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DonDominguez

ACCT 405 Chapter 4: Problems 1, 4, 8, 11, and 38a

DonDominguez

ACCT 405 Chapter 4: Problems 1, 4, 8, 11, and 38a

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ACCT 405 Chapter 4: Problems 1, 4, 8, 11, and 38a

 

Chapter 4: Problems 1, 4, 8, 11, and 38a

 

 

  1. What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

 

  1. Consolidated financial statements should be primarily for the benefit of the parent company’s stockholders.
  2. Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry.
  3. A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.
  4. Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company.

 

 

  1. On January 1, 2012, Brendan, Inc., reports net assets of $760,000 although equipment (with a four-year life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Hope Corporation pays $692,000 on that date for an 80 percent ownership in Brendan. If the patent is to be written off over a 10-year period, at what amount should it be reported on consolidated statements at December 31, 2013?

 

  1. $28,800.
  2. $32,400.
  3. $36,000.
  4. $40,500.

 

 

 

 

  1. Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what is Pride’s share of consolidated retained earnings at January 1, 2013?

 

  1. $250,000.
  2. $286,000.
  3. $315,000.
  4. $360,000.

 

 

 

  1. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should be

 

  1. Maintained at its initial value.
  2. Adjusted to its equity method balance at the date of the second acquisition.
  3. Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.
  4. Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid-in capital.

 

 

  1. Adams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2011. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams’s acquisition. On December 31, 2011, Barstow had the following account balances:

 

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