accounting-What is a basic premise of the acquisition method regarding accounting

QUESTION

1.

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

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

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?

a. $28,800.
b. $32,400.
c. $36,000.
d. $40,500.
8.

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?

a. $250,000.
b. $286,000.
c. $315,000.
d. $360,000.
11.

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

a. Maintained at
its initial value.
b. Adjusted to its
equity method balance at the date of the second acquisition.
c. Adjusted to
fair value at the date of the second acquisition with a resulting gain or loss
recorded.
d. Adjusted to
fair value at the date of the second acquisition with a resulting adjustment to
additional paid-in capital.
38.

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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December 31, 2013, adjusted trial balances for the two
companies follow:
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a. Prepare schedules for acquisition-date fair-value
allocations and amortizations for Adams’s investment in Barstow.
b. Determine Adams’s method of accounting for its investment
in Barstow. Support your answer with a numerical explanation.
c. Without using a worksheet or consolidation entries,
determine the balances to be reported as of December 31, 2013, for this
business combination.
d. To verify the figures determined in requirement (c),
prepare a consolidation worksheet for Adams Corporation and Barstow, Inc., as
of December 31, 2013.

ANSWER:

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