single step acquisition.
B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the
year.
C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
D) Obtaining control through a step acquisition is a significant measurement event.
E) Pre-acquisition earnings are not included in the consolidated income statement.
34. Which of the following statements is false regarding multiple acquisitions of a subsidiary’s existing
common stock?
A) The parent recognizes a larger percent of subsidiary income.
B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.
C) The book value of the subsidiary will increase.
D) The parent’s percent ownership in subsidiary will increase.
E) Noncontrolling interest in subsidiary’s net income will decrease.
35. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following
statements is true?
A) Income from subsidiary is not recognized until there is an entire year of consolidated operations.
B) Income from subsidiary is recognized from date of acquisition to year-end.
C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.
D) No goodwill can be recognized.
E) Income from subsidiary is recognized for the entire year.
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AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
36. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year,
which of the following statements is true of the subsidiary with respect to the presentation of consolidated
financial statement information?
A) Pre-acquisition earnings are deducted from consolidated revenues and expenses.
B) Pre-acquisition earnings are added to consolidated revenues and expenses.
C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders’ equity.
D) Pre-acquisition earnings are added to the beginning consolidated stockholders’ equity.
E) Pre-acquisition earnings are ignored in the consolidated income statement.
37. When a parent uses the acquisition method for business combinations and sells shares of its
subsidiary, which of the following statements is false?
A) If majority control is still maintained, consolidated financial statements are still required.
B) If majority control is not maintained but significant influence exists, the equity method to account for
the investment is still used but consolidated financial statements are not required.
C) If majority control is not maintained but significant influence exists, the equity method is still used to
account for the investment and consolidated financial statements are still required.
D) If majority control is not maintained and significant influence no longer exists, a prospective change in
accounting principle to the fair value method is required.
E) A gain or loss calculation must be prepared if control is lost.
38. All of the following statements regarding the sale of subsidiary shares are true except which of the
following?
A) The use of specific identification based on serial number is acceptable.
B) The use of the FIFO assumption is acceptable.
C) The use of the averaging assumption is acceptable.
D) The use of specific LIFO assumption is acceptable.
E) The parent company must determine whether consolidation is still appropriate for the remaining shares
owned.
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Page 4-17
Answer: D
Learning Objective: 04-10
Topic: Sale of shares―Control maintained
Topic: Sale of shares―Control lost
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
39. Which of the following statements is true regarding the sale of subsidiary shares when using the
acquisition method for accounting for business combinations?
A) If control continues, the difference between selling price and acquisition value is recorded as a realized
gain or loss.
B) If control continues, the difference between selling price and acquisition value is an unrealized gain or
loss.
C) If control continues, the difference between selling price and carrying value is recorded as an
adjustment to additional paid-in capital.
D) If control continues, the difference between selling price and carrying value is recorded as a realized
gain or loss.
E) If control continues, the difference between selling price and carrying value is recorded as an
adjustment to retained earnings.
40. Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax
now sells some of its shares of Saxton such that neither control nor significant influence exists. Which of
the following statements is true?
A) The difference between selling price and acquisition value is recorded as a realized gain or loss.
B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss.
C) The difference between selling price and carrying value is recorded as a realized gain or loss.
D) The difference between selling price and carrying value is recorded as an unrealized gain or loss.
E) The difference between selling price and carrying value is recorded as an adjustment to retained
earnings.
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[QUESTION]
41. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019,
and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first
acquisition. George reports the following figures for 2020:
Revenues
$500,000
Expenses
400,000
Retained earnings, 1/1/20
300,000
Dividends paid
50,000
Common stock
200,000
Without regard for this investment, Keefe independently earns $300,000 in net income during 2020.
All net income is earned evenly throughout the year.
What is the controlling interest in consolidated net income for 2020?
A) $380,000.
B) $375,200.
C) $375,800.
D) $376,000.
E) $400,000.
42. The acquisition value attributable to the noncontrolling interest at January 1, 2019 is:
A) $23,400.
B) $24,000.
C) $24,900.
D) $26,000.
E) $20,000.
43. In consolidation at January 1, 2019, what adjustment is necessary for Hogan’s Buildings account?
A) $2,000 increase.
B) $2,000 decrease.
C) $1,800 increase.
D) $1,800 decrease.
E) No change.
44. In consolidation at December 31, 2019, what adjustment is necessary for Hogan’s Buildings account?
A) $1,620 increase.
B) $1,620 decrease.
C) $1,800 increase.
D) $1,800 decrease.
E) No adjustment is necessary.
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Page 4-20
AICPA FN: Measurement
Feedback: <$2,000> Reduction – 2019 Excess Amortization of <$200> = <$1,800> Reduction
[QUESTION]
REFER TO: 04-07
45. In consolidation at December 31, 2020, what adjustment is necessary for Hogan’s Buildings account?
A) $1,440 increase.
B) $1,440 decrease.
C) $1,600 increase.
D) $1,600 decrease.
E) No adjustment is necessary.
46. In consolidation at January 1, 2019, what adjustment is necessary for Hogan’s Equipment account?
A) $4,000 increase.
B) $4,000 decrease.
C) $3,600 increase.
D) $3,600 decrease.
E) No adjustment is necessary.
47. In consolidation at December 31, 2019, what adjustment is necessary for Hogan’s Equipment
account?