Multiple-Choice Questions on Consolidation Process
Select the most appropriate answer for each of the following questions.
1. Goodwill is
a.Seldom reported because it is too difficult to measure.
b.Reported when more than book value is paid in purchasing another company.
c.Reported when the fair value of the acquiree is greater than the fair value of the net identifiable assets acquired.
d.Generally smaller for small companies and increases in amount as the companies acquired increase in size.
2. [AICPA Adapted] Wright Corporation includes several subsidiaries in its consolidated financial statements. In its December 31, 20X2, trial balance, Wright had the following intercompany balances before eliminations:
| Debit | Credit |
Current receivable due from Main Company | $ 32,000 |
|
Noncurrent receivable from Main Company | 114,000 |
|
Cash advance to Corn Corporation Cash | 6,000 |
|
advance from King Company Intercompany |
| $ 15,000 |
payable to King Company |
| 101,000 |
In its December 31, 20X2, consolidated balance sheet, what amount should Wright report as intercompany receivables?
a.$152,000.
b.$146,000.
c.$36,000.
d.$0.
3. Beni Corporation acquired 100 percent of Carr Corporation’s outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the following:
| Beni | Carr |
Assets | $2,000,000 | $750,000 |
Liabilities | $ 750,000 | $400,000 |
Common Stock | 1,000,000 | 310,000 |
Retained Earnings | 250,000 | 40,000 |
Liabilities and Stockholders’ Equity | $2,000,000 | $750,000 |
At the date of purchase, the fair value of Carr’s assets was $50,000 more than the aggregate carrying amounts. In the consolidated balance sheet prepared immediately after the purchase, the consolidated stockholders’ equity should amount to
a. $1,680,000.
b. $1,650,000.
c. $1,600,000.
d. $1,250,000.
Note: Questions 4 and 5 are based on the following information: Nugget Company’s balance sheet on December 31, 20X6, was as follows:
Assets |
| Liabilities and Stockholders’ Equity |
|
Cash | $ 100,000 | Current Liabilities | $ 300,000 |
Accounts Receivable | 200,000 | Long-Term Debt | 500,000 |
Inventories | 500,000 | Common Stock (par $1 per share) | 100,000 |
Property, Plant, and Equipment (net) | 900,000 | Additional Paid-In Capital | 200,000 |
|
| Retained Earnings | 600,000 |
Total Assets | $1,700,000 | Total Liabilities and Stockholders’ Equity | $1,700,000 |
On December 31, 20X6, Gold Company acquired all of Nugget’s outstanding common stock for $1,500,000 cash. On that date, the fair (market) value of Nugget’s inventories was $450,000, and the fair value of Nugget’s property, plant, and equipment was $1,000,000. The fair values of all other assets and liabilities of Nugget were equal to their book values.
4. As a result of Gold’s acquisition of Nugget, the consolidated balance sheet of Gold and Nugget should reflect goodwill in the amount of
a.$500,000.
b.$550,000.
c.$600,000.
d.$650,000.
5. Assuming that the balance sheet of Gold (unconsolidated) on December 31, 20X6, reflected retained earnings of $2,000,000, what amount of retained earnings should be shown in the December 31, 20X6, consolidated balance sheet of Gold and its new subsidiary, Nugget?
a.$2,000,000.
b.$2,600,000.
c.$2,800,000.
d.$3,150,000.
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