CONSOLIDATED FINANCIAL STATEMENTS

Question 1

In business combination assets acquired and liabilities must be recognized

Answer 1

at the acquisition date fair value

Question 2

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of

Answer 2

Economic entity

Question 3

When are consolidated financial statements required?

Answer 3

When the parent company owns direct or indirectly more than 50% of the outstanding voting interests of another entity

Question 4

What are the direct acquisition related costs?

Answer 4

Professional
Consulting fees
General Administrative costs
expensed as incurred

Question 5

Calc, the additional paid in capital for the capital combination with the direct insurance cost?

Answer 5

200,000 x 12 market value - 5 par value = 1,400,000 - direct insurance cost 35,000

= 1,365,000 APIC for the business combination

Question 6

Are debt issues costs of equity required to be subtracted to calc consolidated net income?

Answer 6

No because debt related costs are debited to APIC

Also the debt cost are deducted from the carrying amount of the debt and amortized

Question 7

How are acquisition related costs such as finders fees, professional and consulting fees, and general administrative costs treated ?

Answer 7

expensed as incurred

However if the acquisition is group related than the direct acquisition are allocated on a pro rate basis to the assets acquired

Question 8

Calc, the goodwill resulting from the business combination using the acquisition method?

Answer 8

REMEMBER WHEN WE CALC GOODWILL UNDER THE ACQUISITION METHOD WE USE THE FAIR VALUE EXCHANGES

We start off with the amount of

      Cash    60,000    Inventory  150,000 Equipment  180,000 Liabilities    (120,000) 

= 470,000

Goodwill 620,000 - 470,000 = 150,000 goodwill from resulting from the business combination

Question 9

Calc, current liabilities for the consolidated balance sheet?

Answer 9

Current liab of Par 30,000
Current liab of Sev 10,000
Current com of new 6,000

= Current liabilities equal to 46,000

Question 10

Calc, the noncurrent liabilties for the consolidated balance sheet?

Answer 10

Noncurrent liabilities (given) 50,000

Noncurrent component
54,000. (60,000 x 10%) = 6000

= 104,000

60,000 / 90% = 66,667 x 10% = 6,667

= 104,000 + 6,667 = 110,667

Question 11

what is Non-controling interest?

Answer 11

basically when a shareholder holds less than 50% of outstanding stock and doesn’t have no control over decisions

Ex - would be a Parent company owning most of the stock of the company while the subsidiary owns 20%

Question 12

In the consolidated financial statements of the parent and its 90% owned subsidiary

Answer 12

Comprehensive income or loss attributable to the parent and the non-controling interest is reported at separate amounts b/c the subsidiary don’t have much control

Question 13

Calc, the amount peace report as dividends declared and paid it’s current years consolidated statement of changes in equity?

Answer 13

Dividends paid by parent 15,000
Dividends paid by subsidiary
8000

8000 x 75% = (6,000)

15,000 + 8000 - 6000 = 17,000 Consolidated dividends paid

Question 14

Reciprocal Dividends for parents, sub and unrelated party?

Answer 14

Dividends

Parents dividends to subsidiary the consolidated treatment is eliminate

Subsidiary dividends to Parent the consolidated treatment is eliminate

Parent dividends to third parties consolidated treatment reduces retained earnings

subsidiary’s dividends to third parties consolidated treatment is reduces NCI

Question 15

Do subsidiary companies record gains?

Answer 15

No they don’t rather the parent company does on the consolidated financial statement

Question 16

For a consolidated balance sheet are receivable and payable between the parent and the sub prior the creation of the consolidated statement?

Answer 16

Yes Receivable & payable are eliminated

Question 17

When a parent company sells to another subsidiary of goods and later the subsidiary sells those goods to unrelated party how is that recorded on the consolidated financial statements?

Answer 17

The COGS and the sales are reduced by the intraentity sale made by the subsidiary to the unrelated party

Question 18

Calc, the consolidated income statement cost of goods sold?

Answer 18

Park - Gross Profit 2,000,000 / 1,200,000 = 60%

500,000 sales x 1/5 = 100,000

100,000 x 60% = 60,000

500,000 sales - 60,000 = 440,000 Cost of goods sold

Question 19

Calc, the unrealized intraetity profit in ending inventory dec 31 should be eliminated in consolidation?

Answer 19

Lee sold the merchandise 100,000 / 1/2 = 50,000 x 40% = 20,000 unrealized intraentity gross profit

Question 20

Calc, the amount of unrealized intraentity profit eliminated?

Answer 20

Mussel Inventory
60,000 + 50,000 - consolidated 104,000 = 6,000

Question 21

Calc, the earnings reported for the subsidiary and the parent only income?

Answer 21

To calc the earnings reported for the subsidiary

Investment in Styles equity method which is 132,000 - purchase price of 120,000 + the 4,000 share of the dividends

5,000 x 80% = 4000 dividends

Question 22

Calc, consolidated net income with no adjustment made?

Answer 22

NI Parent before acquisition date 750,000
NI Parent acquisition 825,000
NI income of subsidiary acquisition date 375,000
unrealized intraentity gross profit (45,000)

750,000 + 825,000 + 375,000 - 45,000 = 1,905,000

When a problem has no adjustment made that means we don’t need to eliminate the entries for the calculation

Question 23

Formula for Quick Ratio?

Answer 23

Quick ratio = Cash & Cash equivalents + marketable securities + net receivables / current liabilities

here we want to see if Microsoft can pay it’s short term obgligation

Question 24

Will selling inventory on account increase current ratio?

Answer 24

Yes it will increase both current assets and decrease to the current liability

For Current Assets it would increase AR

Question 25

What would cause a decrease to current ratio of 2 to 1?

Answer 25

borrow cash bc your borrowing cash in a shortm term basis which decreases the ratio

Question 26

When you write off obsolete inventory how would this affect the current ratio and quick ratio?

Answer 26

Quick ratio has no affect bc inventory is not used for the calc

However for the current ratio inventory is used to calc the CURRENT ASSET portion which cause a decrease to the total current assets

Question 27

Calc, the begin inventory?

Answer 27

COGS + END INVENTORY - PURCHASES = BEGIN INVENTORY

Question 28

Formula for Inventory Ratio?

Answer 28

COGS / AVG INVENTORY BALANCE

BEG INVENTORY + END INVENTORY / 2

Question 29

Formula for Days sales inventory?

Answer 29

Days in a year which is 365 / Inventory turnover ratio

Question 30

Receivable ratio Formula?

Answer 30

Accounts receivable ratio

Net Credit Sales / AVG balance in receivable

we want the ratio be high to be considered it to be good

Question 31

Calc, the depreciation expense for the consolidated statement?

Answer 31

72,000 / 3 years = 24,000

72,000 - 48,000 carrying amount = 24,000

24,000 gain on sale - 16,000 = 8000 depreciation expense

Question 32

Calc, the book value per share common stock?

Answer 32

To calc the book value per share we need to know the

250,000 preferred stock par value + dividends 25,000 + 50,000 premium

= 300,000

Preferred Stock 250,000
Common Stock. 350,000
APIC 125,000
RE 300,000
Accumulated 100,000

1,125,000 - 325,000 = 800,000

800,000 / 100,000 = 8.00

Question 33

Calc, the book value per common share?

Answer 33

Step 1 -

50,000 shares x 110 share par value = 5,500,000
50,000 shares x 100 par 6% = 300,000

= 5,800,000 equity of preferred

Step 2 - add the following amounts

retained earnings. 1,000,000
Common Stock 2,000,000
Common Stock 5,000,000

= 8,000,000
= 8,000,000 - 5,800,000 = 2,200,000

= 2,200,000 / 400,000 outstanding
= 5.50

Question 34

Calc the maximum additional amount barr borrow?

Answer 34

Equity 700,000
Additional 300,000
1,000,000 x debt to equity ratio.75 = 750,000

750,000 - 420,000 = 330,000

Question 35

The maximum additional able to borrow?

Answer 35

Equity - 700,000
Common Stock - 300,000

                        1,000,000 

Debt to equity - 1,000,000 x .75
= 750,000

750,000 - 420,000 = 330,000 additional cannot exceed

Question 36

Are gains or losses recognized when the sub buys the parent company stock?

Answer 36

No gains or losses are recognized

Question 37

Calc, the cost and accumulated depreciation?

Answer 37

Historial cost - 1,100,000
salvage value (100,000)
Depreciation 1,000,000
useful life 20 years
straight line de 50,000

accumulated depreciation 250,000 + 50,000 straight line depreciation = 300,000

Question 38

Calc the Noncurrent liabilities?

Answer 38

Noncurrent liabilities of Parma 50,000
Noncurrent component of new debt 54,000

50,000 + 54,000 = 104,000

60,000 borrowed - 6,000 = 54,000

60,000 / 90% = 66,667 x 10% = 6667

104,000 + 6667 = 110,667

Question 39

What would be the affect if purchase of the outstanding bonds premium retirement ?

Answer 39

decrease retained earnings

Question 40

Calc, the Goodwill of the business combination?>

Answer 40

Step 1 - calc the net assets acquired

     Cash - 60,000  inventory   150,000 mentioned in problem  PP&E           380,000 Liabilities    470,000 

Paid - 620,000 - 470,000 = 150,000 goodwill for business combination

Question 41

Calc the net adjustments needed for the consolidated income before income tax an increase decrease of?

Answer 41

For year 3

year 3 dunn sold 40,000 machinery with the Carrying Amount of 30,000

40,000 - 30,000 = 10,000

10,000 / 5 years = 2,000

Question 42

Calc, the dividends declared for the consolidated changes of equity?

Answer 42

Parent paid 15,000
Surge paid 8,000
Parents
dividends
8,000 x 75% (6,000)

Consolidated dividends paid 17,000

Question 43

Calc, the unrealized intraentity profit in ending inventory at december 31 should be eliminated in consolidated statements?

Answer 43

Unsold inventory on purchase
150,000 x 50% = 75,000
gross profit percentage. x. 40%
unrealized intraentity gross profit 30,000

Question 44

Calc, the APIC that should be reported?

Answer 44

200,000 shares x 18 per share market price - 10 par common stock

200,000 x 18 - 10 = 1,600,000 + 1,300,000 = 2,900,000 APIC that should be reported