Reference no: EM13843097

1. What is a basic premise of the acquisition method regarding accounting for a non controlling 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.

2. 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.

3. 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.

4. 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.

5. 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:

	Book Value	Fair Value
Current assets ..............................................	$ 160,000	$ 160,000
Land ............................................................	120,000	150,000
Buildings (10-year life) ...................................	220,000	200,000
Equipment (5-year life) ..................................	160,000	200,000
Patents (10-year life)......................................	-0-	50,000
Notes payable (5-year life)..............................	(200,000)	(180,000)
Common stock .............................................	(180,000)	-
Retained earnings, 12/31/11 .........................	(280,000)	-

December 31, 2013, adjusted trial balances for the two companies follow:

	Debits	Adams Corporation	Barstow, Inc.
Current assets.......................		$      610,000	$     250,000
Land................................		380,000	150,000
Buildings................................		490,000	250,000
Equipment ............................		873,000	150,000
Investment in Barstow, Inc..........		702,000	-0-
Cost of goods sold ..............		480,000	90,000
Depreciation expense .................		100,000	55,000
Interest expense .......................		40,000	15,000
Dividends paid .....................		110,000	70,000
Total debits ........................		$3,785,000	$1,030,000
	Credits
Notes payable.......................		$      860,000	$     230,000
Common stock......................		510,000	180,000
Retained earnings, 1/1/13 ..........		1,367,000	340,000
Revenues .............................		940,000	280,000
Investment income ..............		108,000	-0-
Total credits........................		$3,785,000	$1,030,000

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.