Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 5.2.1E
To determine
Concept Introduction:
Equity Method of valuation of investment: In this method parent company value investment on the historical cost of the investment plus apportioned profit in the associate company less dividend paid by the associate company. The difference in the historical value and the amount paid for investment is debited to
Consolidation of accounts: When a company acquires significant influence in another company then that company known as holding company. The holding company is needed to consolidate its accounts with the subsidiary.
To choose:
The correct option.
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Students have asked these similar questions
Which of the following is true regarding consolidation of net income?A. Parent net income is decreased by the dividend income recognized due to declared bysubsidiary at full amount even if less than 100% ownership is acquired.B. Amortization of excess must be done to adjust net income of parent to arrive at parent netincome own operation.C. Adjusted net income of subsidiary is shared by Parent’s holding interest andnoncontrolling interest.D. Dividend declared by subsidiary is shared by Parent’s holding interest and noncontrollinginterest.
A wholly owned subsidiary declared dividend and half remains unpaid bythe end of the year, which of the following is TRUE?
a. Only half of the amount of the dividend will be used to reduce the profit ofthe parent for consolidation purposes.
b. The total amount of the dividend will be eliminated in the working paperelimination entry by debiting “dividend revenue” account.c. The transaction will have an impact in the computation of the balance ofNCI at the end.d. The elimination entry will include a debit to non-controlling interest for theamount of dividend received by the non-controlling shareholders.
a.Which of the following statement/s regarding the method of consolidation is true:
(1) Subsidiaries are consolidated in full
(2) Associates are equity accounted
Select one:
a.
Neither statement
b.
Statement (1) only
c.
Both statements
d.
Statement (2)
Q2. Which of the following is a characteristic of the cost method of accounting for subsidiary operations?
Select one:
a.
Parent company net income equals consolidated net income.
b.
More working paper eliminations are required than for the equity method of accounting.
c.
Consolidated amounts differ from the comparable amounts under the equity method of accounting.
d.
None of the above
Q3.
How soon does goodwill acquired in a business combination need to be tested after an acquisition?
Select one:
a.
The year after acquisition
b.
The year of acquisition
c.
Two years after acquisition
d.
None of the above
Chapter 5 Solutions
Advanced Financial Accounting
Ch. 5 - Where is the balance assigned to the...Ch. 5 - Why must a noncontrolling interest be reported in...Ch. 5 - Prob. 5.3QCh. 5 - Prob. 5.4QCh. 5 - Prob. 5.5QCh. 5 - Prob. 5.6QCh. 5 - Prob. 5.7QCh. 5 - Prob. 5.8QCh. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Under what Circumstances would a parent company...Ch. 5 - Prob. 5.12QCh. 5 - Prob. 5.13QCh. 5 - Prob. 5.14AQCh. 5 - Prob. 5.15AQCh. 5 - Consolidation Worksheet Preparation The newest...Ch. 5 - Prob. 5.2CCh. 5 - Prob. 5.3CCh. 5 - Prob. 5.4CCh. 5 - Prob. 5.5CCh. 5 - Prob. 5.1.1ECh. 5 - Prob. 5.1.2ECh. 5 - Prob. 5.1.3ECh. 5 - Prob. 5.1.4ECh. 5 - Prob. 5.2.1ECh. 5 - Prob. 5.2.2ECh. 5 - Prob. 5.2.3ECh. 5 - Prob. 5.2.4ECh. 5 - Prob. 5.2.5ECh. 5 - Prob. 5.3ECh. 5 - Prob. 5.4ECh. 5 - Balance Sheet Worksheet Problem Company owns 90...Ch. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - Prob. 5.8.1ECh. 5 - Prob. 5.8.2ECh. 5 - Prob. 5.8.3ECh. 5 - Prob. 5.8.4ECh. 5 - Prob. 5.8.5ECh. 5 - Prob. 5.8.6ECh. 5 - Prob. 5.8.7ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Prob. 5.12ECh. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17AECh. 5 - Prob. 5.18AECh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21.1PCh. 5 - Multiple-Choice Questions on Applying the Equity...Ch. 5 - Prob. 5.21.3PCh. 5 - Prob. 5.21.4PCh. 5 - Prob. 5.22PCh. 5 - Computation of Account Balances Pencil Company...Ch. 5 - Prob. 5.24PCh. 5 - Equity Entries with Differential On January 1,...Ch. 5 - Equity Entries with Differential Plug Corporation...Ch. 5 - Prob. 5.27PCh. 5 - Prob. 5.28PCh. 5 - Prob. 5.29P
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- Prepare consolidation worksheet entries for December 31, 2021 -Prepare entry S to eliminate stockholders' equity accounts of subsidiary for 2021. Prepare entry A to recognize allocations attributed to specific accounts at acquisition date for 2021. Prepare entry I to eliminate the income accrual for 2021 less the amortization recorded by the parent using the equity method. Prepare entry D to eliminate intra-entity dividend transfers. Prepare entry E to recognize current year amortization expense.arrow_forward1. what is the basis for consolidation?2. is goodwill being remeasured to fair value at each reporting period? if false, what is the correct answer?3.a. Before consolidation, entity A's retained is how much? 3.b.he consolidated earning is how much?this is the scenario for #3a and b:entity A acquired 90% interest in ENtity B on January 1, 20x1 when entity B's net assets had a fair value of 100. On December 31, 20x2, Entity B's net assets increased to 200 after adjustments for acquisition date fair values, net of depreciation.arrow_forwardWhich of the following is a correct statement pertaining to consolidation of a subsidiary with preferred shares? O a. When preferred shares are cumulative, the preferred shareholders are only entitled to income equal to the yearly dividend, if the company has not suffered a loss for the year. O b. If the preferred shares are cumulative, the current year's net income would be allocated to the preferred shares only if dividends are declared in the year. O c. If the preferred shares are non-cumulative, the current year's net income would only be allocated to preferred shares if preferred dividends are declared. O d. If the preferred shares are non-cumulative, the current year's net income would be allocated to the preferred shares whether or not preferred dividends are declareD.arrow_forward
- Use the following facts for Multiple Choice problems 18-20. Each of the problems is independent of the other. Assume a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's "stand alone" pre-consolidation income statements for the year ending December 31, 2022, prior to any investment bookkeeping or intercompany adjustments: Revenues.. Cost of goods sold Gross profit.. Selling general & administrative expenses. Net income. Parent Subsidiary $5,200,000 $3,250,000 (3,640,000) (1,950,000) 1,560,000 (1,014,000) $546,000 a. b. 1,300,000 (787,800) $ 512,200 On January 1, 2022, neither company held any inventories purchased from the other affiliate. All of the sales made by either company have the same gross margin regardless of whether they are made to affiliates or non-affiliates. The subsidiary declared and paid $260,000 of dividends during 2022. 18. Pre-consolidation bookkeeping, downstream intercompany…arrow_forwardChoose the letter of the correct answer. 1. Which of the following is not correct with regard to a parent’s ownership of 100 percent of a subsidiary’s stock subsequent to a book value acquisition? A. Consolidated Investment in Subsidiary balance equals the parent’s Investment in Subsidiary balance B. Consolidated Retained Earnings equals the parent’s Retained Earnings C. Consolidated dividends equal the parent’s dividends D. Consolidated net income equals the parent’s net income 2. What amount of allocated excess/purchase differential amortization is recognized in the parent’s financial records subsequent to the subsidiary’s acquisition? A. The noncontrolling interest percentage ownership in the subsidiary B. 100 percent of the purchase differential amortization C. Allocated excess/purchase differentials are not amortized D. The parent percentage ownership in the subsidiaryarrow_forwardWhen a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances? Multiple Choice As a memorandum entry indicating that additional shares hed been isued, As an edjustment to an estimate included in the determination of net income. As an adjustment to consolidated contributed surplus. As an adiustment to the consideration naid for the subsidiarvarrow_forward
- 2. Statement 1: The dividends paid by the subsidiary are completely eliminated from the consolidated financial statements because only dividends paid to the parent company stockholders represent a distribution of consolidated net assets.Statement 2: Allocated excess/purchase differential amortizations are the allocation over time of the difference between the market value and the book value of the subsidiary’s assets and liabilities at the acquisition date. a. Only statement 1 is trueb. Only statement 2 is truec. Both statements are trued. Both statements are falsearrow_forwardTRUE OR FALSE 1. Subsequent to the date of acquisition worksheet elimination number 1 will not completely remove the Investment in Subsidiary account from the consolidated balance sheet. 2. The consolidation worksheet will only eliminate all of the Investment in Subsidiary account when the parent owns 100 percent of the subsidiary’s stock. 3.arrow_forwardTRUE OR FALSE: Indicate whether the statements are true or false. 1. Assuming the parent acquired 100 percent of the subsidiary’s stock and there are no purchase differentials, the investment income recorded by the parent in the current period will equal the subsidiary’s current net income recognized subsequent to the acquisition date. 2.arrow_forward
- A) When preparing consolidated financial statement workpapers, unrealized intercompany gains, as a result of equipment or inventory sales by affiliates, are allocated proportionately by percent of ownership between parent and subsidiary only when selling affiliate is a. The parent, and the subsidiary is less than wholly owned. b. The subsidiary, and the subsidiary are less than wholly owned c. A wholly owned subsidiary d. The parent of a wholly owned subsidiary. B) Gain or loss returning from an intercompany sale of equipment between a parent and a subsidiary is a. Considered to be realized over the remaining useful life of the equipment as an adjustment to depreciation in the consolidation statements. b. Considered to be unrealized in the consolidated statements until the equipment is sold to a third party c. Amortized over a period not less than 2 years and not greater than 40 years. d. Recognized in the consolidated statements in the year of the salearrow_forwardExamine how do you treat the following items when X Ltd. is merging with Y Ltd. on 1st January 2023 on the assumption: A. Condition u/s 2(1B) and u/s 72A does not satisfy B. Condition u/s 2(1B) satisfy but conditions u/s 72A not satisfy C. Conditions u/s 2(1B) and u/s 72A are satisfied Other Information of X Ltd.: (i) Business Profits (before adjusting losses and expenses) *60,000 (ii) Expenses on merger *2,00,000 (iii) VRS Compensation (Paid during 2020-21) *4,00,000 (iv) Sale consideration of non-depreciable capital assets *20,00,00 (v) Indexed cost of acquisition of non-depreciable capital assets *12,00,000 (vi) Sale consideration of depreciable assets *10,00,000 (vii) WDV of depreciable assets *7,00,000 (viii) Non-speculation business loss relating to 1994-95 *3,00,000 (ix) Unabsorbed depreciation relating to 2020-21 1,50,000 (x) Long term Capital loss relating to 2021-22 *2,00,000 Business profits of Y Ltd. (before adjusting losses and expenses) ₹30,00,000 and long term capital…arrow_forwardGardner Corp. owns 80% of the voting common stock of Lockhart Co. Lockhart owns 70% of Canning Co. Gardner and Lockhart both use the initial value method to account for their investments. The following information is available from the financial statements and records of the three companies: Separate company net income before investment income Dividend income from investment in subsidiary Deferral of intra-entity gains Amortization expense related to excess fair value over book value of investment Gardner Lockhart Canning Co. Co. $900,000 $650,000 $150,000 Corp. 250,000 120,000 110,000 80,000 20,000 40,000 25,000 Separate company net income includes Intra-entity gains before the consolidating deferral but does not include dividend income from investment in subsidiary. What amount of dividends should Gardner Corp. recognize in its consolidated net income with respect to dividends received from Canning Co.?arrow_forward
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