Test 2

Question 1

Most parent companies have

Answer 1

100% control over their subsidiaries

Question 2

Even if a parent company doesn’t have 100% control over their subsidiaries, they can establish control with

Answer 2

a lesser amount

Question 3

if the parent doesn’t own 100%, outside owners are referred to as

Answer 3

non-controlling interest

Question 4

The parent, with controlling interest, must consolidate 100 percent of its subsidiary’s financial info as a single economic unit, regardless of

Answer 4

The parents level of ownership

Question 5

The acquisition method requires that the subsidiary be valued at

Answer 5

the acquisition date fair value

Question 6

The sum of the two components for calculating total acquired fair value in a partial acquisition are

Answer 6

the fair value of the controlling interest
the fair value of the non-controlling interest at the acquisition date

Question 7

Assume Parker Corporation wants to acquire 90 percent of Strong Company. Strong’s stock has been trading for around $60 per share.
Parker offered all of Strong’s shareholders a premium price of $70 per share for up to 90 percent of the outstanding shares, even though the shares are trading in the $59 to $61 range.
The fair value of Strong is measured as the sum of the respective fair values of the controlling and noncontrolling interest.

Answer 7

Parker purchased 9,000 shares at $70 per share. The fair value of their consideration transferred is $630,000.
The remaining 1,000 shares trade at $60 per share, indicating that the fair value of the noncontrolling interest is $60,000. The total acquisition-date fair value of the subsidiary is $690,000.
Fair value of controlling interest
($70 × 9,000 shares) . . . . . . . . . . . . . . . $630,000
Fair value of noncontrolling interest
($60 × 1,000 shares) . . . . . . . . . . . . . . . . . 60,000
Total fair value of subsidiary . . . . . . $690,000

Question 8

Goodwill apportioned across controlling and non-controlling interests

Answer 8

Total acquisition-date fair value (amount paid) of Strong, $690,000, is greater than the fair value of the identifiable net assets acquired of $600,000 (10,000 shares × $60 per share). The difference, $90,000, is allocated to Goodwill.

Question 9

If the total fair value of the acquired firm is less than the collective sum of its identifiable net assets

Answer 9

-A bargain purchase occurs.
-Parent recognizes the entire gain in current income.
-No gain is ever allocated to the noncontrolling interest.

Question 10

Once consolidated net income is determined….

Answer 10

it is allocated to the parent company and the noncontrolling interests.

Question 11

Non-controlling interests’ ownership pertains only to the subsidiary

Answer 11

its share of consolidated net income is limited to a share of the adjusted subsidiary’s net income.

Question 12

The parent company must determine and enter each of these figures when constructing a worksheet:

Answer 12

• Noncontrolling interest in subsidiary at beginning of current year.
• Net income attributable to noncontrolling interest.
• Subsidiary dividends attributable to noncontrolling interest.
• Noncontrolling interest as of the end of the year (three balances above combined)

Question 13

Consolidated net income is computed at the ________
and allocated to the ____________

Answer 13

combined entity level
noncontrolling and controlling interests

Question 14

The statement of changes in owners’ equity provides

Answer 14

details of the ownership changes for the year for both the controlling and noncontrolling interest shareholders.

Question 15

When control of a subsidiary is acquired at a midyear date:

Answer 15

-New parent must compute the subsidiary’s book value as of acquisition date

Question 16

Companies that make up a business combination….

Answer 16

retain their legal identities as separate operating centers and maintain their own records

Question 17

In producing consolidated financial statements…

Answer 17

transfers are eliminated

Question 18

consolidated statements reflect only

Answer 18

transactions with outside parties

Question 19

Accounts affected by intra entity transactions

Answer 19

Revenues
Cost of Goods Sold
Net Income Attributable to the Noncontrolling Interest
Retained Earnings at the Beginning of the Year
Inventory
Noncontrolling Interest in Subsidiary at End of Year

Question 20

Financial Reporting objectives remain unchanged for intra-entity sales of depreciable assets:

Answer 20

-Defer intra-entity gains.
-Re-establish historical cost balances.
-Recognize appropriate income within the consolidated financial statements.
-Defer gains

Question 21

The three tests used to determine if an operating segment is reportable

Answer 21

Revenue test
Profit or loss test
Asset test

Question 22

Revenue test

Answer 22

revenues of all operating segments are 10 percent or more

Question 23

Profit or loss test

Answer 23

if profit or loss is 10 percent or more of the combined profit or loss

Question 24

asset test

Answer 24

its assets are 10 percent or more of the combined assets of all operating segments

Question 25

What is a company not required to disclose?

Answer 25

revenues generated from export sales

Question 26

Which operating segment disclosure is not required?

Answer 26

Liabilities

Question 27

What is not true under GAAP?

Answer 27

Companies must combine individual foreign countries into geographic areas to comply with the geographic area disclosure requirements.

Question 28

What is required to be disclosed by geographic areas?

Answer 28

revenues from external customers

Question 29

For interim financial reporting, a gain from the sale of land occurring in the second quarter should be

Answer 29

recognized in the second quarter

Question 30

Which item must be disclosed in interim reports?

Answer 30

gross revenues

Question 31

What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?

Answer 31

When intra-entity sales remain in ending inventory, control of the goods has not changed.