Multiple Choice Questions

1. For business combinations involving less than 100 percent ownership, the acquirer
recognizes and measures all of the following at the acquisition date except:


A. identifiable assets acquired, at fair value.

B. liabilities assumed, at book value.

C. non-controlling interest, at fair value.

D. goodwill or a gain from bargain purchase.

E. none of these choices is correct.


2. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land
with a book value of $70,000 and a fair value of $100,000.

What amount should have been reported for the land in a consolidated balance
sheet at the acquisition date?


A. $52,500.

B. $70,000.

C. $75,000.

D. $92,500.

E. $100,000.


3. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land
with a book value of $70,000 and a fair value of $100,000.

What is the total amount of excess land allocation at the acquisition date?


A. $0.

B. $30,000.

C. $22,500.

D. $25,000.

E. $17,500.


4. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land
with a book value of $70,000 and a fair value of $100,000.

What is the amount of excess land allocation attributed to the controlling interest at
the acquisition date?


A. $0.

B. $30,000.

C. $22,500.

D. $25,000.

E. $17,500.


5. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land
with a book value of $70,000 and a fair value of $100,000.

What is the amount of excess land allocation attributed to the non-controlling interest
at the acquisition date?


A. $0.

B. $30,000.

C. $22,500.

D. $7,500.

E. $17,500.


6. When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land
with a book value of $70,000 and a fair value of $100,000.

What amount should have been reported for the land in a consolidated balance
sheet, assuming the investment was obtained prior to January 1, 2009 and the
purchase method of accounting for business combinations was used?


A. $70,000.

B. $75,000.

C. $85,000.

D. $92,500.

E. $100,000.


7. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What is the total amount of goodwill recognized at the date of acquisition?


A. $150,000.

B. $250,000.

C. $0.

D. $120,000.

E. $170,000.


8. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What amount of goodwill should be attributed to Perch at the date of acquisition?


A. $150,000.

B. $250,000.

C. $0.

D. $120,000.

E. $170,000.


9. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What amount of goodwill should be attributed to the non-controlling interest at the
date of acquisition?


A. $0.

B. $20,000.

C. $30,000.

D. $100,000.

E. $120,000.


10. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What is the dollar amount of non-controlling interest that should appear in a
consolidated balance sheet prepared at the date of acquisition?


A. $350,000.

B. $300,000.

C. $400,000.

D. $370,000.

E. $0.


11. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What is the dollar amount of Float Corp.'s net assets that would be represented in a
consolidated balance sheet prepared at the date of acquisition?


A. $1,600,000.

B. $1,480,000.

C. $1,200,000.

D. $1,780,000.

E. $1,850,000.


12. Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair
value of Float's net assets was $1,850,000, and the book value was $1,500,000.
The non-controlling interest shares of Float Corp. are not actively traded.

What is the dollar amount of fair value over book value differences attributed to
Perch at the date of acquisition?


A. $120,000.

B. $150,000.

C. $280,000.

D. $350,000.

E. $370,000.


13. Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1,
2010. During 2010, Harbor had revenues of $2,500,000 and expenses of
$2,000,000. The amortization of excess cost allocations totaled $60,000 in 2010.

The non-controlling interest's share of the earnings of Harbor Corp. is calculated to
be


A. $132,000.

B. $150,000.

C. $168,000.

D. $160,000.

E. $0.


14. Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1,
2010. During 2010, Harbor had revenues of $2,500,000 and expenses of
$2,000,000. The amortization of excess cost allocations totaled $60,000 in 2010.

What is the effect of including Harbor in consolidated net income for 2010?


A. $350,000.

B. $308,000.

C. $500,000.

D. $440,000.

E. $290,000.


15. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000,
all reflected evenly throughout the year. The annual amount of amortization related
to this acquisition was $15,000.

In consolidation, the total amount of expenses related to Kailey, and to Denber's
acquisition of Kailey, for 2010 is determined to be


A. $153,750.

B. $161,250.

C. $205,000.

D. $210,000.

E. $215,000.


16. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000,
all reflected evenly throughout the year. The annual amount of amortization related
to this acquisition was $15,000.

What is the effect of including Kailey in consolidated net income for 2010?


A. $31,000.

B. $33,000.

C. $55,000.

D. $60,000.

E. $39,000.


17. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000,
all reflected evenly throughout the year. The annual amount of amortization related
to this acquisition was $15,000.

What is the amount of net income to the controlling interest for 2010?


A. $31,000.

B. $33,000.

C. $55,000.

D. $60,000.

E. $39,000.


18. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1,
2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000,
all reflected evenly throughout the year. The annual amount of amortization related
to this acquisition was $15,000.

What is the amount of the non-controlling interest's share of Denber's income for
2010?


A. $22,000.

B. $24,000.

C. $48,000.

D. $66,000.

E. $72,000.


19. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an
acquisition business combination that resulted in the recognition of goodwill. Nomes
owned a piece of land that cost $250,000 but was worth $600,000 at the date of
acquisition. What value would be attributed to this land in a consolidated balance
sheet at the date of acquisition?


A. $250,000.

B. $150,000.

C. $600,000.

D. $360,000.

E. $460,000.


20. Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp.
Raxston currently owes Kordel $500,000 for inventory acquired over the past few
months. In preparing consolidated financial statements, what amount of this debt
should be eliminated?


A. $375,000

B. $125,000

C. $300,000

D. $500,000

E. $0.


21. Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when
Park's book value was $560,000. The Royce stock was not actively traded. On the
date of acquisition, Park had equipment (with a ten-year life) that was undervalued
in the financial records by $140,000. One year later, the following selected figures
were reported by the two companies. Additionally, no dividends have been paid.



What is consolidated net income for 2011 attributable to Royce's controlling
interest?


A. $686,000.

B. $560,000.

C. $644,000.

D. $635,600.

E. $691,600.


22. Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when
Park's book value was $560,000. The Royce stock was not actively traded. On the
date of acquisition, Park had equipment (with a ten-year life) that was undervalued
in the financial records by $140,000. One year later, the following selected figures
were reported by the two companies. Additionally, no dividends have been paid.



What is the non-controlling interest's share of the subsidiary's net income for the
year ended December 31, 2011 and what is the ending balance of the non-
controlling interest in the subsidiary at December 31, 2011?


A. $56,000 and $280,000.

B. $50,400 and $218,400.

C. $56,000 and $224,000.

D. $56,000 and $336,000.

E. $50,400 and $330,400.


23. Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2010 when
Park's book value was $560,000. The Royce stock was not actively traded. On the
date of acquisition, Park had equipment (with a ten-year life) that was undervalued
in the financial records by $140,000. One year later, the following selected figures
were reported by the two companies. Additionally, no dividends have been paid.



What is the consolidated balance of the Equipment account at December 31, 2011?


A. $644,400.

B. $784,000.

C. $719,600.

D. $770,000.

E. $775,600.


24. On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:



On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of
the outstanding common shares of Spraz. The loan was to be paid in ten equal
annual principal payments, plus interest, beginning December 31, 2010. The excess
consideration transferred over the underlying book value of the acquired net assets
was allocated 60% to inventory and 40% to goodwill.

What is consolidated current assets at January 2, 2010?


A. $127,000.

B. $129,800.

C. $143,800.

D. $148,000.

E. $135,400.


25. On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:



On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of
the outstanding common shares of Spraz. The loan was to be paid in ten equal
annual principal payments, plus interest, beginning December 31, 2010. The excess
consideration transferred over the underlying book value of the acquired net assets
was allocated 60% to inventory and 40% to goodwill.

What is consolidated noncurrent assets at January 2, 2010?


A. $195,000.

B. $192,200.

C. $186,600.

D. $181,000.

E. $169,800.


26. On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:



On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of
the outstanding common shares of Spraz. The loan was to be paid in ten equal
annual principal payments, plus interest, beginning December 31, 2010. The excess
consideration transferred over the underlying book value of the acquired net assets
was allocated 60% to inventory and 40% to goodwill.

What are the total consolidated current liabilities at January 2, 2010?


A. $53,200.

B. $56,000.

C. $64,400.

D. $42,000.

E. $70,000.


27. On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as
follows:



On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of
the outstanding common shares of Spraz. The loan was to be paid in ten equal
annual principal payments, plus interest, beginning December 31, 2010. The excess
consideration transferred over the underlying book value of the acquired net assets
was allocated 60% to inventory and 40% to goodwill.

What is consolidated stockholders' equity at January 2, 2010?


A. $112,000.

B. $133,000.

C. $168,000.

D. $182,000.

E. $203,000.


28. In measuring non-controlling interest at the date of acquisition, which of the following
would not be indicative of the value attributed to the non-controlling interest?


A. Fair value based on stock trades of the acquired company.

B. Subsidiary cash flows discounted to present value.

C. Book value of subsidiary net assets.

D. Projections of residual income.

E. Consideration transferred by the parent company that implies a total subsidiary
value.


29. When a parent uses the equity method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is false
before making adjustments on the consolidated worksheet?


A. Parent company net income equals controlling interest in consolidated net
income.

B. Parent company retained earnings equals consolidated retained earnings.

C. Parent company total assets equals consolidated total assets.

D. Parent company dividends equals consolidated dividends.

E. Goodwill will not be recorded on the parent's books.


30. When a parent uses the initial value method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is true
before making adjustments on the consolidated worksheet?


A. Parent company net income equals consolidated net income.

B. Parent company retained earnings equals consolidated retained earnings.

C. Parent company total assets equals consolidated total assets.

D. Parent company dividends equal consolidated dividends.

E. Goodwill needs to be recognized on the parent's books.


31. When a parent uses the partial equity method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is false
before making adjustments on the consolidated worksheet?


A. Parent company net income will equal controlling interest in consolidated net
income when initial value, book value, and fair value of the investment are equal.

B. Parent company net income will exceed controlling interest in consolidated net
income when fair value of depreciable assets acquired exceeds book value of
depreciable assets.

C. Parent company net income will be less than controlling interest in consolidated
net income when fair value of net assets acquired exceeds book value of net
assets acquired.

D. Goodwill will be recognized if acquisition value exceeds fair value of net assets
acquired.

E. Subsidiary net assets are valued at their book values before consolidating entries
are made.


32. In a step acquisition, which of the following statements is false?


A. The acquisition method views a step acquisition essentially the same as a single
step acquisition.

B. Income from subsidiary is computed by applying a partial year for a new purchase
acquired during the year.

C. Income from subsidiary is computed for the entire year for a new purchase
acquired during the year.

D. Obtaining control through a step acquisition is a significant remeasurement event.

E. Preacquisition earnings are not included in the consolidated income statement.


33. Which of the following statements is false regarding multiple acquisitions of a
subsidiary's existing common stock?


A. The parent recognizes a larger percent of subsidiary income.

B. A step acquisition resulting in control may result in a parent recognizing a gain on
revaluation.

C. The book value of the subsidiary will increase.

D. The parent's percent ownership in subsidiary will increase.

E. Non-controlling interest in subsidiary's net income will decrease.


34. When a subsidiary is acquired sometime after the first day of the fiscal year, which
of the following statements is true?


A. Income from subsidiary is not recognized until there is an entire year of
consolidated operations.

B. Income from subsidiary is recognized from date of acquisition to year-end.

C. Excess cost over acquisition value is recognized at the beginning of the fiscal
year.

D. No goodwill can be recognized.

E. Income from subsidiary is recognized for the entire year.


35. When consolidating a subsidiary that was acquired on a date other than the first day
of the fiscal year, which of the following statements is true in the presentation of
consolidated financial statements?


A. Preacquisition earnings are deducted from consolidated revenues and expenses.

B. Preacquisition earnings are added to consolidated revenues and expenses.

C. Preacquisition earnings are deducted from the beginning consolidated
stockholders' equity.

D. Preacquisition earnings are added to the beginning consolidated stockholders'
equity.

E. Preacquisition earnings are ignored in the consolidated income statement.


36. When a parent uses the acquisition method for business combinations and sells
shares of its subsidiary, which of the following statements is false?


A. If majority control is still maintained, consolidated financial statements are still
required.

B. If majority control is not maintained but significant influence exists, the equity
method to account for the investment is still used but consolidated financial
statements are not required.

C. If majority control is not maintained but significant influence exists, the equity
method is still used to account for the investment and consolidated financial
statements are still required.

D. If majority control is not maintained and significant influence no longer exists, a
prospective change in accounting principle to the fair value method is required.

E. A gain or loss calculation must be prepared if control is lost.


37. All of the following statements regarding the sale of subsidiary shares are true
except which of the following?


A. The use of specific identification based on serial number is acceptable.

B. The use of the FIFO assumption is acceptable.

C. The use of the averaging assumption is acceptable.

D. The use of specific LIFO assumption is acceptable.

E. The parent company must determine whether consolidation is still appropriate for
the remaining shares owned.


38. Which of the following statements is true regarding the sale of subsidiary shares
when using the acquisition method for accounting for business combinations?


A. If control continues, the difference between selling price and acquisition value is
recorded as a realized gain or loss.

B. If control continues, the difference between selling price and acquisition value is
an unrealized gain or loss.

C. If control continues, the difference between selling price and carrying value is
recorded as an adjustment to additional paid-in capital.

D. If control continues, the difference between selling price and carrying value is
recorded as a realized gain or loss.

E. If control continues, the difference between selling price and carrying value is
recorded as an adjustment to retained earnings.


39. Jax Company uses the acquisition method for accounting for its investment in
Saxton Company. Jax sells some of its shares of Saxton such that neither control
nor significant influence exists. Which of the following statements is true?


A. The difference between selling price and acquisition value is recorded as a
realized gain or loss.

B. The difference between selling price and acquisition value is recorded as an
unrealized gain or loss.

C. The difference between selling price and carrying value is recorded as a realized
gain or loss.

D. The difference between selling price and carrying value is recorded as an
unrealized gain or loss.

E. The difference between selling price and carrying value is recorded as an
adjustment to retained earnings.


40. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on
September 1, 2010, and an additional 10% on January 1, 2011. Total annual
amortization of $6,000 relates to the first acquisition. George reports the following
figures for 2011:



Without regard for this investment, Keefe independently earns $300,000 in net
income during 2011.
All net income is earned evenly throughout the year.
What is the controlling interest in consolidated net income for 2011?


A. $380,000.

B. $375,200.

C. $375,800.

D. $376,000.

E. $400,000.


41. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

The acquisition value attributable to the non-controlling interest at January 1, 2010
is:


A. $23,400.

B. $24,000.

C. $24,900.

D. $26,000.

E. $20,000.


42. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at January 1, 2010, what adjustment is necessary for Hogan's
Buildings account?


A. $2,000 increase.

B. $2,000 decrease.

C. $1,800 increase.

D. $1,800 decrease.

E. No change.


43. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2010, what adjustment is necessary for Hogan's
Buildings account?


A. $1,620 increase.

B. $1,620 decrease.

C. $1,800 increase.

D. $1,800 decrease.

E. No adjustment is necessary.


44. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2011, what adjustment is necessary for Hogan's
Buildings account?


A. $1,440 increase.

B. $1,440 decrease.

C. $1,600 increase.

D. $1,600 decrease.

E. No adjustment is necessary.


45. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at January 1, 2010, what adjustment is necessary for Hogan's
Equipment account?


A. $4,000 increase.

B. $4,000 decrease.

C. $3,600 increase.

D. $3,600 decrease.

E. No adjustment is necessary.


46. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2010, what adjustment is necessary for Hogan's
Equipment account?


A. $3,000 increase.

B. $3,000 decrease.

C. $2,700 increase.

D. $2,700 decrease.

E. No adjustment is necessary.


47. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2011, what adjustment is necessary for Hogan's
Equipment account?


A. $2,000 increase.

B. $2,000 decrease.

C. $1,800 increase.

D. $1,800 decrease.

E. No adjustment is necessary.


48. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at January 1, 2010, what adjustment is necessary for Hogan's Land
account?


A. $7,000 increase.

B. $7,000 decrease.

C. $6,300 increase.

D. $6,300 decrease.

E. No adjustment is necessary.


49. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2010, what adjustment is necessary for Hogan's
Land account?


A. $8,000 decrease.

B. $7,000 increase.

C. $6,300 increase.

D. $6,300 decrease.

E. No adjustment is necessary.


50. McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for
$234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's
stockholders' equity consisted of common stock of $160,000 and retained earnings
of $80,000. An analysis of Hogan's net assets revealed the following:



Any excess consideration transferred over fair value is attributable to an
unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2011, what adjustment is necessary for Hogan's
Land account?


A. $7,000 decrease.

B. $7,000 increase.

C. $6,300 increase.

D. $6,300 decrease.

E. No adjustment is necessary.