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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Route Manufacturing purchased 80 percent of the stock of Hampton Mines Inc. in 20X3. In preparing the consolidated financial statements at the end of 20X5, the controller of Route discovered that
Fineline Pencil Company purchased 100 percent of the stock of Smudge Eraser Corporation on January 2. 20X3, for \(\$ 150,000\) cash. Summarized balance sheet data for the companies on December 31,
Byte Computer Corporation purchased 100 percent of the stock of Nofail Software Company on January 2, 20X3, by issuing bonds with par value of \(\$ 140,000\) and a fair value of \(\$ 150,000\) in
Byte Computer Company purchased 100 percent of the common stock of Nofail Software Company on January 2, 20X3, by issuing preferred stock with a par value of \(\$ 6\) per share and a market value of
Frazer Corporation owns 70 percent of the stock of Messer Company. In the 20X9 consolidated income statement, the noncontrolling interest was assigned \(\$ 18,000\) of income.\section*{Required}What
The accountant for Belchfire Motors was called away after completing only half of the consolidated statements at the end of \(20 \mathrm{X} 4\). The data left behind included the
Sanderson Corporation purchased 70 percent of the common stock of Kline Corporation on January \(1,20 \times 7\), for \(\$ 294,000\) in cash. The stockholders' equity accounts of the two companies at
Ambrose Corporation owns 75 percent of the common stock of Kroop Company, acquired at underlying book value on January 1, 20X4. The income statements for Ambrose and Kroop for 20X4 include the
Tall Corporation purchased 75 percent of the voting common stock of Light Corporation on January \(1,20 \times 2\), at underlying book value. Noncontrolling interest was assigned income of \(\$
Banner Corporation purchased all of the common stock of Dwyer Company at underlying book value and uses the equity method in accounting for its investment. Balance sheet information provided by the
Snapwell Corporation acquired all of the common stock of Tall Company on January 1, 20X1, by issuing 6,400 shares of its \(\$ 5\) par value common stock. Balance sheet data for Snapwell and Tall at
Noway Manufacturing owns 75 percent of the stock of Positive Piston Corporation. During 20X9. Noway and Positive reported sales of \(\$ 400,000\) and \(\$ 200,000\) and expenses of \(\$ 280,000\) and
Rank Corporation purchased 60 percent of the stock of Fresh Company on December 31, 20X4. In preparing the consolidated financial statements at December \(31,20 X 4\), goodwill of \(\$ 240,000\) was
Garwood Corporation purchased 75 percent of the voting common stock of Zorn Company on January 1, 20X4. At the time of acquisition, Zorn reported buildings and equipment at book value of \(\$
Placer Corporation purchased 80 percent of the voting common stock of Billings Company on January 1, 20X4, at underlying book value. Placer Corporation and Billings Company reported total revenue of
Select the correct answer for each of the following questions.1. What is the theoretically preferred method of presenting a noncontrolling interest in a consolidated balance sheet?a. As a separate
Knight Corporation owns 100 percent of the voting shares of Spahn Company. During 20X6, Spahn Company purchased inventory items for \(\$ 20,000\) and sold them to Knight Corporation for \(\$
River Products Corporation purchases all its inventory from its wholly owned subsidiary. Clayborn Corporation. In 20X2. Clayborn produced inventory at a cost of \(\$ 10.000\) and sold it to River
Placer Corporation purchased 75 percent of the common stock of Murdokk Enterprises on January \(1,20 \mathrm{X} 1\), for \(\$ 20,000\) more than underlying book value. The excess payment is assigned
Consolidated net income of \(\$ 164,300\) was reported for \(20 \mathrm{X} 2\) by Tally Corporation and its subsidiary. Tally had purchased 60 percent of the common shares of its subsidiary at
Slender Products Corporation purchased 80 percent ownership of LoCal Bakeries on January 1, 20X3, for \(\$ 40,000\) more than its portion of LoCal's underlying book value. The full additional payment
\section*{P3-27 Incomplete Company and Consolidated Data}Beryl Corporation purchased 100 percent of the common stock of Stargel Enterprises on December 31. 20X4. At that date, the book values and
Potash Company owns 100 percent of the common stock of Bortz Corporation, which it acquired on December 31, 20X4, at underlying book value. Potash uses the equity method in accounting for its
Quoton Corporation purchased 80 percent of the common stock of Tempro Company on December 31. 20X5, at underlying book value. The following trial balance data was provided by Tempro Company at
Smart Corporation acquires 100 percent of the common stock of Wisner Company on January 1, 20X8, by issuing 50,000 shares of \(\$ 4\) par value common stock. Smart Corporation shares are selling for
Exacto Company reported net assets of \(\$ 260,000\) on January 1, 20X5, and reported the following net income and dividends for the years indicated:True Corporation purchased 75 percent of the
Delkart Products Company acquired 100 percent of the common shares of Angel Company on January \(1,20 \times 2\), by issuing 6,000 shares of its \(\$ 10\) par common stock. At the time of the
Purple Corporation recently attempted to expand by purchasing ownership in Green Company. The following ownership structure was reported on December 31, 20X9:The following income from operations
Bishop Enterprises purchased 100 percent of the common shares of Mangle Manufacturing Company on January \(1,20 \mathrm{X} 7\), for \(\$ 1,250,000\), a price that was \(\$ 55,000\) in excess of the
Parsons Corporation purchased 75 percent ownership of Tumble Company on December 31. 20X7, for \(\$ 210,000\). Summarized balance sheet amounts for the companies on December 31, 20X7, prior to the
What is negative goodwill? How is negative goodwill reported in the consolidated balance sheet?
How is it possible for there to be a positive purchase differential but negative goodwill on a purchase of the stock of another company?
What portion of the balances of subsidiary stockholders' equity accounts are included in the consolidated balance sheet?
What portion of the fair value of the net assets of a subsidiary normally is included in the consolidated balance sheet following a purchase-type business combination?
What happens to the purchase differential in the consolidation workpaper prepared as of the date of combination? How is it reestablished so that the proper balances can be reported the following year?
Does a noncontrolling shareholder have access to any information other than the consolidated financial statements to determine how well a subsidiary is doing? Explain.
Explain why consolidated financial statements become increasingly important when the purchase differential is very large.
There is a noncontrolling interest balance reported in the consolidated balance sheet of Worldwide Corporation. Why must the noncontrolling interest be reported in the consolidated balance sheet?
How is the amount assigned to noncontrolling interest in the consolidated balance sheet normally determined?
What effect does a negative retained earnings balance on the subsidiary's books have on the consolidation procedures?
At a recent staff meeting, the vice president of marketing appeared confused. He had been assured by the controller that the parent company and each of the subsidiary companies had properly accounted
The owners of Small Corporation recently offered to sell 60 percent of their ownership to Large Corporation for \(\$ 450,000\). The business manager of Large Corporation was told that the book value
Although Sloan Company had good earnings reports in 20X5 and 20X6, it had a negative retained earnings balance on December 31, 20X6. Jacobs Corporation purchased 80 percent of the common stock of
Crumple Car Rentals is planning to expand into the western part of the United States and needs to acquire approximately 400 additional automobiles for rental purposes. Because Crumple's cash reserves
Select the correct answer for each of the following questions.1. Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it
Select the correct answer for each of the following questions.1. Green Corporation owns 30 percent of the outstanding common stock and 100 percent of the outstanding noncumulative nonvoting preferred
\section*{E2-3 Multiple-Choice Questions on Equity-Method Reporting [AICPA Adapted]}Select the correct answer for each of the following questions.1. On January 1, 20X5, the Swing Company purchased at
Roller Corporation purchased 20 percent ownership of Steam Company on January 1, 20X5, for \(\$ 70,000\). On that date, the book value of net assets reported by Steam Company was \(\$ 200,000\). The
Winston Corporation purchased 40 percent of the stock of Fullbright Company on January 1, 20X2, at underlying book value. The companies reported the following operating results and dividend payments
Phillips Company bought 40 percent ownership in Jones Bag Company on January 1, 20X1, at underlying book value. In 20X1, 20X2, and 20X3, Jones Bag reported net income of \(\$ 8,000\), \(\$ 12,000, \$
Ravine Corporation purchased 30 percent ownership of Valley Industries for \(\$ 90,000\) on January 1, 20X6, when Valley had capital stock of \(\$ 240,000\) and retained earnings of \(\$ 60,000\).
Power Corporation purchased 35 percent of the common stock of Snow Corporation on January 1, 20X2, by issuing 15,000 shares of its \(\$ 6\) par value common stock. The market price of Power's shares
Best Corporation acquired 25 percent of the voting common stock of Flair Company on January 1. 20X7, by issuing bonds with a par value and fair value of \(\$ 170.000\) and making a cash payment of
Capital Corporation purchased 40 percent of the stock of Cook Company on January 1, 20X4, for \(\$ 136,000\). On that date Cook Company reported net assets of \(\$ 300,000\) valued at historical cost
Brindle Company purchased 25 percent of the voting common stock of Monroe Company for \(\$ 162,000\) on January 1,20X4. At that date, Monroe reported assets of \(\$ 690,000\) and liabilities of \(\$
Spone Corporation purchased 40 percent of the voting common stock of Hall Corporation on January 1, 20X8, for \(\$ 133,400\). Hall Corporation reported net income of \(\$ 55,000\) for \(20 \mathrm{X}
Branch Corporation purchased 30 percent of the common stock of Hardy Company on January 1, 20X5, and paid \(\$ 28,000\) above book value. The full amount of the additional payment was attributed to
Scott Company purchased 30 percent of the ownership of Earnest Enterprises on January 1, 20X2, at underlying book value. In \(20 \mathrm{X} 2\) Earnest Enterprises reported net income of \(\$
During review of the adjusting entries to be recorded on December 31, 20X8. Grand Corporation discovered that it had inappropriately been using the cost method in accounting for its investment in
Rod Corporation purchased 30 percent ownership of Stafford Corporation on January 1, 20X4, for \(\$ 65,000\), which was \(\$ 10,000\) above the underlying book value. Half the additional amount was
Turner Corporation reported the following balances at January 1, 20X9:On January 1, 20X9, Chad Corporation purchased 40 percent of the stock of Turner Corporation. All tangible assets had a remaining
The North Company has supplied you with information regarding two investments that were made during 20X5, as follows:On January 1, 20X5, North purchased for cash 40 percent of the 500,000 shares of
Grandview Company purchased 40 percent of the stock of Spinet Corporation on January 1, 20X8, at underlying book value. Spinet recorded the following income for \(20 \times 9\)
Reden Corporation purchased 45 percent of the common stock of Montgomery Company on January 1, 20X9, at underlying book value of \(\$ 288,000\). The balance sheet of Montgomery Company contained the
Callas Corporation paid \(\$ 380,000\) to acquire 40 percent ownership of Thinbill Company on January 1, 20X9. The amount paid was equal to underlying book value. During 20X9, Thinbill Company
Baldwin Corporation purchased 25 percent of the common stock of Gwin Company on January 1. 20X8, at underlying book value. In 20X8 Gwin reported a net loss of \(\$ 20,000\) and paid dividends of \(\$
On January 2, 20X0. Cristol Corporation acquired 95 percent of the common stock of Glenco Inc. in a business combination treated as a pooling of interests. At the date of combination, Glenco had
Denbow Corporation reported a deferred tax liability of \(\$ 37800\) in its balance sheet dated December 31, 20X1. Denbow's only temporary difference resulted from its use of the equity method to
Select the correct answer for each of the following questions.1. On July 1, 20X3, Barker Company purchased 20 percent of the outstanding common stock of Acme Company for \(\$ 400,000\) when the fair
Dagger Company purchased 25 percent of the voting common stock of Lurch Corporation on July \(1,20 \times 6\) at \(\$ 10.000\) over underlying book value. The excess all relates to amortizable assets
Ball Corporation purchased 30 percent of the common stock of Krown Company on January 1. 20X5, by issuing preferred stock with a par value of \(\$ 50.000\) and a market price of \(\$ 120.000\). The
Easy Chair Company purchased 40 percent ownership of Stuffy Sofa Corporation on January 1, \(20 \mathrm{X} 1\), for \(\$ 150.000\). The balance sheet of Stuffy Sofa Corporation at the time of
Idle Corporation has been acquiring shares of Fast Track Enterprises at book value for the last several years. Data provided by Fast Track Enterprises included the following:Fast Track Enterprises
Jackson Corporation purchased shares of Phillips Corporation in the following sequence:The book value of Phillips's net assets at January 1, 20X6, was \(\$ 200,000\). Each year since Jackson first
Essex Company issued common shares with a par value of \(\$ 50,000\) and a market value of \(\$ 165,000\) in exchange for 30 percent ownership of Tolliver Corporation on January 1, 20X2. Tolliver
On January 1, 20X0, Hunter Corporation issued 6,000 of its \(\$ 10\) par value shares to acquire 45 percent of the shares of Arrow Manufacturing. The balance sheet of Arrow Manufacturing immediately
Ennis Corporation acquired 35 percent of the stock of Jackson Corporation on January 1, 20X8. by issuing 25,000 shares of its \(\$ 2\) par value shares. The balance sheet for Jackson Corporation
Balance sheet and summarized income statement data for Amber Corporation, Blair Corporation, and Carmen Corporation at January 1, 20X3, were as follows:On January 1, 20X3, Amber Corporation purchased
Blanch Corporation purchased 25 percent of the voting common shares of Chadwick Company on January 1, 20X2, for \(\$ 80,600\). At January 1, 20X2, Chadwick Company reported the following balance
Hill Company paid \$164,000 to acquire 40 percent ownership of Dale Company on January 1, 20X2. Net book value of Dale's assets on that date was \(\$ 300,000\). Book values and fair values of net
Dewey Corporation owns 30 percent of the common stock of Jimm Company, which it purchased at underlying book value on January 1, 20X5. Dewey reported a balance of \(\$ 245,000\) for its investment in
Wealthy Manufacturing Company purchased 40 percent of the voting shares of Diversified Products Corporation on March 23, 20X4. On December 31, 20X8, the controller of Wealthy Manufacturing Company
Swan Products Inc. owns 25 percent of the common stock of Computech Computer Company, purchased December \(28,20 \times 3\), at book value. During the three years subsequent to the acquisition of its
A reader of the consolidated financial statements of Gigantic Company received copies from another source of the financial statements of the individual companies included in the consolidation. He is
A reader of the consolidated financial statements of Gigantic Company received copies from another source of the financial statements of the individual companies included in the consolidation. He is
Crumple Car Corporation produces fuel-efficient automobiles and sells them through a vast dealer network. It has two wholly owned subsidiaries. One subsidiary provides financing for approximately 70
Sharp Company will acquire 90 percent of Moore Company in a business combination. The total consideration has been agreed upon. The nature of Sharp's payment has not been fully agreed upon.
Many well-known products and names come from companies that may be less well known or may be known for other reasons. In some cases, an obscure parent company may have well-known subsidiaries, and
During previous merger booms, a number of companies acquired many subsidiaries that often were in businesses unrelated to the acquiring company's central operations. In many cases, the management of
The use of proportionate or pro rata consolidation generally has not been acceptable in the United States. Normally, a significant investment in the common stock of another company must either be
Select the correct answer for each of the following questions.1 . Goodwill represents the excess of the cost of an acquired company over the:a. Sum of the fair values assigned to identifiable assets
Select the correct answer for each of the following questions.1. On December 31. 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its
Elm Corporation and Maple Company have announced terms of an exchange agreement under which Elm will issue 8,000 shares of its $10 par value common stock to acquire all the assets of Maple Company.
Spur Corporation reported the following balance sheet amounts on December 3 1 . 2 0X1Required Blanket Company purchases the assets and liabilities of Spur Corporation for $670,000 cash on December
Musial Corporation used debentures with a par value of $580,000 to acquire 100 percent of the net assets of Sorden Company on January 1 , 2 0X2. On that date, the fair value of the bonds issued by
Grant Company acquired all of the assets and liabilities of Bedford Corporation on January 1 , 2 0X2, in a business combination recorded as a purchase. At that date, Bedford reported assets with a
Allsap Company was acquired by Dunyain Corporation on January 1, 20X1, through an exchange of common shares in a business combination recorded as a purchase. All of Allsap's assets and liabilities
The following balance sheets were prepared for Adam Corporation and Best Company on January 1, 20X2. just before they entered into a business combination:Adam acquired all of the assets and
The following financial statement information was prepared for Blue Corporation and Sparse Company at December 3 1 . 2 0X2:Blue Corporation and Sparse Company agreed to combine as of January 1, 20X3.
On July 1 , 2 0X2, Alan Enterprises merged with Cherry Corporation through an exchange of stock and subsequent liquidation of Cherry. Alan issued 200,000 shares of its stock to effect the

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