accounting answer(6)

Chapter 5 Business Combinations

b.

Minority interest in net assets of subsidiary (given in problem)

Current fair value of Saye Company's identifiable net assets ($117,000 + $15,000)

Minority percentage ($39,600 ? $132,000) Punt Corporation's percentage (100% – 30%)

$ 39,600 $132,000

30% 70%

c.

100,000 39,600

38. On December 31, 2006, the balance sheet of Sint Company included stockholders'

equity of $2,000,000. On that date, Plane Corporation acquired for cash a controlling interest in the common stock of Sint. The December 31, 2006, current fair values of Sint's identifiable net assets totaled $2,400,000, and goodwill computed as the difference between Plane's cost and its share of the current fair value of Sint's identifiable net assets was $180,000.

PUNT CORPORATION AND SUBSIDIARY

Working Paper Elimination Date of Business Combination

Common Stock?Saye 80,000 Retained Earnings?Saye 37,000 Plant Assets (net)?Saye 15,000 Goodwill?Punt 7,600

Investment in Saye Company Common Stock?Punt Minority Interest in Net Assets of Subsidiary

To eliminate intercompany investment and equity accounts of subsidiary on date of business combination; to allocate excess of cost over carrying amount of identifiable assets acquired, with remainder to goodwill; and to establish minority interest in net assets of subsidiary on date of business combination.

Prepare a working paper to compute the total cost of Plane's investment in Sint if Plane owns:

a. 100% of Sint's common stock b. 90% of Sint's common stock c. 80% of Sint's common stock

Answer:

a. ($2,400,000 + $180,000) = $2,580,000 b. ($2,400,000 x 0.90) + $180,000 = $2,340,000 c. ($2,400,000 x 0.80) + $180,000 = $2,100,000

82 Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

39. On April 30, 2006, Press Corporation paid $168,000 cash for 80% of the outstanding

common stock of Sow Company. Legal, accounting, and finder's fees paid by Press relative to the business combination totaled $24,000. The current fair value of Sow's identifiable net assets was $220,000 on April 30, 2006; the carrying amount was $200,000.

Prepare a working paper to compute the minority interest and goodwill in the April 30,

2006 consolidated balance sheet of Press Corporation and subsidiary under each of the following independent assumptions: a. Sow's identifiable net assets are recognized at current fair value;

minority interest is based on current fair value of identifiable net assets.

b. Sow's identifiable net assets are recognized at current fair value only to the extent of

Press Corporation's interest; balance of net assets and minority interest are reflected at carrying amounts in Sow's accounting records.

c. Current fair value, through inference, is assigned to total net assets of Sow, including goodwill.

Answer:

a. Minority interest: ($220,000 x 0.20) = $44,000 Goodwill: $192,000 – ($220,000 x 0.80) = $16,000 b. Minority interest: ($200,000 x 0.20) = $40,000 Goodwill: $16,000 (same as in a)

c. Minority interest: ($192,000 ? 0.80) x 0.20 = $48,000 Goodwill: ($192,000 ? 0.80) – $220,000 = $20,000

Larsen, Modern Advanced Accounting, Tenth Edition 83

Chapter 5 Business Combinations

Case

40. In a proposed Statement, \

FASB would replace objectively determined legal form by subjectively determined economic substance as a basis for consolidated financial statements. Majority

ownership of an investee's outstanding common stock would no longer be a prerequisite for consolidation.

a. Present arguments in support of the FASB's proposal. b. Present arguments in opposition to the FASB's proposal.

Answer:

a. Arguments in favor of the FASB's proposal:

(1) over legal form.

In most other areas of financial accounting, economic substance of transactions and events take precedence

(2) Emphasis on legal form leads to efforts to create substantive control over an investee without having to issue consolidated financial statements, with a frequent result of off-balance-sheet financing.

(3) The present benchmark measure of significant influence over the operating and financial policies of an investee is 20 percent ownership of the investee's outstanding voting common stock; surely control over such policies can be achieved with ownership of less than a majority of such stock.

b. Arguments in opposition to the FASB's proposal:

(1) Control is difficult to measure absent a definitive quantitative benchmark. (2) A majority noncontrolling interest (more than 50% ownership of outstanding voting common stock of an investee) might be converted to a controlling interest through such devices as a tender offer or a proxy fight by a member of the noncontrolling interest.

(3) Judgment would have to be exercised as to whether an investor holding

convertible debt securities or other elective-type options in substance exercises control over the issuer thereof.

True/False Questions

1. Under the equity method of accounting, a parent company credits the Intercompany

Investment Income ledger account for dividends declared by the subsidiary.

Answer: False

2. Under the equity method of accounting, a parent company's journal entry to record a

84

Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

dividend declared by the subsidiary includes a debit to the Retained Earnings of Subsidiary ledger account and a credit to the Dividends Revenue ledger account.

Answer: False

6. Under the equity method of accounting, the parent company debits the Intercompany Investment Income ledger account for the depreciation and amortization of differences between the current fair values and carrying amounts of a subsidiary's identifiable net assets on the date of the business combination. Answer: True

7. The depreciation and amortization of differences between current fair values and carrying amounts of a subsidiary's identifiable net assets is included in consolidated financial statements by means of a working paper elimination.

Answer: True

Answer: False

5. Under the equity method of accounting, the parent company credits the Intercompany Investment Income ledger account for dividends declared by the subsidiary. Answer: False

4. A wholly owned subsidiary credits the Dividends Payable ledger account when its board of directors declares a dividend. Answer: False

3. Proponents of the equity method of accounting assert that dividends declared by a subsidiary constitute revenue to the parent company.

Larsen, Modern Advanced Accounting, Tenth Edition 85

Chapter 5 Business Combinations

Answer: False

10. A parent company that uses the cost method of accounting for the operations of a

subsidiary prepares no journal entries to reflect the subsidiary's net income or loss for an accounting period.

Answer: True

11. Use of the equity method of accounting facilitates a parent company's issuances of

unconsolidated financial statements to the Securities and Exchange Commission if the SEC requires such statements.

Answer: True

12. Dividends declared by a subsidiary subsequent to the date of a business combination are

displayed in a consolidated statement of retained earnings.

Answer: False

13. The equity method of accounting for a subsidiary's operations is similar to home office

accounting for a branch's operations.

Answer: True

Answer: True

9. Goodwill attributable to a business combination involving a partially owned subsidiary is amortized by means of a working paper elimination.

8. In a closing entry for a parent company that has a subsidiary acquired several years ago, there may be either a debit or a credit to the Retained Earnings of Subsidiary ledger account.

86 Larsen, Modern Advanced Accounting, Tenth Edition

百度搜索“77cn”或“免费范文网”即可找到本站免费阅读全部范文。收藏本站方便下次阅读，免费范文网，提供经典小说综合文库accounting answer(6)在线全文阅读。