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Education.
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Topic: Noncontrolling interest―Calculate balance
Topic: Initial value or Partial equity accounting
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: December 2019 Noncontrolling Interest Balance $135,600 + Noncontrolling Interest Share of
[Net Income for 2020 ($120,000 × .20) – Dividends for 2020 ($50,000 × .20) – Excess FV Annual
Amortization ($7,000 × .20)] = $148,200
[QUESTION]
REFER TO: 04-10
90. Compute the noncontrolling interest in Demers at December 31, 2021.
A) $107,800.
B) $140,000.
C) $ 80,000.
D) $160,800.
E) $146,800.
91. At what amount would consolidated goodwill be reported for 2020?
A) $150,000
B) $200,000.
C) $ 50,000.
D) $ 0.
E) $135,000.
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Education.
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AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: (Recorded Goodwill $200,000) – (2020 Goodwill Impairment $50,000) = $150,000 Reported
Goodwill for 2020
[QUESTION]
92. In comparing U.S. GAAP and International Financial Reporting Standards (IFRS) with regard to a
basis for measurement of a noncontrolling interest, which of the following is true?
A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree’s
identifiable net asset fair value measurement.
B) U.S. GAAP and IFRS both require acquisition-date fair value measurement.
C) U.S. GAAP and IFRS both require the acquiree’s identifiable net asset fair value measurement.
D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for
acquisition-date fair value measurement.
E) U.S. GAAP and IFRS both apportion goodwill to the parent only.
93. Where should a noncontrolling interest appear on a consolidated balance sheet?
94. What is pre-acquisition income?
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AACSB: Communication
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
95. Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under
what conditions will Beta be required to prepare consolidated financial statements?
96. Why is it important to know if the parent paid a premium to acquire control of a subsidiary?
97. How would you determine the amount of goodwill to be recognized at date of acquisition when there
is a noncontrolling interest present?
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Page 4-41
or by a separate value calculation. The total acquisition fair value is then the sum of both parent and
noncontrolling interest shares.
The fair value of the net assets acquired is apportioned to the parent and to the noncontrolling interest.
Then, the difference between acquisition fair value and relative fair value of net assets acquired is
goodwill attributed respectively to the parent and to the noncontrolling interest.
Learning Objective: 04-03
Learning Objective: 04-07
Topic: Goodwill―No control premium
Topic: Goodwill―With control premium
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AACSB: Communication
AACSB: Communication
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
98. How is a noncontrolling interest in the net income of an entity reported in the income statement?
99. One company buys a controlling interest in another company on April 1 during a company’s calendar
year of operations. How should the pre-acquisition subsidiary revenues and expenses be handled in the
consolidated balances for the year of acquisition?
100. Prevatt, Inc. owns 80% of Franklin Company. During the current year, a portion of the investment
in Franklin is sold. Prior to recording the sale, Prevatt adjusts the carrying value of its investment. What
is the purpose of the adjustment?
Answer: If control is maintained after the sale, then the difference between the sales proceeds and the
book value is an adjustment to the parent’s owners’ equity. If control is not maintained, then such
difference is a gain or loss on sale of investment. In either situation, the carrying value of the investment
should be on the equity method basis in order to calculate the proper entry for the sale. Therefore, if
Prevatt adjusts the carrying value of its investment, it is in order to bring an initial value method or partial
equity method investment basis to an equity method basis.
Learning Objective: 04-10
Topic: Sale of shares―Control maintained
Topic: Sale of shares―Control lost
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AACSB: Communication
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
101. How does a parent company account for the sale of a portion of an investment in a subsidiary?
102. Alonzo Co. acquired 60% of Beazley Corp. by paying $240,000 cash. There is no active trading
market for Beazley Corp. At the time of the acquisition, the book value of Beazley’s net assets was
$300,000.
Required:
What amount should have been assigned to the noncontrolling interest immediately after the
combination?
103. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz’s net
assets was $600,000. For all of Martz’s assets and liabilities, book value and fair value were
approximately equal. There was no active market for the shares of Martz Co.
Required:
Using the acquisition method, what amount of goodwill should appear in a consolidated balance sheet
prepared immediately after the combination?
104. On January 1, 2020, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of
Fenton’s net assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book
value of $120,000.
Required:
At what amount would the building appear on a consolidated balance sheet prepared immediately after
the combination, under the acquisition method of accounting for business combinations?
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Education.
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AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
105. Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens’ revenues for 2020 totaled
$200,000.
Required:
What amount of Scarvens’ revenues would be included in the consolidated revenues under the acquisition
method of accounting for business combinations?
106. Using the acquisition method, determine the amount of goodwill associated with Caldwell’s
purchase of Club.
Im
plied fair value of Club Corp. ($2,600,000 ÷ 65%)
$ 4,000,000
Fair value of Club Corp.’s net assets
(3,500,000)
Goodwill
$ 500,000
$ 200,000
$ 200,000
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Education.
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Learning Objective: 04-03
Topic: Goodwill―No control premium
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
REFER TO: 04-12
107. Determine the amount of the noncontrolling interest as of the date of the acquisition.
108. Determine the amount of goodwill to be recognized in this acquisition.
109. Determine the value assigned to the noncontrolling interest as of the date of the acquisition.
Implied value $625,000 × 20%
$ 125,000
Learning Objective: 04-02
Topic: Acquisition-date―Fair value of subsidiary
Difficulty: 1 Easy
Blooms: Apply
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
REFERENCE: 04-14
On January 1, 2019, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no
active trading market for Techron stock. Techron Co. reported a Common Stock account balance of
$140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at
$530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary
earned $98,000 in 2019 and $126,000 in 2020 with dividend payments of $42,000 each year. Without
regard for this investment, Jannison had income of $308,000 in 2019 and $364,000 in 2020.
[QUESTION]
REFER TO: 04-14
110. Prepare a proper presentation of consolidated net income and its allocation for 2019.
111. Prepare a proper presentation of consolidated net income and its allocation for 2020.
Consolidated net income
$479,000
To noncontrolling interest (10%) ($126,000-11,000)
(11,500)
To controlling interest
$467,500
Learning Objective: 04-04
Learning Objective: 04-06
Topic: Consolidated net income
Topic: Consolidated net income―Allocation
Topic: Noncontrolling interest―Statement presentation
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
REFER TO: 04-14
112. What is the noncontrolling interest balance as of December 31, 2020?
113. On January 1, 2018, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a
$20,000 control premium. Carper reported common stock on that date of $420,000 with retained earnings
of $252,000. A building was undervalued in the company’s financial records by $28,000. This building
On December 31, 2020, Vacker owed $30,800 to Carper. There have been no changes in Carper’s
common stock account since the acquisition.
Required:
If the equity method had been applied by Vacker for this acquisition, what were the consolidation entries
needed as of December 31, 2020?
Net
Dividends
Income
Paid
2018
$ 105,000
$ 54,600
2019
134,400
61,600
2020
154,000
84,000
Accounts Payable
30,800
Accounts receivable
30,800
Noncontrolling Interest items:
Dividends
(25,200)
Income of Carper
44,160
Learning Objective: 04-05
Learning Objective: 04-07
Topic: Acquisition-date―Fair value allocation
Topic: Investment account balance―Equity method
Topic: Worksheet procedures
Topic: Goodwill―With control premium
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
Beginning NCI = $270,000 + $29,460 (income) – $16,380 (divs) + $38,280 (income) – $18,480
(divs) = $302,880
Goodwill: Vacker paid $650,000 which includes $20,000 premium. Thus, $630,000 represents
70% of the shares without the premium. $630,000/.70 = $900,000 value of the company without
the premium. 30% x $900,000 = $270,000. The total fair value of the company is thus $650,000
that Vacker paid + $270,000 value of the noncontrolling interest shares = $920,000. The fair
value of the net assets acquired is $780,000 (= $672,000 + $28,000 + $80,000). Goodwill
attributable to Vacker is $104,000 (= $650,000 – [70% x $780,000]) and the goodwill
attributable to the noncontrolling interest is $36,000 (= $270,000 – [30% x $780,000]).
REFERENCE: 04-15
On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc.
(BMI). JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par
value $1.00 per share). At the time of the acquisition, BMI’s book value was $16,970,000.
On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this
transaction. Any consideration transferred over book value is assigned to goodwill. BMI had the
following balances on January 1, 2020.
Book
Fair
Value
Value
Land
$1,700,000
$2,550,000
Buildings (seven-year remaining life)
2,700,000
3,400,000
Equipment (five-year remaining life)
3,700,000
3,300,000
For internal reporting purposes, JDE employed the equity method to account for this investment.
[QUESTION]
REFER TO: 04-15
114. Prepare a schedule to determine goodwill, and the amortization and allocation amounts.
Annual
Controlling
share
Share
Consideration transferred for Bubba Mfg.
$10,450,000
Implied fair value $10,450,000/55%
$19,000,000
Book value
(16,970, 000)
Fair value in excess of book value
$ 2,030,000
Excess cost assigned to specific
accounts based on fair values
Land
850,000
Buildings
700,000
7 years
$100,000
$55,000
$45,000
Equipment
(400,000)
5 years
(80,000)
( 44,000)
(36,000)
Goodwill
$ 880,000
Total
$20,000
$11,000
$9,000
115. The following account balances are for the year ending December 31, 2020 for both companies.
John Doe
Bubba
Enterprises
Manufacturing
Revenues
$(298,000,000)
$(103,750,000)
Expenses
271,000,000
95,800,000
Equity in income of Bubba Manufacturing
( 4,361,500)
0
Net income
$( 31,361,500)
$( 7,950,000)
Retained earnings, January 1, 2020
$( 2,500,000)
$( 100,000)
Net income (above)
( 31,361,500)
( 7,950,000)
Dividends paid
5,000,000
3,000,000
Retained earnings, December 31, 2020
$( 28,861,500)
$( 5,050,000)
Current Assets
$ 30,500,000
$ 20,800,000
Investment in Bubba Manufacturing
13,161,500
Land
1,500,000
1,700,000
Buildings
5,600,000
2,360,000
Equipment (net)
3,100,000
2,960,000
Total assets
$ 53,861,500
$ 27,820,000
Accounts payable
$( 3,100,000)
$ (4,900,000)
Notes payable
( 1,000,000)
Common stock
( 2,900,000)
( 6,000,000)
Additional paid-in capital
( 19,000,000)
( 10,870,000)
Retained earnings, Dec. 31, 2020 (above)
( 28,861,500)
( 5,050,000)
Total liabilities and stockholders’ equity
$ (53,861,500)
$( 27,820,000)
Required:
Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed
and there is no goodwill impairment.
Difficulty: 3 Hard
Blooms: Apply
Blooms: Create
AACSB: Knowledge Application
AICPA BB: Critical Thinking
AICPA FN: Measurement
[QUESTION]
116. McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2019, and an additional
10 percent on November 1, 2020. Annual amortization of $12,000 relates to the first acquisition. Ellis
reports the following figures for 2020:
Revenues
$500,000
Expenses
350,000
Retained earnings, 1/1/20
3,500,000
Dividends paid
40,000
Common stock
400,000
Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less
$360,000 expenses; incurred evenly through the year) during 2020.
Required: Prepare a schedule of consolidated net income and apportionment to noncontrolling and
controlling interests for 2020.
Expenses ($360,000+350,000+amort.12,000)
722,000
Consolidated net income
$ 618,000
To noncontrolling interest
(39,100)
To controlling interest
$ 578,900
Noncontrolling interest:
Revenues
Expenses ($350,000+amort.12,000)
362,000
Net income
$ 138,000
30% x10/12 (for months) × 138,000 = $34,500
20% x 2/12 (for months) × 138,000 = 4,600
$ 39,100
_____ 1. A parent will recognize a gain or loss if it sells a portion of its investment in a subsidiary and
maintains control after the sale.
_____ 2. A parent sells a portion of its investment in a subsidiary and no longer maintains control. This
sale of shares represents a remeasurement event for the investee.
_____ 3. International financial reporting standards (IFRS) allow an option to value the noncontrolling
interest with goodwill or to value the noncontrolling interest without goodwill.
_____ 4. Consolidated net income represents the combined net income of the parent and subsidiary after
subtracting the noncontrolling interest in the net income of the subsidiary.
_____ 5. The total acquisition-date fair value of an acquired firm is the sum of the fair value of the
controlling interest and the fair value of the noncontrolling interest.
_____ 6. When control of a subsidiary is acquired on a date other than the first day of a fiscal year, excess
amortization expenses are pro-rated to include only the post-acquisition period.
_____ 7. For a mid-year acquisition following an equity method investment of the same company, the
consolidated income statement will report consolidated revenues and expenses for the entire year.
_____ 8. In a step acquisition where the parent previously held a noncontrolling interest in the acquired
firm, the parent remeasures the prior interest to fair value.
_____ 9. When a parent has control over a subsidiary with less than 100 percent ownership, and thereafter
increases its ownership, the parent remeasures the prior interest to fair value.