Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 5, Problem 7UTI
To determine
Introduction: Consolidation is a process in which financial statements of a subsidiary is merged with financial statements of the parent. In this process, the effect of intercompany transactions is eliminated.
To explain: The difference in consolidated company’s ability to recognize the profit on sales, if the equipment is leased under capital lease instead of selling it to the subsidiary. Also, explain whether there is an opportunity to shift profits to controlling interest in leasing as opposed to selling the equipment to subsidiaries.
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Students have asked these similar questions
When the price paid to acquire another firm is lower than the fair value of its identifiable net assets, the
difference should be considered as:
Select one:
O Goodwill
an increase to the subsidiary's assets and liabilities
O. An ordinary gain
ONone
The motivation of a parent company to purchase the outstanding bonds of a subsidiary could be to:
a.
replace the existing debt with new debt at a lower interest rate.
b.
reduce the parent company's acquisition price for the subsidiary.
c.
increase the parent company's ownership percentage in the subsidiary.
d.
create interest revenue to offset interest expense in future income statements.
Which of the following is correct?
A. The noncontrolling shareholders' claim on the subsidiary's net asset is based on the book value of the subsidiary's net assets.
B. Only the parent's portion of the differences between book value and fair value of the subsidiary's assets is assigned to those assets.
C. Goodwill represents the difference between the book value of the subsidiary's net assets and the amount paid by the parent to buy ownership.
D. Total assets reported by the parent generally will be less than the total assets reported on the consolidated balance sheet.
Chapter 5 Solutions
Advanced Accounting
Ch. 5 - Prob. 1UTICh. 5 - Subsidiary Company S has $1000,000 of bonds...Ch. 5 - Plessor Industries acquired 80% of the outstanding...Ch. 5 - Company P purchased $100,000 of subsidiary Company...Ch. 5 - Prob. 5UTICh. 5 - Prob. 6UTICh. 5 - Prob. 7UTICh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3.1E
Ch. 5 - Prob. 3.2ECh. 5 - Prob. 4ECh. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Carlton Company is an 80%- owned subsidiary of...Ch. 5 - Prob. 6.1ECh. 5 - Prob. 6.2ECh. 5 - Prob. 7.1ECh. 5 - Prob. 7.2ECh. 5 - Prob. 7.3ECh. 5 - Prob. 8.1ECh. 5 - Prob. 8.3ECh. 5 - Prob. 9ECh. 5 - Prob. 5.1.1PCh. 5 - Prob. 5.1.2PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Prob. 5.6PCh. 5 - Prob. 5.7PCh. 5 - Prob. 5.8.1PCh. 5 - Prob. 5.8.2PCh. 5 - Prob. 5.9PCh. 5 - Prob. 5.10PCh. 5 - Prob. 5.14PCh. 5 - Prob. 5.2.1CCh. 5 - Prob. 5.2.2CCh. 5 - Prob. 5.3.1CCh. 5 - Prob. 5.3.2CCh. 5 - Prob. 5.3.3CCh. 5 - Prob. 5.3.4C
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 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.arrow_forwardAn enterprise that holds a variable interest in a variable interest entity (VIE) is required to consolidate the assets, liabilities, revenues, expenses, and noncontrolling interest of that entity if:a. The VIE has issued no voting stock.b. The variable interest held by the enterprise involves a lease.c. The enterprise has a controlling financial interest in the VIE.d. Other equity interests in the VIE have the obligation to absorb the expected losses of the VIE.arrow_forwardStatement 1: Non-controlling interest in subsidiary's net income is never affected by a gain on the transfer of depreciable asset. Statement 2: When change in the estimated life of depreciable assests occurs at the time of an intercompany sales, the treatment is different than if the change occured while the asset remained on the books of the selling affiliate . Which statement/s is TRUE?arrow_forward
- Choose the correct. What is a basic premise of the acquisition method regarding accounting for 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.arrow_forwardFrom a consolidated point of view, the intercompany gain or loss on a parent’s sale of a non-depreciable asset to subsidiary is realized when: a. The parent company sells the asset to the subsidiary b. The subsidiary start to use the asset c. The subsidiary resells the asset to the parent d. The subsidiary resells the asset to the outsiderarrow_forwardAccording to AASb 10/IFRS 10, an investment in a subsidiary is not consolidated and must be measured at fair value through profit or loss if: a. all of the above b. the parent elects to treat the investment in the subsidiary as a short-term investment c. the main purpose of the subsidiary is to provide services that relate to the investment activities of an investment entity. d. the parent determines that it is an investment entity.arrow_forward
- Which of the following statements is true regarding the acquisition method of accounting for a business combination? a. Assets of the acquired company are recorded at book values. b. Assets of the acquired company are recorded at fair value, but only if the acquisition cost equals or exceeds fair value of the subsidiary's net assets. c. Assets of the acquired company are recorded at fair values regardless of the acquisition cost. d. Consulting costs related to the combination reduce additional paid-in capital.arrow_forwardGeneral questions Under GAAP, a parent company should exclude a subsidiary from consolidation if: It measures income from the subsidiary under the equity method The subsidiary is in a regulated industry The subsidiary is a foreign entity whose books are recorded in a foreign currency The parent does not have control of the subsidiary The FASB’s primary motivation for requiring consolidation of all majority-owned subsidiaries was to: Ensure disclosure of all loss contingencies Prevent the use of off–balance sheet financing Improve comparability of the statements of cash flows Establish criteria for exclusion of finance and insurance subsidiaries from consolidationarrow_forwardWhich one of the following statements is incorrect? A parent can control a subsidiary when it acquires more than 50% of the voting rights of the subsidiary. An investor can control a subsidiary when it has rights to variable returns from the subsidiary. A parent controls a subsidiary only if it acquires 50% or more of the shares of the subsidiary. A parent controls a subsidiary if, amongst other things, it exerts power over the subsidiary.arrow_forward
- Companies are required to value non-controlling interests on the acquisition date. Wat approaches might a company take to value non-controlling interest?arrow_forwardHobbes Corporation’s purchase of stock of Tiger Company gave Hobbes voting control over Tiger. A portion of the amount Hobbes paid reflects the fact that Tiger's inventories have a market value in excess of their book value.How should this portion of the cost be accounted for by Hobbes Corporation? Select one: a. Reported as goodwill on the balance sheet of Hobbes Corporation b. Amortized against investment revenue over the remaining useful life of the investment c. Included in the carrying value of the investment until disposition of the stock d. Added to the inventory cost on Hobbes's consolidated balance sheetarrow_forwardAn acquired firm’s financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?a. The parent tests the preexisting goodwill for impairment before recording the goodwill as part of the acquisition.b. The parent includes the preexisting goodwill as an identified intangible asset acquired.c. The parent ignores preexisting subsidiary goodwill and allocates the subsidiary’s fair value among the separately identifiable assets acquired and liabilities assumed.d. Preexisting goodwill is excluded from the identifiable assets acquired unless the subsidiary can demonstrate its continuing value.arrow_forward
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