Part A. Use the following fact pattern to answer multiple choice questions 1 through 15,

with sub-instructions for particular questions:

On January 1, 2018, Parent Co. acquired 80% of Sub Inc. by paying $800,000. Non-controlling

interest was valued at $200,000. Sub reported common stock on that date of $520,000 with

retained earnings of $352,000. A building was undervalued in the company's financial records by

$18,000. This building had a ten-year remaining life. Copyrights of $80,000 were not recognized

and should be amortized over 20 years. Sub earned income and paid cash dividends as follows:

Net Income

Dividends Paid

2018

$115,000 $64,600

2019

$144,400 $71,600

2020

$164,000 $94,000

On December 31, 2020, the Parent owed $20,800 to Sub Inc. There have been no changes in

Sub's common stock account since the acquisition.

To answer questions 1 through 3, prepare the allocation of the acquisition on January 1, 2018.

In your presentation, but sure to show the excess fair value over cost allocated to the identifiable

assets, and any resulting goodwill. In addition, for the identifiable assets, be sure to calculate the

annual amortization of excess fair value over book value.

1. What is the fair value of Sub Co. at the acquisition date (1/1/18)?

A. $825,000.

B. $1,000,000.

C. $800,000.

D. $200,000.2. How much is the allocation of the excess fair value allocated to copyright?

A. $64,000.

B. $8,000.

C. $72,000.

D. $80,000.

3. The goodwill resulting from this 80% acquisition is?

A. $30,000.

B. $24,000.

C. $48,000.

D. $0.

To answer questions 4 through 7, prepare journal entries that Parent is required to record

associated with the investment under the Equity Method in 2020 before consolidation.

4. The journal entry to record Sub Co.'s income for 2020 would require a:

A. Debit to Equity in Sub Earnings, $131,200.

B. Credit to Equity in Sub Earnings, $164,000.

C. Credit to Equity in Sub Earnings, $131,200.

D. Debit to Investment in Sub Co., $164,000.

5. The journal entry to record the parent's receipt of the Sub Co. dividend for 2020 would require

a:

A. Debit to Equity in Sub Earnings, $75,200.

B. Credit to Equity in Sub Earnings, $75,200.

C. Debit to Investment in Sub. Co., $75,200.

D. Credit to Investment in Sub. Co., $75,200.

6. The journal entry to record the excess amortization for 2020 would require a:

A. Debit to Equity in Sub Earnings, $4,640.

B. Credit to Investment in Sub Co., $5,800.

C. Debit to Equity in Sub Earnings, $5,800.

D. Debit to Amortization Expense, $4,640.

7. At the end of 2020, after recording all the necessary journal entries, what is the balance in the

Investment in Sub Co. account?

A. $835,680.

B. $940,640.

C. $1,140,640.

D. $937,160.

2Questions 8 through 11 involve Worksheet Entries for 2020:

8. Consolidation Worksheet Entry S would require a debit to Retained Earnings-S for:

A. $475,200.

B. $506,560.

C. $492,640.

D. Unable to determine.

9. Consolidation Worksheet Entry S would require a credit to Non-controlling Interest for:

A. $203,540.

B. $198,310.

C. $199,040.

D. $201,775.

10. Consolidation Worksheet Entry A would require a credit to Non-controlling Interest for:

A. $24,340.

B. $25,600.

C. $22,120.

D. $23,280.

11. Consolidation Worksheet Entry A would require a debit to Building for:

A. $12,600.

B. $14,400.

C. $11,520.

D. $10,080.

34

Questions 12 and 13 requires use of Exhibit 1 below for 2020:

Exhibit 1: Worksheet for Income Statement (2020)

Income Statement

Parent

Sub Co.

Debit

Credit

NCI

Consolidated

Revenues

(810,000)

(504,000)

Cost of Goods Sold

344,000

200,000

Depreciation Expense

60,000

20,000

Amortization Expense

170,000

120,000

Equity in Sub Earnings

0

Separate Net Income

Note: Equity in Sub Earnings above has been intentionally left blank as well as separate net

incomes.

12. Calculate the Non-controlling interest income for 2020 using Exhibit 1 above. How much is

the NCI income for 2020?

A. $32,800.

B. $32,480.

C. $31,640.

D. $32,000.

13. Calculate the controlling interest income for 2020 using Exhibit 1 above. How much is the

controlling interest income for 2020?

A. $362,560.

B. $394,200.

C. $236,000.

D. $354,800.5

Questions 14 and 15 requires use of Exhibit 2 below for 2020:

Exhibit 2: Worksheet for Balance Sheet (partial) (2020)

Balance Sheet (selected)

Parent

Sub Co. Debit

Credit

NCI

Consolidated

Buildings (net)

304,000

470,200

Copyrights (net)

880,000

540,000

Non-controlling Interest

Hint: When calculating NCI, do not forget dividends from Retained Earnings Statement.

14. Using data in Exhibit 2 above, what would be the consolidated balances for Buildings and

Copyrights, respectively at the balance sheet date?

A. $772,400; $1,416,000.

B. $772,400; $1,496,000.

C. $786,800; $1,488,000.

D. $786,800; $1,416,000.

15. Using data in Exhibit 2 above, what would be the Non-controlling interest in the subsidiary

at the balance sheet date?

A. $253,960.

B. $222,320.

C. $216,440.

D. $235,160.

Questions 12 and 13 requires use of Exhibit 1 below for 2020: Exhibit 1: Worksheet for Income Statement (2020) Income Statement Parent Sub Co. Debit Credit NCI Consolidated Revenues (810,000) (504,000) Cost of Goods Sold 344,000 200,000 Depreciation Expense 60,000 20,000 Amortization Expense 170,000 120,000 Equity in Sub Earnings 0 Separate Net Income Note: Equity in Sub Earnings above has been intentionally left blank as well as separate net incomes.Exhibit 2: Worksheet for Balance Sheet (partial) (2020) Balance Sheet (selected) Parent Sub Co. Debit Credit NCI Consolidated Buildings (net) 304,000 470,200 Copyrights (net) 880,000 540,000 Non-controlling Interest Hint: When calculating NCI, do not forget dividends from Retained Earnings Statement