Chapter 15

Question 1

Control of a business means?

Answer 1

This usually means one entity’s direct or indirect ownership of more than 50% of the outstanding voting interests of another entity.

Question 2

Direct issue costs of equity

Answer 2

reduce additional paid-in capital.

Question 3

Debt issue costs

Answer 3

are reported in the balance sheet as a direct deduction from the carrying amount of the debt.

Question 4

contingencies from a consolidation are what on the balance sheet?

Answer 4

An indemnification asset is recognized at acquisition-date fair value.

Question 5

What measurement value should be used for an acquisition?

Answer 5

acquisition-date fair value.

Question 6

Define Contingent Consideration

Answer 6

is an obligation of the acquirer to transfer additional assets or equity securities to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met.

Question 7

Contingent consideration that is settled with assets is what on the balance sheet?

Answer 7

is classified as a liability in the financial statements.

Question 8

Contingent consideration that is settled with equity securities is what on the balance sheet.

Answer 8

is classified as equity (i.e., additional paid-in capital) in the financial statements.

Question 9

Are valuation allowance account recognized in a business consolidation?

Answer 9

no they are not.

Question 10

Accounting for a Noncontrolling Interest (NCI)

Answer 10

NCI is reported separately in the equity section of the parent’s balance sheet.

Question 11

According to IFRS, at the acquisition date the acquirer may measure NCIs at

Answer 11

(1) fair value or (2) their proportionate share of the fair value of the acquiree’s identifiable assets and liabilities.

Question 12

The consolidated income statement must present separate amounts for the following:

Answer 12

1. Total consolidated net income
2. Net income attributable to the NCI
3. Net income attributable to the shareholders of the parent

Question 13

Retained earnings of the consolidated entity at a subsequent reporting date consist of

Answer 13

(1) acquisition-date retained earnings, plus
(2) the net income (loss) for the subsequent period(s) attributable to the shareholders of the parent, minus
(3) dividends paid by the parent to entities outside the consolidated entity.

Question 14

The NCI must be adjusted for its proportionate share of

Answer 14

(1) the net income of the subsidiary included in consolidated net income,
(2) items of consolidated other comprehensive income attributable to the subsidiary, and
(3) dividends paid by the subsidiary.

Question 15

in a consolidated financial statement what do you do with payables and receivables between parent and subsidiary?

Answer 15

Eliminate them

Question 16

JE for consolidating inter-company sales of inventory

Answer 16

DR. Sales
CR COGS (difference)
CR. Inventory. (inventory remaining X sellers gross profit %)

Question 17

When do you deconsolidate an entity

Answer 17

when your control slips below 50%

Question 18

An entity is a VIE if it meets any of the following criteria:

Answer 18

1. The total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support.
2. As a group, the holders of the equity investment at risk have one of the following three characteristics:
   a. Lack the power, through voting rights, to direct the activities that most significantly affect the entity’s economic performance.
   b. Lack the obligation to absorb the entity’s expected losses.
   c. Lack the right to receive the entity’s expected residual returns.
3. he entity is structured so that voting rights do not necessarily reflect the underlying economic reality.

Question 19

What is the difference between combined vs consolidated financial statements

Answer 19

The consolidated financial statements include the parents financials.

Question 20

Define Hedge

Answer 20

No possibility of future gain or loss.

Question 21

Acquisition costs of stocks should be?

Answer 21

Expense as uncured

Question 22

How should a bargain purchase be recognized in the financial statements

Answer 22

As a gain. you paid less than something is worth.