Inc.. on January 1, 2015 of 52125 oration bowemaining firemaining lif cht 100 peres has a book value of $420,000 bu915 aining life) with a book value 10 Chapter 3 investment in Kimmel 204,000 but a fair value of $44 LO 3-1 00.400 but a fair value of 5357.000 S400.000. Pament with a 190.400 bular 31, 2017? Par has a look atuount as or 5. Paar Corporation bought 100 percent of Kimmel, Inc equipment (10-year remaining life) has a book value Kimmel has equipment (10-year remainine life) $400.000. Pasar uses the equity method to record its inves Paar has exquipment with a book value of $294.000 ment with a book value of $190.400 but a fair valu for the Equipment account as of December 31, 2017 5574.IX S802.200 S612.000 $484.400 ed if the parent had applied How would the equity men....es is for internal reporting purposes only LD 3-3 LO 34 ve a higher reported balance lower reported balance, 6. How would the answer to problem (5) have been affected method rather than the equity method? No effect: The method the parent uses is for internal re on consolidated totals, The consolidated Equipment account would have a high c. The consolidated Equipment account would have a lower The balance in the consolidated Equipment account method using the information given. termined for the LO 330 cated among a firm'sidente b recognized goodwill falls plied value for goodwill LO3-30 amount for goodwill 7. Goodwill recognized in a business combination must be allocated ing units. If the fair value of a particular reporting unit with rer carrying amount, which of the following is true? a. No goodwill impairment loss is recognized unless the implied carrying amount. b. A goodwill impairment loss is recognized if the carrying amo implied value. c. A coodwill impairment loss is recognized for the excess of a reporti over its fair value, not to exceed the carrying amount of goodwill. d. The reporting unit reduces the values assigned to its long-term assets nized intangibles) to reflect its fair value. wit's carrying assets (including any LO 37 er factors limit the lifed hich of the following LO 3-7 8. If no legal, regulatory, contractual, competitive, economic, or other factors li ible asset, the asset's assigned value is allocated to expense over which of the a. 20 years. b. 20 years with an annual impairment review. c. Infinitely Indefinitely (no amortization) with an annual impairment review until its life become 9. Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2016. forse in cash. This portion of the consideration transferred to a fair-value allocation of equipment and goodwill of $88,000. At the acquisition de Dosmann also agrees to go previous owners an additional $110,000 on January 1, 2017 f Lizzi earns a 10 percent retum fair value of its assets in 2016 and 2017. Lizzi's profits oxoved this threshold in both yeurs of the following is true? 3-7 LO 3-3, 3-4 a. The additional $110,000 payment is a reduction in consolidated retained earnings. b. The fair value of the expected contingent payment increases goodwill at the acquis c. Consolidated goodwill as of January 1, 2018, increases by $110,000. d. The $110,000 is recorded as an expense in 2018. Problems 10, 11, and 12 relate to the following: On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding Inc., for $600,000 cash. At January 1, 2016, Sedona's net assets had a to of $420,000. Equipment (eight-year remaining life) was undervace records by $80,000. Any remaining excess fair over book value was a developed by Sedona (four-year remaining life), but not recorded on its the equity method to account for its investment in Sedona. Each year Sedona has declared a $20,000 dividend. Sedona recorded net income $80,000 in 2017. standing voting shares of s had a total carrying ervalued on Sedona's for de was attributed to a custom ded on its books. Phoenit 1 year since the acous come of $70,000 in 2 130 Chapter 3 LO 3-1 that date, Paar we of $520 ) faw value wber 31, 2017 wwel has equip idated balance the initial value LO 3-3a 3-4 and has no impact LO 3-3a the initial value 5. Paar Corporation bought 100 percent of Kimmel, Ine.. on January 1. 2015. On the equipment (10-year remaining life) has a book value of $420,000) but a fair value of Kimmel has equipment (10-year remaining life) with a book value of $272.000 but af S400,000. Paar uses the equity method to record its investment in Kimmel. On Decembe Paar has equipment with a book value of $294.000 but a fair value of $445,200. Kimmel ment with a book value of $190.400 but a fair value of $357.000. What is the consolida for the Equipment account as of December 31. 2017? a $574.000 h. $802.200 c. $612.600 d. $484,400 6. How would the answer to problem (5) have been affected if the parent had applied the init method rather than the equity method? a. No effect: The method the parent uses is for internal reporting purposes only and has on consolidated totals. b. The consolidated Equipment account would have a higher reported balance. c. The consolidated Equipment account would have a lower reported balance. d. The balance in the consolidated Equipment account cannot be determined for the initial method using the information given. 7. Goodwill recognized in a business combination must be allocated among a firm's identified te ing units. If the fair value of a particular reporting unit with recognized goodwill falls belo carrying amount, which of the following is true? a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds! carrying amount. b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds in implied value. A goodwill impairment loss is recognized for the excess of a reporting units carrying amnum over its fair value, not to exceed the carrying amount of goodwill. d. The reporting unit reduces the values assigned to its long-term assets (including any unrecoe. nized intangibles) to reflect its fair value. 8. If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intan gible asset, the asset's assigned value is allocated to expense over which of the following? a. 20 years. b. 20 years with an annual impairment review. c. Infinitely 3-5 LO 3-3a LO 3- d. Indefinitely (no amortization) with an annual impairment review until its life becomes finite. 9. Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2016, for $700.000 in cash. This portion of the consideration transferred results in a fair-value allocation of $35,000 to equipment and goodwill of $88,000. At the acquisition date, Dosmann also agrees to pay Lizzi's previous owners an additional $110.000 on January 1, 2018, if Lizzi earns a 10 percent return on the fair value of its assets in 2016 and 2017. Lizzi's profits exceed this threshold in both years. Which of the following is true? a. The additional S110,000 payment is a reduction in consolidated retained earnings. b. The fair value of the expected contingent payment increases goodwill at the acquisition date. c. Consolidated goodwill as of January 1, 2018, increases by $110,000. d. The $110,000 is recorded as an expense in 2018. Problems 10, 11, and 12 relate to the following: On January 1, 2016. Phoenix Co. acquired 100 percent of the outstanding voting shares of scuona Inc.. for $600.000 cash. At January 1. 2016. Sedona's net assets had a total carrying amoum of S420.000. Equipment (eight-year remaining life) was undervalued on Sedona's financm records by 580.000. Any remaining excess fair over book value was attributed to a customer im developed by Sedona (four-year remaining life), but not recorded on its books, Phoenix apple the equity method to account for its investment in Sedona. Each year since the acquisiti Sedona has declared a $20.000 dividend. Sedona recorded net income of $70,000 in 2010 $80,000 in 2017