江西财经大学高级财务会计国际学院题库chapter-08

AdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)

Chapter8Consolidations-ChangesinOwnershipInterests

MultipleChoiceQuestions

1)Whichofthefollowingiscorrect?Thedirectsaleofadditionalsharesofstockatbookvaluepersharetoonlytheparentcompanyfromasubsidiary

A)decreasestheparent'sinterestanddecreasesthenoncontrollingshareholders'interest.

B)decreasestheparent'sinterestandincreasesthenoncontrollingshareholders'interest.

C)increasestheparent'sinterestandincreasesthenoncontrollingshareholders'interest.

D)increasestheparent'sinterestanddecreasesthenoncontrollingshareholders'interest.

Answer:D

Objective:LO3

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

OnDecember31,2010,GiantCorporation'sInvestmentinPenguinCorporationaccounthadabalanceof$500,000.Thebalanceconsistedof80%ofPenguin's$625,000stockholders'equityonthatdate.Giantowns80%ofPenguin.OnJanuary2,2011,Penguinincreaseditsoutstandingcommonstockfrom15,000to18,000shares.

2)AssumethatPenguinsoldtheadditional3,000sharesdirectlytoGiantfor$150,000onJanuary2,2011.Giant'spercentageownershipinPenguinimmediatelyafterthepurchaseoftheadditionalstockis

A)66-2/3%.

B)80%.

C)83-1/3%.

D)86-2/3%

Answer:C

Explanation:C)(Parenthad80%of15,000shares,or12,000shares.Theynowhold15,000of18,000shares)=83.33%

Objective:LO3

Difficulty:Moderate

3)AssumethatPenguinsoldtheadditional3,000sharestooutsideinterestsfor$150,000onJanuary2,2011.Giant'spercentageownershipimmediatelyafterthesaleofadditionalstockwouldbe

A)66-2/3%.

B)75%.

C)80%.

D)83-1/3%.

Answer:A

Explanation:A)(12,000shares/18,000shares)=66.67%

Objective:LO3

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

BirdCorporationpurchasedan80%interestinBrushCorporationonJuly1,2010atitsbookvalue,andonJanuary1,2011itsInvestmentinBrushaccountwas$300,000,equaltoitsbookvalue.Brush'snetincomefor2011was$99,000(earneduniformly);nodividendsweredeclared.OnMarch1,2011,BirdreduceditsinterestinBrushbysellinga20%interest,one-fourthofitsinvestment,for$84,000.

4)IfBirdusesa"beginning-of-the-year"saleassumption,itsgainonsaleandincomefromBrushfor2011willbe

A)

GainonSale

IncomefromBrush

$5,700

$59,400

B)

GainonSale

IncomefromBrush

$5,700

$62,700

C)

GainonSale

IncomefromBrush

$9,000

$59,40

D)

GainonSale

IncomefromBrush

$9,000

$62,70

Answer:C

Explanation:C)

Sellingprice $84,000

Bookvalueofinterestsold

$300,000×(20%/80%)=75,000

Gainonsale $9,000

IncomefromBrush

$99,000×(80%-20%)=$59,400

Objective:LO2

Difficulty:Moderate

5)IfBirdusesthe"actual-sale-date"salesassumption,itsgainonthesaleandincomefromBrushfor2011willbe

A)

GainonSale

IncomefromBrush

$5,700

$59,400

B)

GainonSale

IncomefromBrush

$5,700

$62,700

C)

GainonSale

IncomefromBrush

$21,360

$59,400

D)

GainonSale

IncomefromBrush

$21,360

$62,700

Answer:B

Explanation:B)

Sellingprice $84,000

Bookvalueofinterestsold:

Beginningbalance $300,000

Incomefor2months

$99,000x1/6×80%=13,200

Adjustedbookvalue 313,200

Percentageofinterestsold 1/4

Bookvalueapplied 78,300 78,300

Gainonsale $5,700

IncomefromBrush:

Jan1-Mar1$99,000×2/12×80%= $13,200

Mar1-Dec31$99,000×10/12×60%=49,500

IncomefromBrush $62,700

Objective:LO2

Difficulty:Moderate

6)JerseyCompanyacquired90%ofYorkCompanyonApril1,2011.BothJerseyCompanyandYorkCompanyhaveDecember31fiscalyearends.UndercurrentGAAP,whichofthefollowingstatementsisfalse?

A)Theconsolidatedincomestatementin2011shouldnotincludeYork'srevenuesandexpensespriortoApril1,2011.

B)Whenpreparingconsolidatingworkpapersin2011,York'srevenuespriortoApril1,2011areeliminated.

C)York'searningspriortoApril1,2011shouldappearasadeductionontheconsolidatedincomestatementin2011.

D)Theconsolidatedincomestatementin2011shouldincludeYork'srevenuesandexpensesafterApril1,2011.

Answer:C

Objective:LO1

Difficulty:Moderate

7)UtahCompanyholds80%ofthestockofasubsidiarycompany.Thesubsidiaryissues100additionalsharesofstocktoUtahCompanyatapriceabovebookvaluepershare.Thesubsidiarydoesnotissueanyadditionalsharesatthesametime.HowwillUtahCompanyrecordthepurchase?

A)UtahCompanyrecordsagainonsaleofstock.

B)UtahCompanyincreasesadditionalpaid-incapital.

C)UtahCompanydecreasesadditionalpaid-incapital.

D)UtahCompanyassignsanyexcesscostoverbookvalueacquiredtoincreaseundervaluedidentifiableassetsorgoodwillasappropriate.

Answer:D

Objective:LO3

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

GoldbergCorporationowneda70%interestinSavannahCorporationonDecember31,2010,andGoldberg'sInvestmentinSavannahaccounthadabalanceof$3,900,000.Savannah'sstockholders'equityonthisdatewasasfollows:

Capitalstock,$10parvalue $3,000,000

RetainedEarnings 2,400,000

TotalStockholders'Equity $5,400,000

OnJanuary1,2011,Savannahissues80,000newsharesofcommonstocktoGoldbergfor$16each.

8)WhatisGoldberg'spercentageownershipinSavannahafterSavannahissuesitsstocktoGoldberg?

A)76.32%

B)80.43%

C)82.57%

D)83.43%

Answer:A

Explanation:A)(210,000+80,000)/380,000

Objective:LO3

Difficulty:Moderate

9)OnJanuary1,2011,assumethefairvaluesofSavannah'sidentifiableassetsandliabilitiesequalbookvalues.Whatisthechangeintheamountofgoodwillassociatedwiththeissuanceof80,000additionalsharestoGoldberg?(Usefourdecimalplaces.)

A)Increasegoodwill$38,176.

B)Decreasegoodwill$38,176.

C)Increasegoodwill$384,000.

D)Decreasegoodwill$384,000.

Answer:B

Explanation:B)

Savannah'sequityaftertheissuanceof

thenewshares($5,400,000+$1,280,000) $6,680,000

Goldberg'sownershippercentage 76.32%

Goldberg'sshareofSavannah'sequitynow $5,098,176

Goldberg'spreviousshareofSavannah'sequity($5,400,000×70%) 3,780,000

Savannah'sequityacquiredinthepurchase $1,318,176

Amountspenttoacquirestock 1,280,000

Excessbookvalueacquiredovercost $38,176

Objective:LO3

Difficulty:Difficult

Usethefollowinginformationtoanswerthequestion(s)below.

GreatCorporationacquireda90%interestinSOSCorporationatits$810,000bookvalueonDecember31,2010.Asummaryofthestockholders'equityforSOSattheendof2010and2011isasfollows:

12/31/1012/31/11

Capitalstock,$10par $600,000 $600,000

Additionalpaid-incapital 30,000 30,000

RetainedEarnings 270,000420,000

Totalstockholders'equity $900,000$1,050,000

OnJanuary1,2012,SOSsold10,000newsharesofits$10parvaluecommonstockfor$45pershare.

10)IfSOSsoldtheadditionalsharestothegeneralpublic,Great'sInvestmentinSOSaccountafterthesalewouldbe________.(Usefourdecimalplaces.)

A)$945,000

B)$1,157,100

C)$1,225,000

D)$1,245,000

Answer:B

Explanation:B)

SOS'sstockholders'equitypriortothestockissuance $1,050,000

Plus:Capitalreceivedfromnewstockissued 450,000

Newstockholders'equity $1,500,000

Great'sownership(54,000/(60,000+10,000)) 77.14%

Great'sadjustedinvestmentinSOS $1,157,100

Objective:LO3

Difficulty:Moderate

11)IfSOSsoldtheadditionalsharesdirectlytoGreat,Great'sInvestmentinSOSaccountafterthesalewouldbe

A)$1,350,000.

B)$1,395,000.

C)$1,425,000.

D)$1,500,000.

Answer:B

Explanation:B)

Investmentbalanceat12/31/2011

($1,050,000×90%) $945,000

Additionalinvestment(10,000shares×$45) 450,000

Investmentaccountbalance,12/31/2011 $1,395,000

Objective:LO3

Difficulty:Moderate

12)Considerasaleofstockbyasubsidiarytopartiesoutsidetheconsolidatedentity.Thistransactionrequiresanadjustmentoftheparent'sinvestmentandadditionalpaid-incapitalaccountsexceptwhen

A)thesharesaresoldbelowbookvaluepershare.

B)thesharesaresoldabovebookvaluepershare.

C)thesharesaresoldatbookvaluepershare.

D)Alloftheabovearecorrect.

Answer:C

Objective:LO3

Difficulty:Moderate

13)Ifaparentcompanyandoutsideinvestorspurchasesharesofasubsidiaryinrelationtoexistingstockownership(ratably),then

A)therewillbeanadjustmenttoadditionalpaid-incapitalifthestockissoldabovebookvalue.

B)therewillbenoadjustmenttoadditionalpaid-incapitalregardlesswhetherthestockissoldaboveorbelowbookvalue.

C)therewillbeanadjustmenttoadditionalpaid-incapitalifthestockissoldbelowbookvalue.

D)therewillbetheeliminationofagain.

Answer:B

Objective:LO3

Difficulty:Easy

14)Asubsidiarysplititsstock2for1.Whichofthefollowingstatementsisfalse?

A)Astocksplitdoesnotaffecttheamountofnetassetsofthesubsidiary.

B)Astocksplitdoesnotaffectparentandnoncontrollinginterestownershippercentages.

C)Astocksplitdoesnotaffectconsolidationprocedures.

D)A2for1stocksplitdecreasesthenumberofsharesoutstanding.

Answer:D

Objective:LO3

Difficulty:Moderate

Usethefollowinginformationtoanswerthequestion(s)below.

BowerCorporationpurchaseda70%interestinStageCorporationonJune1,2010atapurchasepriceof$350,000.OnJune1,2010,thebookvaluesofStage'sassetsandliabilitieswereequaltofairvalues.OnJune1,2010,Stage'sstockholders'equityconsistedof$290,000ofCommonStockand$210,000ofRetainedEarnings.Allcost-bookdifferentialswereattributedtogoodwill.

During2010,Stageearned$120,000ofnetincome,earneduniformlythroughouttheyearandpaid$6,000ofdividendsonMarch1andanother$6,000onSeptember1.

15)Noncontrollinginterestsharefor2010is

A)$21,000.

B)$32,400.

C)$36,000.

D)$50,000.

Answer:A

Explanation:A)($120,000×7/12×30%)

Objective:LO2

Difficulty:Moderate

16)Preacquisitionincomefor2010is

A)$50,000.

B)$35,000.

C)$44,000.

D)$36,000.

Answer:A

Explanation:A)($120,000×5/12)

Objective:LO2

Difficulty:Moderate

17)AnthonyCompanydeclaredandpaid$20,000ofdividendsduring2011.Thescheduleofdividendsfollows:

DateDividendDeclared&PaidAmountPaid

March31,2011 $5,000

June30,2011 $5,000

September30,2011 $5,000

December31,2011 $5,000

AnthonyCompanywasacquiredonJune1,2011byGoogleCompany.Googleacquired100percentofAnthonyCompany.BothcompanieshaveaDecember31fiscalyearend.Whatistheamountofpreacquisitiondividendsin2011?

A)0

B)$5,000

C)$10,000

D)$15,000

Answer:B

Objective:LO1

Difficulty:Moderate

18)OnApril1,2011,ParamountCompanyacquires100%oftheoutstandingstockofYesterCompanyontheopenmarket.ParamountandYesterhaveDecember31fiscalyearends.UnderGAAP,aconsolidatedincomestatementfortheyearendingDecember31,2011,willinclude

A)100percentoftherevenuesandexpensesin2011ofYesterCompanyafterJanuary1,2011.

B)norevenuesandexpensesin2011ofYesterCompany.

C)80percentoftherevenuesandexpensesin2011ofYesterCompany.

D)100percentoftherevenuesandexpensesin2011ofYesterCompanyafterApril1,2011.

Answer:D

Objective:LO1

Difficulty:Moderate

19)Theacquisitionoftreasurystockbyasubsidiaryfromnoncontrollingshareholdersatapriceabovebookvalue

A)decreasestheparent'sshareofsubsidiarybookvalueanddecreasestheparent'sownershippercentage.

B)decreasestheparent'sshareofsubsidiarybookvalueandincreasestheparent'sownershippercentage.

C)increasestheparent'sshareofsubsidiarybookvalueanddecreasestheparent'sownershippercentage.

D)increasestheparent'sshareofsubsidiarybookvalueandincreasestheparent'sownershippercentage.

Answer:B

Objective:LO3

Difficulty:Moderate

20)A15%stockdividendbyasubsidiarycauses

A)theparentcompanyinvestmentaccounttodecrease.

B)theparentcompanyinvestmentaccounttoremainthesame.

C)theparentcompanyinvestmentaccounttoincrease.

D)thenoncontrollinginterestequitytoincrease.

Answer:B

Objective:LO3

Difficulty:Moderate

Exercises

1)AtDecember31,2010,thestockholders'equityofGostCorporationandits80%-ownedsubsidiary,TreeCorporation,areasfollows:

GostTree

Commonstock,$10parvalue $20,000 $12,000

Retainedearnings 8,0006,000

Totals $28,000$18,000

Gost'sInvestmentinTreeisequalto80percentofTree'sbookvalue.TreeCorporationissued225additionalsharesofcommonstockdirectlytoGostonJanuary1,2011at$18pershare.

Required:

1.ComputethebalanceinGost'sInvestmentinTreeaccountonJanuary1,2011afterthenewinvestmentisrecorded.

2.DeterminetheincreaseordecreaseingoodwillfromGost'snewinvestmentinthe225Treeshares.Usefourdecimalplacesfortheownershippercentage.AssumethefairvaluesofTree'sassetsandliabilitiesareequaltobookvalues.

Answer:

Requirement1

Costofinvestment($18,000×80%) $14,400

Plus:Purchaseof225Treesharesat$18onJanuary1,2011 4,050

Investmentaccountbalance $18,450

Requirement2

Tree'sstockholders'equityatJanuary1,2011 $18,000

Plus:Additionalcapitalfromthesharesissued 4,050

Totalstockholders'equityafterissuanceofthenewshares $22,050

Gost'spercentage

(960+225)/1425=

Gost'sshareofTree'sequityafterissuance $18,337

Gost'sshareofTree'sequitybeforestockissuance 14,400

Equityacquiredinthepurchase 3,937

Costofinterestacquired 4,050

Increasegoodwill $113

Objective:LO3

Difficulty:Moderate

2)AtDecember31,2010,thestockholders'equityofGodwinCorporationandits80%-ownedsubsidiary,GoldbergCorporation,areasfollows:

GodwinGoldberg

Commonstock,$10parvalue $20,000 $12,000

Retainedearnings 8,0006,000

Totals $28,000$18,000

Godwin'sInvestmentinGoldbergisequalto80percentofGoldberg'sbookvalue.GoldbergCorporationissued225additionalsharesofcommonstockdirectlytoGodwinonJanuary1,2011at$28pershare.

Required:

1.ComputethebalanceinGodwin'sInvestmentinGoldbergaccountonJanuary1,2011afterthenewinvestmentisrecorded.

2.DeterminetheincreaseordecreaseingoodwillfromGodwin'snewinvestmentinthe225Goldbergshares.Usefourdecimalplacesfortheownershippercentage.AssumethefairvalueandbookvalueofGoldberg'sassetsandliabilitiesareequal.

Answer:

Requirement1

Costofinvestment($18,000×80%) $14,400

Plus:Purchaseof225Goldbergsharesat$28onJanuary1,2011 6,300

Investmentaccountbalance $20,700

Requirement2

Goldberg'sstockholders'equityatJanuary1,2011 $18,000

Plus:Additionalcapitalfromthesharesissued 6,300

Totalstockholders'equityafterissuanceofthenewshares $24,300

Godwin'spercentage

(960+225)/1425=

Godwin'sshareofGoldberg'sequityafterissuance $20,208

Godwin'sshareofGoldberg'sequitybeforestockissuance 14,400

Equityacquiredinthepurchase 5,808

Costofinterestacquired 6,300

Increaseingoodwill $492

Objective:LO3

Difficulty:Moderate

3)AtDecember31,2010,thestockholders'equityofPearsonCorporationandits80%-ownedsubsidiary,TrompeterCorporation,areasfollows:

PearsonTrompeter

Commonstock,$10parvalue $20,000 $12,000

Retainedearnings 8,0006,000

Totals $28,000$18,000

Pearson'sInvestmentinTrompeterisequalto80percentofTrompeter'sbookvalue.TrompeterCorporationissued400additionalsharesofcommonstockdirectlytoPearsononJanuary1,2011at$10pershare.

Required:

1.ComputethebalanceinPearson'sInvestmentinTrompeteraccountonJanuary1,2011afterthenewinvestmentisrecorded.

2.DeterminetheincreaseordecreaseingoodwillfromPearson'snewinvestmentinthe400Trompetershares.Usefourdecimalplacesfortheownershippercentage.AssumethefairvalueandbookvalueofTrompeter'sassetsandliabilitiesareequal.

Answer:

Requirement1

Costofinvestment($18,000×80%) $14,400

Plus:Purchaseof400Trompetersharesat$10onJanuary1,2011 4,000

Investmentaccountbalance $18,400

Requirement2

Trompeter'sstockholders'equityatJanuary1,2011 $18,000

Plus:Additionalcapitalfromthesharesissued 4,000

Totalstockholders'equityafterissuanceofthenewshares $22,000

Pearson'spercentage

(960+400)/1600=

Pearson'sshareofTrompeter'sequityafterissuance $18,700

Pearson'sshareofTrompeter'sequitybeforestockissuance 14,400

Equityacquiredinthepurchase 4,300

Costofinterestacquired 4,000

Reducegoodwilloridentifiableassets(Sincenogoodwillis

associatedwiththeinvestment,shouldreduceovervalued

identifiableassets.) $300

Objective:LO3

Difficulty:Moderate

4)OnJanuary1,2010,StarlingCorporationheldan80%interestinTwigCorporationandtheinvestmentaccountbalancewas$900,000.OnJanuary1,2010,Twig'stotalstockholders'equitywas$1,125,000.

During2010,Twiguniformlyearned$234,000andpaiddividendsof$37,500onApril1andagainonOctober1.OnAugust1,2010,Starlingsold30%ofitsinvestmentinTwigfor$262,500,therebyreducingitsinterestinTwigto56%.

Required:Computethefollowingusingtheactualsalesdateassumption:

1.Gainorlossonsale.

2.IncomefromTwigfor2010.

3.Noncontrollinginterestsharefor2010.

Answer:

Preliminarycomputations

Investmentbalance,January1 $900,000

IncomefromTwig($234,000x7/12×80%) 109,200

Less:April1dividends($37,500×80%) (30,000)

BookvalueatJuly31,2010 $979,200

Requirement1

Proceedsfromsale $262,500

Bookvalueofinterestsold

($979,200×30%) 293,760

Lossonsale $(31,260)

Requirement2

IncomefromTwigfromJan1throughJuly31

(fromabove) $109,200

IncomefromAugust1-December31

($234,000×5/12×56%) 54,600

IncomefromTwigfor2010 $163,800

Requirement3

Noncontrollinginterestshare:

Jan1toJul31($234,000×7/12×20%) $27,300

Aug1toDec31($234,000×5/12×44%) 42,900

Noncontrollinginterestshare $70,200

Objective:LO2

Difficulty:Moderate

5)OnJanuary1,2011,FlyCorporationhelda60%interestinLiptinCorporation.Theinvestmentaccountbalancewas$2,100,000,consistingof60%ofLiptin's$3,500,000ofnetassets.

During2011,Liptinearned$300,000uniformlyandpaiddividendsof$110,000onNovember1.OnOctober1,2011,Flysold10%ofitsinvestmentinLiptinfor$364,000,therebyreducingitsinterestinLiptinto54%.

Required:Computethefollowingusingtheactualsalesdateassumption:

1.Gainorlossonsale.

2.IncomefromLiptinfor2011.

3.Noncontrollinginterestsharefor2011.

Answer:

Preliminarycomputations

Investmentbalance,January1 $2,100,000

IncomefromLiptin($300,000×9/12×60%) 135,000

BookvalueatSeptember30,2011 $2,235,000

Requirement1

Proceedsfromsale $364,000

Bookvalueofinterestsold

($2,235,000×10%) 223,500

Gainonsale $140,500

Requirement2

IncomefromLiptinfromJan1

throughSeptember30(fromabove) $135,000

IncomefromOctober1-December31

($300,000×3/12×54%) 40,500

IncomefromLiptinfor2011 $175,500

Requirement3

Noncontrollinginterestshare:

Jan1toSep30($300,000×9/12×40%) $90,000

Oct1toDec31($300,000×3/12×46%) 34,500

Noncontrollinginterestshare $124,500

Objective:LO2

Difficulty:Moderate

6)AtDecember31,2012year-end,LapwingCorporation'sinvestmentinGroundInc.was$200,000consistingof80%ofGround's$250,000stockholders'equityonthatdate.OnApril1,2013,Lapwingsold20%interest(one-fourthofitsholdings)inGroundfor$65,000.During2013,Groundhadnetincomeof$75,000(earneduniformly)andonJuly1,2013,Groundpaiddividendsof$40,000.Lapwingusestheequitymethodtoaccountfortheinvestment.

Required:

1.Whatisthegainorlossonsaleofthe20%interest?

2.RecordthejournalentriesforLapwingfortheyearendingDecember31,2013.Usetheactual-sale-dateassumption.

Answer:

Requirement1

Sellingprice $65,000

Bookvalueofinterestsold:

Beginningbalance $200,000

Incomefor3months

$75,000×1/4×80%=15,000

Adjustedbookvalue 215,000

Percentageofinterestsold 25%

Bookvalueapplied 53,750 53,750

Gainonsale $11,250

Requirement2 Debit Credit

April1

InvestmentinGround 15,000

IncomefromGround 15,000

Cash 65,000

InvestmentinGround 53,750

GainfromsaleofinvestmentinGround 11,250

July1

Cash($40,000×60%) 24,000

InvestmentinGround 24,000

December31

InvestmentinGround 33,750

IncomefromGround 33,750

($75,000×60%×9/12)

Objective:LO2

Difficulty:Moderate

7)AtDecember31,2012year-end,ArnoldCorporation'sinvestmentinOakesInc.was$200,000consistingof80%ofOakes's$250,000stockholders'equityonthatdate.OnApril1,2013,Arnoldsold20%interest(one-fourthofitsholdings)inOakesfor$65,000.During2013,Oakeshadnetincomeof$75,000(earneduniformly)andonJuly1,2013,Oakespaiddividendsof$40,000.Arnoldusestheequitymethodtoaccountfortheinvestment.

Required:

1.Whatisthegainorlossonsaleofthe20%interest?

2.RecordthejournalentriesforArnoldfortheyearendingDecember31,2013.Usethebeginning-of-the-year-sale-dateassumption.

Answer:

Requirement1

Sellingprice $65,000

Bookvalueofinterestsold:

Beginningbalance $200,000

Percentageofinterestsold 25%

Bookvalueapplied 50,000 50,000

Gainonsale $15,000

Requirement2 Debit Credit

April1

Cash 65,000

InvestmentinOakes 50,000

GainfromsaleofinvestmentinOakes 15,000

July1

Cash($40,000×60%) 24,000

InvestmentinOakes 24,000

December31

InvestmentinOakes 45,000

IncomefromOakes 45,000

($75,000×60%)

Objective:LO2

Difficulty:Moderate

8)CandyCorporationpaid$240,000onApril1,2011forallofthecommonstockofBunCorporationinabusinessacquisition.OnJanuary1,2011,Bun'sstockholders'equitywasequalto$195,000.Bun'sfirstquarter2011netincomewas$10,000andfirstquarter2011dividendswere$5,000.In2011,preacquisitionsaleswere$32,500andpreacquisitioncostofsaleswas$22,500.(Therewerenootherpreacquisitionexpensesin2011.)DividendsarepaidquarterlyonMarch31,June30,September30andDecember31.Anyexcesscostoverbookvalueacquiredisallocatedtogoodwill.

Additionalinformation:

1.Candysoldequipmentwitha5-yearremainingusefullifetoBunonJuly1,2011foragainof$10,000.Salvagevalueoftheequipmentiszeroandbothcompaniesusethestraight-linedepreciationmethod.

2.Bun'saccountspayablebalanceatDecember31includes$5,000duetoCandyfromthesaleofequipment.

3.CandyaccountsforitsinvestmentinBunusingtheequitymethod.

Required:

CompletetheworkingpaperstoconsolidatethefinancialstatementsofCandyandBunCorporationsfortheyearendingDecember31,2011.

Answer:

Objective:LO1,2

Difficulty:Difficult

9)OlsonCorporationpaid$62,000toacquire100%ofTowingCorporation'soutstandingvotingcommonstockatbookvalueonMay1,2011.Thestockholders'equityofTowingonJanuary1,2011consistedof$40,000CapitalStockand$20,000RetainedEarnings.Towing'stotaldividendsfor2011were$6,000,paidequallyonApril1andOctober1.Towing'snetincomewasearneduniformlythroughout2011.In2011,preacquisitionsaleswere$10,000andpreacquisitionexpenseswerecostofsalesfor$5,000.(Therewerenootherpreacquisitionexpensesin2011.)

During2011,Olsonmadesalesof$10,000toTowingatagrossprofitof$3,000.One-halfofthismerchandisewasinventoriedbyTowingatyear-end,andone-halfofthe2011intercompanysaleswereunpaidatyear-end2011.

Olsonsoldequipmentwithaten-yearremainingusefullifetoTowingata$2,000gainonDecember31,2011.Thestraight-linedepreciationmethodisusedbybothcompanies.Theequipmenthasnosalvagevalue.

FinancialstatementsofOlsonandTowingCorporationsfor2011appearinthefirsttwocolumnsofthepartiallycompletedconsolidationworkingpapers.

Required:

CompletetheconsolidatingworkingpapersforOlsonCorporationandSubsidiaryfortheyearendingDecember31,2011.

Answer:

Objective:LO1,2

Difficulty:Difficult

10)JusticeCorporationpaid$40,000cashforan80%interestinthevotingcommonstockofGraceCorporationonJuly1,2012,whenGrace'sstockholders'equityconsistedof$30,000of$10parcommonstockand$15,000retainedearnings.Theexcesscostoverthebookvalueoftheinvestmentwasassigned$2,000toundervaluedinventoryitemsthatweresoldin2012,withtheremainingexcessbeingassignedtogoodwill.Duringthelasthalfof2012,Gracereported$4,000netincomeanddeclareddividendsof$2,000,andJusticereportedincomefromGraceof$1,200.

Therewerenointercompanysalesduringthelasthalfof2012,butduring2013Justicesoldinventoryitemsthatcost$8,000toGracefor$12,000.HalfoftheseinventoryitemswereincludedinGraceCorporation'sInventoryatDecember31,2013,with$1,000unpaidbyGraceatDecember31,2013.

OnJanuary5,2013,Justicesoldaplantassetwithabookvalueof$2,500andaremainingusefullifeof5yearstoGracefor$4,000.GraceCorporationownedtheplantassetatyear-end.Theplantassethasnosalvagevalueandbothcompaniesusethestraight-linedepreciationmethod.

JusticeCorporationusestheequitymethodtoaccountforitsinvestmentinGrace,andthechangesinJustice'sInvestmentinGraceaccountfromacquisitionuntilyear-end2013areasfollows:

InvestmentinGrace,July1,2012 $40,000

IncomefromGraceJuly1-December31,2012 1,200

Less:Shareofdividendsreceived (1,600)

InvestmentinGraceatDecember31,2012 39,600

Add:IncomefromGracefor2013 4,800

Less:Dividendsreceived (3,200)

InvestmentinGraceatDecember31,2013 $41,200

Required:

CompletetheworkingpapersfortheyearendingDecember31,2013thataregivenbelow.

Answer:PreliminaryCalculations:

ImpliedfairvalueofGrace,July1,2012$40,000/0.8= $50,000

Totalstockholders'equityofGrace,July1,2012 45,000

Excessfairvalueoverbookvalue $5,000

Excessfairvalueoverbookvalueallocated:

Inventory $2,000

Goodwill 3,000

Excessfairvalueoverbookvalue $5,000

Objective:LO1,2

Difficulty:Difficult

11)OnSeptember1,2011,BeckCorporationacquiredan80%interestinJohnsenCorporationfor$700,000.Johnsen'sstockholders'equityatJanuary1,2011consistedof$200,000ofCommonStockand$600,000ofRetainedEarnings.Thebookvaluesofitsassetsandliabilitieswereequaltotheirrespect