Multiple-choice questions. Select the best one that answers the question. Show your procedure and calculations. Partial credits will be given if you procedure is correct, but answers are not. Each question is 3 points. Total: 78 points. Chapter 1 1. Angelo uses the equity method to account for its investment in Fischer on January 1. On the date of acquisition, Fischer’s land and buildings were undervalued on its balance sheet. During the year following the acquisition, how do these excesses of fair values over book values affect Angelo's Equity Income from Fischer? a. Building, Decrease; Land, No Effect b. Building, Decrease; Land, Decrease c. Building, Increase; Land, Increase d. Building, Increase; Land, No Effect 2. On January 2, 2020, Campbell, Inc. purchased a 20% interest in Renner Corp. for $2,000,000 cash. During 2020, Renner's net income was $2,500,000 and it paid dividends of $750,000. Equity Investment balance should Campbell report at December 31, 2020? a. $2,500,000 b. $ 500,000 c. $2,350,000 d. $2,150,000 3. On December 31, 2020, Park Inc. paid $500,000 for all of the common stock of Smith Corp. On that date, Smith had assets and liabilities with book values of $400,000 and $100,000; and fair values of $450,000 and $125,000, respectively. What amount of goodwill will be reported on the December 31, 2020 balance sheet? a. $ 50,000 b. $100,000 c. $200,000 d. $175,000 4. Francis, Inc. acquired 40% of Park's voting stock on January 1, 2020 for $420,000. During 2020, Park earned $120,000 and paid dividends of $60,000. During 2021, Park earned $160,000 and paid dividends of $50,000 on April 1 and $40,000 on December 1. On July 1, 2021, Francis sold half of its stock in Park for $275,000 cash. The Equity Investment balance at December 31, 2020 is: a. $420,000 b. $444,000 c. $408,000 d. $492,000 5. On January 1, 2020, Cracker Co. purchased 40% of Dallas Corp.'s common stock at book value of net assets. The balance in Cracker's Equity Investment account was $820,000 at December 31, 2020. Dallas reported net income of $500,000 for the year ended December 31, 2020, and paid dividends totaling $150,000 during 2020. How much did Cracker pay for its 40% interest in Dallas? a. $680,000 b. $500,000 c. $560,000 d. $760,000 Chapter 2 The following three Questions are based on the following set of facts. Lucky’s Company acquires Waterview, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Waterview’s balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met. The pre-acquisition balance she ...

1. Multiple-choice questions. Select the best one that answers the
question. Show your procedure and calculations. Partial credits
will be given if you procedure is correct, but answers are not.
Each question is 3 points. Total: 78 points.
Chapter 1
1. Angelo uses the equity method to account for its
investment in Fischer on January 1. On the date of acquisition,
Fischer’s land and buildings were undervalued on its balance
sheet. During the year following the acquisition, how do these
excesses of fair values over book values affect Angelo's Equity
Income from Fischer?
a. Building, Decrease; Land, No Effect
b. Building, Decrease; Land, Decrease
c. Building, Increase; Land, Increase
d. Building, Increase; Land, No Effect
2. On January 2, 2020, Campbell, Inc. purchased a 20%
interest in Renner Corp. for $2,000,000 cash. During 2020,
Renner's net income was $2,500,000 and it paid dividends of
$750,000.
Equity Investment balance should Campbell report at December
31, 2020?
a. $2,500,000
b. $ 500,000
c. $2,350,000
d. $2,150,000
3. On December 31, 2020, Park Inc. paid $500,000 for all of

2. the common stock of Smith Corp. On that date, Smith had assets
and liabilities with book values of $400,000 and $100,000; and
fair values of $450,000 and $125,000, respectively.
What amount of goodwill will be reported on the December 31,
2020 balance sheet?
a. $ 50,000
b. $100,000
c. $200,000
d. $175,000
4. Francis, Inc. acquired 40% of Park's voting stock on
January 1, 2020 for $420,000. During 2020, Park earned
$120,000 and paid dividends of $60,000. During 2021, Park
earned $160,000 and paid dividends of $50,000 on April 1 and
$40,000 on December 1. On July 1, 2021, Francis sold half of
its stock in Park for $275,000 cash.
The Equity Investment balance at December 31, 2020 is:
a. $420,000
b. $444,000
c. $408,000
d. $492,000
5. On January 1, 2020, Cracker Co. purchased 40% of Dallas
Corp.'s common stock at book value of net assets. The balance
in Cracker's Equity Investment account was $820,000 at
December 31, 2020. Dallas reported net income of $500,000 for
the year ended December 31, 2020, and paid dividends totaling
$150,000 during 2020.
How much did Cracker pay for its 40% interest in Dallas?
a. $680,000
b. $500,000

3. c. $560,000
d. $760,000
Chapter 2
The following three Questions are based on the following set of
facts.
Lucky’s Company acquires Waterview, Inc., by issuing 40,000
shares of $1 par common stock with a market price of $25 per
share on the acquisition date and paying $125,000 cash. The
assets and liabilities on Waterview’s balance sheet were valued
at fair values except equipment that was undervalued by
$300,000. There was also an unrecorded patent valued at
$40,000, as well as an unrecorded trademark valued at $75,000.
In addition, the agreement provided for additional
consideration, valued at $60,000, if certain earnings targets
were met.
The pre-acquisition balance sheets for the two companies at
acquisition date are presented below.
Lucky’s Company
Waterview, Inc.
Cash
$300,000
$260,000
Accounts receivable
250,000
135,000
Inventory
254,000
275,000

4. Property, plant, and equipment
2,300,000
356,500
$3,104,000
$1,026,500
Accounts payable
$45,000
$37,500
Salaries and taxes payable
450,000
46,000
Notes payable
500,000
450,000
Common stock
250,000
60,000
Additional paid-in capital
950,000
106,500
Retained earnings
909,000
326,500
$3,104,000
$1,026,500
6. At what amount is the investment recorded on Lucky’s
books?
a. $1,000,000
b. $1,100,000

5. c. $1,125,000
d. $1,185,000
7. Compute consolidated property, plant & equipment.
a. $2,600,000
b. $2,656,500
c. $2,956,500
d. $3,071,500
8. What is consolidated retained earnings?
a. $ 582,500
b. $ 909,000
c. $1,235,500
d. $2,195,500
The following two questions are based on the following set of
facts.
On January 1, 2021, Consolidated Company purchased 100% of
the common stock Avergy Industries for $720,000. On that
date, Avergy had common stock of $100,000 and retained
earnings of $420,000. Equipment and land were each
undervalued by $50,000 on Avergy’s books. There was a
$40,000 overvaluation of Bonds Payable, as well a $60,000
undervaluation of inventory.
9. What is the amount of goodwill recorded in connection
with this combination?
a. $0
b. $ 50,000
c. $ 80,000
d. $200,000

6. 10. The consolidation entries necessary for a date of
acquisition balance sheet include all of the following, except:
a. Land debit, $50,000
b. Inventory debit, $60,000
c. Bonds Payable credit, $40,000
d. Equipment debit, $50,000
Chapter 3
The following information applies to the following 3 Questions:
On January 1, 2020, Coldspring Corp. paid $770,000 to acquire
Whitt Co. Coldspring used the equity method to account for the
investment. The following information is available for the
assets, liabilities, and stockholders' equity accounts of Whitt:
Book Value
Fair Value
Current assets
$95,000
$95,000
Land
95,000
120,000
Building (twenty year life)
255,000
310,000
Equipment (five year life)
185,000
190,000
Current liabilities

7. 40,000
40,000
Long-term liabilities
65,000
65,000
Common stock
140,000
Additional paid-in capital
300,000
Retained earnings
210,000
Whitt earned net income for 2020 of $125,000 and paid
dividends of $18,000 during the year.
11. What is the AAP amortization expense for 2020?
a. $3,750 Debit
b. $1,750 Debit
c. $3,750 Credit
d. $1,750 Credit
12. For 2020, what is the balance in Equity Income on
Coldspring’s books?
a. $121,250
b. $125,000
c. $128,750
d. $143,000
13. What is the balance in Equity Investment at the end of

8. 2020?
a. $873,250
b. $877,000
c. $891,250
d. $895,000
14. Cleaverland purchased 100% of Omaha on January 1, 2019
for $650,000. On that date, Omaha's stockholders' equity was
$650,000, and the recognized book values of Ottowa’s
individual net assets approximated their fair values. Omaha had
net incomes of $150,000 and $190,000 for 2019 and 2020,
respectively. The subsidiary paid dividends amounting to
$30,000 in both years. Cleaverland uses the equity method to
account for its pre-consolidation investment in Omaha.
What was the balance in Equity Investment at December 31,
2020?
a. $650,000
b. $710,000
c. $990,000
d. $930,000
Chapter 4
15. Brendon, Inc. acquired 100% of Weston Enterprises on
January 2, 2020. During 2020, Brendon sold Weston for
$700,000 goods which had cost $500,000. Weston still owned
40% of the goods at the end of the year. In 2021, Brendon sold
goods with a cost of $500,000 to Weston for $700,000, and the
buyer still owned 40% of the goods at year-end. For 2021, cost
of goods sold was $1,000,000 for Brendon and $990,000 for
Weston.
What was consolidated cost of goods sold for 2021?

9. a. $1,370,000
b. $1,290,000
c. $1,870,000
d. $1,990,000
Clearwater Co. owned all of the voting common stock of Kelley,
Inc. On January 2, 2020 Clearwater sold equipment to Kelley
for $350,000. The equipment had cost Clearwater $425,000. At
the time of the sale, the balance in accumulated depreciation
was $125,000. The equipment had a remaining useful life of
eight years and no salvage value.
16. For the consolidated balance sheet at December 31, 2021,
at would amount would the equipment (net) be included?
a. $225,000
b. $262,500
c. $306,250
d. $-0-
On April 1, 2020, Republic Company sold equipment to its
wholly owned subsidiary, Barre Corporation, for $40,000. At
the time of the transfer, the asset had an original cost (to
Republic) of $60,000 and accumulated depreciation of $25,000.
The equipment has a five year estimated remaining life.
Barre reported net income of $250,000, $270,000 and $310,000
in 2020, 2021, and 2022, respectively. Republic received
dividends from Barre of $90,000, $105,000 and $120,000 for
2020, 2021, and 2022, respectively.
17. What was the amount of the gain or loss on the sale of
equipment reported by Republic on its pre-consolidation income
statement in 2020?

10. a. $-0-
b. $ 5,000 gain
c. $20,000 loss
d. $35,000 gain
18. What was the amount of the credit to depreciation expense
on the 2021 consolidation worksheet?
a. $ 750
b. $-0-
c. $1,000
d. $1,600
Renner Company sold land to Bethany Enterprises, its parent,
on June 1, 2020. The sale price was $218,000. The land
originally cost Renner $239,000. Renner reported net income of
$400,000 and $496,000 for 2020 and 2021, respectively.
Bethany sold the land it purchased from Renner for $228,000 in
2022.
19. What is the consolidated amount of gain or loss on sale of
land for 2022?
a. $10,000 gain
b. $10,000 loss
c. $11,000 loss
d. $21,000 loss
Chapter 5
The following information pertains to the following 2
Questions.

11. On January 1, 2021, Gooch Company acquires 80% of the
outstanding common stock of House Inc., for a purchase price
of $12,400,000. It was determined that the fair value of the
noncontrolling interest in the subsidiary is $3,100,000. The
book value of the House’s stockholders’ equity on the date of
acquisition is $10,000,000 and its fair value of net assets is
$11,000,000. The acquisition-date acquisition accounting
premium (AAP) is allocated $600,000 to equipment with a
remaining useful life of 10 years, and $250,000 to a patent with
a remaining useful life of 5 years.
20. The [A] consolidating journal entry (on Gooch’s books) to
recognize the acquisition date AAP and allocate the ownership
interest in those assets to the parent and noncontrolling interests
includes:
a. Equity investment, credit, $5,350,000
b. Noncontrolling interest, credit, $3,100,000
c. House’s retained earnings, debit, $2,00,000
d. Noncontrolling interest, credit, $1,070,000
21. What is the acquisition accounting premium (AAP)?
a. $5,500,000
b. $4,650,000
c. $2,400,000
d. $4,400,000
The following information pertains to the following 2
Questions.
Assume the following facts relating to an 80% owned subsidiary
company:

12. BOY Stockholders’ Equity
$1,000,000
BOY unamortized AAP
125,000
Net income of subsidiary (not including AAP amortization)
210,000
AAP amortization expense
40,000
Dividends declared and paid to noncontrolling shareholders
10,000
22. What is the net income attributable to noncontrolling
interests for the year?
a. $128,000
b. $136,000
c. $160,000
d. $168,000
23. What is the amount reported as noncontrolling equity at
the end of the year?
a. $895,200
b. $996,000
c. $1,026,000
d. $1,028,000
Chapter 6
24. On January 1, 2021, a Parent company has a debt
outstanding that was originally issued at a discount and was
purchased, on issuance, by an unaffiliated party. On July 1,
2021, a Subsidiary of the Parent purchased the debt from the
unaffiliated party. The debt was purchased by the Subsidiary at
a slight premium.

13. The Parent is a calendar year company. Which one of the
following statements is true?
a. The consolidated balance sheet at December 31, 2021 will
report none of the debt, and the consolidated income statement
for the year ended December 31, 2021 will not report any
interest expense from the debt.
b. The consolidated balance sheet at December 31, 2021 will
report none of the debt, and the consolidated income statement
for the year ended December 31, 2021 will report a gain or loss
from the constructive retirement of the debt and will report
some interest expense from the debt.
c. The consolidated balance sheet at December 31, 2021 will
report none of the debt, and the consolidated income statement
for the year ended December 31, 2021 will report a gain or loss
from the constructive retirement of the debt and will not report
any interest expense from the debt.
d. The consolidated balance sheet at December 31, 2021 will
report the debt, and the consolidated income statement for the
year ended December 31, 2021 will report a gain or loss from
the constructive retirement of the debt and will not report any
interest expense from the debt.
25. A Parent Company owns 100% of its Subsidiary. During
2020, the Parent company reports net income (by itself, without
any investment income from its Subsidiary) of $800,000 and the
subsidiary reports net income of $500,000. The Parent had a
bond payable outstanding on July 1, 2019, with a carry value
equal to $440,000. The Subsidiary acquired the bond on July 1,
2019 for $400,000. During 2020, the Parent reported interest
expense (related to the bond) of $40,000 while the Subsidiary
reported interest income (related to the bond) of $37,500.
What is consolidated net income for the year ended December
31, 2020?

14. a. $1,297,500
b. $1,300,000
c. $1,302,500
d. $1,342,500
26. There are several steps in determining whether a special
purpose entity is a VIE. Which of the following is not a step in
determining whether a special purpose entity is a VIE?
a. Determine whether the cash flows of the SPE are used
to repay the securities holders.
b. Determine whether the company is the primary
beneficiary of the VIE.
c. Determine whether the business-related scope
exception applies.
d. Determine whether the total equity investment at risk is
not sufficient to permit the legal entity to finance its activities
without additional subordinated financial support.
e. None of the above.
Calculation Problems. Select and do any two (2) out of the
following three (3) problems. Show your procedures and
calculations to obtain partial credits. Each question is 11 points.
Total: 22 points.
Chapter 1
C1. On January 1, 2020, Skyline Co. paid $200,000 for a 40%
interest in Allen Industries. Allen Industries’ stockholders’
equity amounted to $300,000 on that date. The excess of
purchase price over book values was due to an unrecorded
patent valued at $200,000 with a 5-year life. During 2020,
Allen Industries reported income of $80,000 and paid dividends
of $18,000. During 2021, it reported income of $90,000 and

15. dividends of $48,000.
Assume that Skyline Co. has significant influence over the
operations of Allen Industries.
Required:
a. What is the amount of goodwill?
b. What is Equity Income for 2020?
c. What is the balance in the Equity Investment account at
December 31, 2020?
d. What is Equity Income for 2021?
e. What is the balance in the Equity Investment account at
December 31, 2021?
Chapter 4
C2. Parent acquired Subsidiary on January 2, 2019 at a price
$400,000 in excess of book value. Of that excess, $160,000 was
allocated to an unrecorded Customer List with a 8-year life,
with the remainder to Goodwill. The parent uses the equity
method to account for its investment in its subsidiary.
On January2, 2022, Subsidiary sold equipment to Parent for
$120,000. The equipment had a cost of $85,000 and
accumulated depreciation of $40,000. The remaining life of the
equipment was estimated at 8 years. Financial statements for
the two companies for the year ended December 31, 2023 are
presented below.
Parent
Subsidiary
Sales revenue
$687,000
$750,000

16. Cost of goods sold
-425,000
-350,000
Gross profit
262,000
400,000
Operating expenses
-125,000
-36,700
Income (loss) from subsidiary
352,675
_________
Net Income
$489,675
$363,300
Retained Earnings, 1/1/23
$620,400
$240,000
Net income
489,675
363,300
Dividends
-98,000
-12,000
Retained Earnings, 12/31/23
$1,012,075
$591,300
Cash and receivables
$850,000
$750,000

17. Inventory
125,000
265,000
Equity investment
1,249,450
Property, plant & equipment (Net)
1,387,625
1,337,860
Total Assets
$3,612,075
$2,352,860
Accounts payable
$55,000
$311,210
Accrued liabilities
450,000
370,650
Notes payable
1,250,000
665,300
Common stock
95,000
183,950
Additional paid-in capital
750,000
230,450
Retained Earnings, 12/31/23
1,012,075
591,300
Total Liabilities and Equities
$3,612,075
$2,352,860

18. Required:
a. Prepare the journal entries on the books of Parent and
Subsidiary to record the equipment sale.
b. Compute the amount of unrealized gain at January 1, 2023.
c. Prepare entries required under the equity method on
Parent's pre-consolidation books for 2023.
d. Prepare the consolidation entries for 2023.
Chapter 5
C3. On January 1, 2020, Wondersome Company acquired a
70% interest in Philmore Company for a purchase price that was
$240,000 over the book value of the Philmore’s Stockholders’
Equity on the acquisition date. Wondersome uses the cost
method to account for its investment in Philmore. On the date of
acquisition, Philmore’s retained earnings balance was $350,000.
Wondersome assigned the acquisition-date AAP as follows:
AAP Items
Initial Fair Value
Useful Life (years)
PPE, net
90,000

19. 20
Patent
150,000
10
$350,000
Philmore sells inventory to Wondersome (upstream) which
includes that inventory in products that it, ultimately, sells to
customers outside of the controlled group. You have compiled
the following data for the years ending 2022 and 2023:
2022
2023
Transfer price for inventory sale
$94,500
$70,000
Cost of goods sold
-64,500
-45,000
Gross profit
$30,000
$25,000
% inventory remaining
30%
20%
Gross profit deferred
$9,000
$5,000
EOY Receivable/Payable
$32,000

20. $29,500
The inventory not remaining at the end of the year has been sold
outside of the controlled group.
The parent and the subsidiary report the following financial
statements at December 31, 2023:
Income Statement
Wondersome
Philmore
Sales
$2,400,000
$602,400
Cost of goods sold
-1,580,000
-465,398
Gross Profit
820,000
137,002
Income (loss) from subsidiary
10,500
Operating expenses
-711,200
-56,000
Net income
$119,300
$81,002
Statement of Retained Earnings

21. Wondersome
Philmore
BOY Retained Earnings
$3,360,350
$608,000
Net income
119,300
81,002
Dividends
-85,000
-15,000
EOY Retained Earnings
$3,394,650
$674,002
Continued
Balance Sheet
Wondersome
Philmore
Assets:
Cash
$450,000
$84,700
Accounts receivable
425,000
113,200
Inventory
654,000
142,100

22. Investment in subsidiary
634,550
PPE, net
4,432,100
1,000,002
$6,595,650
$1,340,002
Liabilities and Stockholders’ Equity:
Current Liabilities
$505,900
$99,500
Long-term Liabilities
703,500
250,000
Common Stock
402,000
75,300
APIC
1,589,600
241,200
Retained Earnings
3,394,650
674,002
$6,595,650
$1,340,002

23. Required:
a. Compute the EOY noncontrolling interest equity balance
b. Prepare the consolidation journal entries.
©Cambridge Business Publishers, 2020
3-20 Advanced Accounting, 4th Edition
©Cambridge Business Publishers, 2012
Test Bank, Chapter 3 3-2