1.

Which one of the following accounts would not appear in the consolidated financial statements at the end of
the first fiscal period of the combination?
A. Goodwill.
B. Equipment.
C. Investment in Subsidiary.
D. Common Stock.
E. Additional Paid-In Capital.
2. Which of the following internal record-keeping methods can a parent choose to account for a subsidiary
acquired in a business combination?
A. Initial value or book value.
B. Initial value, lower-of-cost-or-market-value, or equity.
C. Initial value, equity, or partial equity.
D. Initial value, equity, or book value.
E. Initial value, lower-of-cost-or-market-value, or partial equity.
3. Which one of the following varies between the equity, initial value, and partial equity methods of accounting
for an investment?
A. The amount of consolidated net income.
B. Total assets on the consolidated balance sheet.
C. Total liabilities on the consolidated balance sheet.
D. The balance in the investment account on the parent's books.
E. The amount of consolidated cost of goods sold.
4. Under the partial equity method, the parent recognizes income when
A. dividends are received from the investee.
B. dividends are declared by the investee.
C. the related expense has been incurred.
D. the related contract is signed by the subsidiary.
E. it is earned by the subsidiary.
5. Push-down accounting is concerned with the
A. impact of the purchase on the subsidiary's financial statements.
B. recognition of goodwill by the parent.
C. correct consolidation of the financial statements.
D. impact of the purchase on the separate financial statements of the parent.
E. recognition of dividends received from the subsidiary.
6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers maintained its incorporation.
Which of Racer's account balances would vary between the equity method and the initial value method?
A. Goodwill, Investment in Tangiers Co., and Retained Earnings.
B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D. Common Stock, Goodwill, and Investment in Tangiers Co.
E. Expenses, Goodwill, and Investment in Tangiers Co.

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7. How does the partial equity method differ from the equity method?
A. In the total assets reported on the consolidated balance sheet.
B. In the treatment of dividends.
C. In the total liabilities reported on the consolidated balance sheet.
D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment
account.
E. Under the partial equity method, the balance in the investment account is not decreased by amortization on
allocations made in the acquisition of the subsidiary.
8. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2010, for $257,000.
Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2010
and $50,000 in 2011 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2010
and $47,000 in 2011 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance
on Jansen's books as of December 31, 2011, if the equity method has been applied?
A. $286,000.
B. $295,000.
C. $276,000.
D. $344,000.
E. $324,000.
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the fair value of the
subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of
$640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to
use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's
separate balance sheet and on Velway's consolidated balance sheet, respectively?
A. $400,000 and $900,000
B. $400,000 and $970,000
C. $470,000 and $900,000
D. $470,000 and $970,000
E. $470,000 and $1,040,000
10. Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price in excess of the
subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair
value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of
$350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2011,
Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a
book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment
account as of December 31, 2011?
A. $387,000.
B. $497,000.
C. $508.000.
D. $537,000.
E. $570,000.

3-2

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate
incorporation. Cale used the equity method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
11. The 2010 total amortization of allocations is calculated to be
A. $4,000.
B. $6,400.
C. $(2,400).
D. $(1,000).
E. $3,800.
12. In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary
earnings?
A. $77,000.
B. $79,000.
C. $125,000.
D. $127,000.
E. $81,800.
13. What is the balance in Cale's investment in subsidiary account at the end of 2010?
A. $1,099,000.
B. $1,020,000.
C. $1,096,200.
D. $1,098,000.
E. $1,144,400.
14. At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a
credit to Investment in Kaltop Co. for
A. $124,400.
B. $126,000.
C. $127,000.
D. $76,400.
E. $0.

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15. If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of
consolidated net income?
A. $569,000.
B. $570,000.
C. $571,000.
D. $566,400.
E. $444,000.
On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For 2010, Hurlem earned
net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included
in the acquisition was $6,000.
16. How much difference would there have been in Franel's income with regard to the effect of the investment,
between using the equity method or using the initial value method of internal recordkeeping?
A. $190,000.
B. $360,000.
C. $164,000.
D. $354,000.
E. $150,000.
17. How much difference would there have been in Franel's income with regard to the effect of the investment,
between using the equity method or using the partial equity method of internal recordkeeping?
A. $170,000.
B. $354,000.
C. $164,000.
D. $6,000.
E. $174,000.
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's
reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The
amortization of allocations related to the investment was $24,000. Cashen's net income, not including the
investment, was $3,180,000, and it paid dividends of $900,000.
18. On the consolidated financial statements for 2010, what amount should have been shown for Equity in
Subsidiary Earnings?
A. $432,000.
B. $-0-.
C. $408,000.
D. $120,000.
E. $288,000.
19. On the consolidated financial statements for 2010, what amount should have been shown for consolidated
dividends?
A. $900,000.
B. $1,020,000.
C. $876,000.
D. $996,000.
E. $948,000.
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20. What is the amount of consolidated net income for the year 2010?
A. $3,180,000.
B. $3,612,000.
C. $3,300,000.
D. $3,588,000.
E. $3,420,000.

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000.
Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an
unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in
each of these two years. Selected account balances as of December 31, 2011, for the two companies follow.

21. If the partial equity method had been applied, what was 2011 consolidated net income?
A. $840,000.
B. $768,400.
C. $822,000.
D. $240,000.
E. $600,000.
22. If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within
the records of Jans at the end of 2011?
A. $612,100.
B. $744,000.
C. $774,150.
D. $372,000.
E. $844,150.
23. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had inventory with a book
value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2010. Also,
on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000.
Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year
remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in
the consolidated financial statements for the year ended December 31, 2010 related to the acquisition
allocations of Green?
A. $43,000.
B. $33,000.
C. $ 5,000.
D. $15,000.
E. 0.
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24. All of the following are acceptable methods to account for a majority-owned investment in subsidiary
except
A. The equity method.
B. The initial value method.
C. The partial equity method.
D. The fair-value method.
E. Book value method.
25. Under the equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. Goodwill is amortized over 20 years.
D. Income reported by the subsidiary increases the investment account.
E. Dividends received increase the investment account.
26. Under the partial equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. The allocations for excess fair value allocations over book value of net assets at date of acquisition are
applied over their useful lives to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment
account.
E. Dividends received increase the investment account.
27. Under the initial value method, when accounting for an investment in a subsidiary,
A. Dividends received by the subsidiary decrease the investment account.
B. The investment account is adjusted to fair value at year-end.
C. Income reported by the subsidiary increases the investment account.
D. The investment account remains at initial value.
E. Dividends received are ignored.
28. According to GAAP regarding amortization of goodwill and other intangible assets, which of the following
statements is true?
A. Goodwill recognized in consolidation must be amortized over 20 years.
B. Goodwill recognized in consolidation must be expensed in the period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E. Goodwill recognized in consolidation must be amortized over 40 years.

3-6

29. When a company applies the initial method in accounting for its investment in a subsidiary and the
subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation
worksheet?

A. A above
B. B above
C. C above
D. D above
E. E above
30. When a company applies the initial value method in accounting for its investment in a subsidiary and the
subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?

A. A above
B. B above
C. C above
D. D above
E. E abov

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31. When a company applies the partial equity method in accounting for its investment in a subsidiary and the
subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made
in a year subsequent to the initial acquisition of the subsidiary?

A. A above
B. B above
C. C above
D. D above
E. E above
32. When a company applies the partial equity method in accounting for its investment in a subsidiary and
initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet
entry would be made?

A. A above
B. B above
C. C above
D. D above
E. E above
33. When consolidating a subsidiary under the equity method, which of the following statements is true?
A. Goodwill is never recognized.
B. Goodwill required is amortized over 20 years.
C. Goodwill may be recorded on the parent company's books.
D. The value of any goodwill should be tested annually for impairment in value.
E. Goodwill should be expensed in the year of acquisition.

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34. When consolidating a subsidiary under the equity method, which of the following statements is true with
regard to the subsidiary subsequent to the year of acquisition?
A. All net assets are revalued to fair value and must be amortized over their useful lives.
B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized
over their useful lives.
C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their
useful lives.
D. Only depreciable net assets that have excess fair value over book value must be amortized over their useful
lives.
E. Only assets that have excess fair value over book value must be amortized over their useful lives.
35. Which of the following statements is false regarding push-down accounting?
A. Push-down accounting simplifies the consolidation process.
B. Fewer worksheet entries are necessary when push-down accounting is applied.
C. Push-down accounting provides better information for internal evaluation.
D. Push-down accounting must be applied for all business combinations under a pooling of interests.
E. Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and
liabilities.
36. Which of the following is false regarding contingent consideration in business combinations?
A. Contingent consideration payable in cash is reported under liabilities.
B. Contingent consideration payable in stock shares is reported under stockholders' equity.
C. Contingent consideration is recorded because of its substantial probability of eventual payment.
D. The contingent consideration fair value is recognized as part of the acquisition regardless of whether
eventual payment is based on future performance of the target firm or future stock price of the acquirer.
E. Contingent consideration is reflected in the acquirer's balance sheet at the present value of the potential
expected future payment.
37. Factors that should be considered in determining the useful life of an intangible asset include
A. Legal, regulatory, or contractual provisions.
B. The residual value of the asset.
C. The entity's expected use of the intangible asset.
D. The effects of obsolescence, competition, and technological change.
E. All of the above choices are used in determining the useful life of an intangible asset.
38. Consolidated net income using the equity method for an acquisition combination is computed as follows:
A. Parent company's income from its own operations plus the equity from subsidiary's income recorded by the
parent.
B. Parent's reported net income.
C. Combined revenues less combined expenses less equity in subsidiary's income less amortization of fair-value
allocations in excess of book value.
D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by
parent.
E. All of the above.

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Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of
that date Hurley has the following trial balance;

Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an
indefinite life. FIFO inventory valuation method is used.
39. Compute the consideration transferred in excess of book value acquired at January 1, 2010.
A. $150.
B. $700.
C. $2,200.
D. $550.
E. $2,900.
40. Compute goodwill, if any, at January 1, 2010.
A. $150.
B. $250.
C. $700.
D. $1,200.
E. $550.
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41. Compute the amount of Hurley's inventory that would be reported in a January 1, 2010, consolidated
balance sheet.
A. $800.
B. $100.
C. $900.
D. $150.
E. $0.
42. Compute the amount of Hurley's buildings that would be reported in a December 31, 2010, consolidated
balance sheet.
A. $1,560.
B. $1,260.
C. $1,440.
D. $1,160.
E. $1,140.
43. Compute the amount of Hurley's equipment that would be reported in a December 31, 2010, consolidated
balance sheet.
A. $1,000.
B. $1,250.
C. $875.
D. $1,125.
E. $750.
44. Compute the amount of total expenses reported in an income statement for the year ended December 31,
2010, in order to recognize acquisition-date allocations of fair value and book value differences.
A. $140.
B. $190.
C. $260.
D. $285.
E. $310.
45. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2010,
consolidated balance sheet.
A. $1,800.
B. $1,700.
C. $1,725.
D. $1,675.
E. $3,500.
46. Compute the amount of Hurley's buildings that would be reported in a December 31, 2011, consolidated
balance sheet.
A. $1,620.
B. $1,380.
C. $1,320.
D. $1,080.
E. $1,500.
47. Compute the amount of Hurley's equipment that would be reported in a December 31, 2011, consolidated
balance sheet.
A. $0.
B. $1,000.
C. $1,250.
D. $1,125.
E. $1,200.
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48. Compute the amount of Hurley's land that would be reported in a December 31, 2011, consolidated balance
sheet.
A. $900.
B. $1,300.
C. $400.
D. $1,450.
E. $2,200.
49. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2011,
consolidated balance sheet.
A. $1,700.
B. $1,800.
C. $1,650.
D. $1,750.
E. $3,500.
Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration
over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid
dividends of $100.
50. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of
Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.
51. Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result
of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.

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52. Assume the initial value method is applied. How much will Kaye's income increase or decrease as a result
of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $100 increase.
E. $210 increase. 53. Assume the partial equity method is used. In the years following acquisition, what
additional worksheet entry must be made for consolidation purposes that is not required for the equity method?

A. Entry A.
B. Entry B.
C. Entry C.
D. Entry D.
E. Entry E.54. Assume the initial value method is used. In the year subsequent to acquisition, what additional
worksheet entry must be made for consolidation purposes that is not required for the equity method?

A. Entry A.
B. Entry B.
C. Entry C.
D. Entry D.
E. Entry E.55. Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown
Company on January 1, 2011:
(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.
On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be
A. $18,000.
B. $16,500.
C. $20,000.
D. $18,500.
E. $19,500.

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Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of
Green's accounts have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock
with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings
were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and
the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining
life. There was no goodwill associated with this investment.
56. Compute the book value of Vega at January 1, 2009.
A. $997,500.
B. $857,500.
C. $1,200,000.
D. $1,600,000.
E. $827,500.
57. Compute the December 31, 2013, consolidated revenues.
A. $1,400,000.
B. $800,000.
C. $500,000.
D. $1,590,375.
E. $1,390,375.
58. Compute the December 31, 2013, consolidated total expenses.
A. $620,000.
B. $280,000.
C. $900,000.
D. $909,625.
E. $299,625.

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59. Compute the December 31, 2013, consolidated buildings.

A. $1,037,500.
B. $1,007,500.
C. $1,000,000.
D. $1,022,500.
E. $1,012,500.
60. Compute the December 31, 2013, consolidated equipment.
A. $800,000.
B. $808,000.
C. $840,000.
D. $760,000.
E. $848,000.
61. Compute the December 31, 2013, consolidated land.
A. $220,000.
B. $180,000.
C. $670,000.
D. $630,000.
E. $450,000.
62. Compute the December 31, 2013, consolidated trademark.
A. $50,000.
B. $46,875.
C. $0.
D. $34,375.
E. $37,500.
63. Compute the December 31, 2013, consolidated common stock.
A. $450,000.
B. $530,000.
C. $555,000.
D. $635,000.
E. $525,000.
64. Compute the December 31, 2013, consolidated additional paid-in capital.
A. $210,000.
B. $75,000.
C. $1,102,500.
D. $942,500.
E. $525,000.

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65. Compute the December 31, 2013 consolidated retained earnings.

A. $1,645,375.
B. $1,350,000.
C. $1,565,375.
D. $1,840,375.
E. $1,265,375.
66. Compute the equity in Vega's income to be included in Green's consolidated income statement for 2013.
A. $500,000.
B. $300,000.
C. $190,375.
D. $200,000.
E. $290,375.
67. One company acquires another company in a combination accounted for as an acquisition. The acquiring
company decides to apply the initial value method in accounting for the combination. What is one reason the
acquiring company might have made this decision?
A. It is the only method allowed by the SEC.
B. It is relatively easy to apply.
C. It is the only internal reporting method allowed by generally accepted accounting principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E. When the initial method is used, no worksheet entries are required in the consolidation process.
68. One company acquires another company in a combination accounted for as an acquisition. The acquiring
company decides to apply the equity method in accounting for the combination. What is one reason the
acquiring company might have made this decision?
A. It is the only method allowed by the SEC.
B. It is relatively easy to apply.
C. It is the only internal reporting method allowed by generally accepted accounting principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E. When the equity method is used, no worksheet entries are required in the consolidation process.
69. When is a goodwill impairment loss recognized?
A. Annually on a systematic and rational basis.
B. Never.
C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective
carrying values.
D. If the fair value of a reporting unit falls below its original acquisition price.
E. Whenever the fair value of the entity declines significantly.
70. Which of the following will result in the recognition of an impairment loss on goodwill?
A. Goodwill amortization is to be recognized annually on a systematic and rational basis.
B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying
values.
C. The fair value of the entity declines significantly.
D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition.
E. The entity is investigated by the SEC and its reputation has been severely damaged.

3-16

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an amount in excess of
Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of
$120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of
$1,200,000 (10-year remaining life). On December 31, 2011, Goehler has equipment with a book value of
$975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair
value of $125,000.
71. If Goehler applies the equity method in accounting for Kenneth, what is the consolidated balance for the
Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
72. If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for
the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
73. If Goehler applies the initial value method in accounting for Kenneth, what is the consolidated balance for
the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
74. How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal,
regulatory, contractual, competitive, economic, or other factors that limit its life?
A. Equally over 20 years.
B. Equally over 40 years.
C. Equally over 20 years with an annual impairment review.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
E. No amortization over an indefinite period time.

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Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A
contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of
$27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at
least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of
$16,500 at 5%, using a probability weighted approach, is $3,142.
75. What will Harrison record as its Investment in Rhine on January 1, 2010?
A. $400,000.
B. $403,142.
C. $406,000.
D. $409,142.
E. $416,500.
76. Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will Harrison record the
$16,500 payment of cash on April 15, 2011 in satisfaction of its contingent obligation?
A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.
B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance
obligation $13,358, and Credit Cash $16,500.
C. Debit Investment in Subsidiary and Credit Cash, $16,500.
D. Debit Goodwill and Credit Cash, $16,500.
E. No entry.
77. When recording consideration transferred for the acquisition of Rhine on January 1, 2010, Harrison will
record a contingent performance obligation in the amount of:
A. $628.40.
B. $2,671.60.
C. $3,142.
D. $13,358.
E. $16,500.
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A
contingent payment of $12,000 will be paid on April 1, 2011 if Gataux generates cash flows from operations of
$26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at
least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of
$12,000 at 4%, using a probability weighted approach, is $3,461.
78. What will Beatty record as its Investment in Gataux on January 1, 2010?
A. $500,000.
B. $503,461.
C. $512,000.
D. $515,461.
E. $526,500.

3-18

79. Assuming Gataux generates cash flow from operations of $27,200 in 2010, how will Beatty record the
$12,000 payment of cash on April 1, 2011 in satisfaction of its contingent obligation?
A. Debit Contingent performance obligation $3,461, debit Goodwill $8,539, and Credit Cash $12,000.
B. Debit Contingent performance obligation $3,461, debit Loss from revaluation of contingent performance
obligation $8,539, and Credit Cash $12,000.
C. Debit Goodwill and Credit Cash, $12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation $15,200, and Credit Cash $12,000.
E. No entry.
80. When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will
record a contingent performance obligation in the amount of:
A. $692.20.
B. $3,040.
C. $3,461.
D. $12,000.
E. $15,200.
Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair
value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair
value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
81. If push-down accounting is used, what amounts in the Building account appear in Duchess' separate balance
sheet and in the consolidated balance sheet immediately after acquisition?
A. $400,000 and $1,600,000.
B. $500,000 and $1,700,000.
C. $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E. $500,000 and $1,600,000.
82. If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate
balance sheet and on the consolidated balance sheet immediately after acquisition?
A. $400,000 and $1,600,000.
B. $500,000 and $1,700,000.
C. $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E. $500,000 and $1,600,000.
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen
owns only three assets and has no liabilities:

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83. If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building
in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?
A. $200,000.
B. $285,000.
C. $290,000.
D. $295,000.
E. $300,000.
84. If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building
in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?
A. $200,000.
B. $285,000.
C. $260,000.
D. $268,000.
E. $300,000.
55. If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's
Equipment in a consolidation at December 31, 2012, assuming the book value of the equipment at that date is
still $80,000?
A. $70,000.
B. $73,500.
C. $75,000.
D. $76,500.
E. $80,000.
86. If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization,
should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?
A. $(5,000).
B. $80,000.
C. $75,000.
D. $73,500.
E. $(3,500).
87. If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented
in a January 2, 2010 consolidation?
A. $200,000.
B. $225,000.
C. $273,000.
D. $279,000.
E. $300,000.
88. If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented
in a December 31, 2010 consolidated balance sheet?
A. $40,000.
B. $50,000.
C. $0.
D. $10,000.
E. $90,000.
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89. If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in
dividends during 2010, what amount would be reflected in consolidated net income for 2010 as a result of the
acquisition?
A. $20,000 under the initital value method.
B. $30,000 under the partial equity method.
C. $50,000 under the partial equity method.
D. $44,500 under the equity method.
E. $34,500 regardless of the internal accounting method used.

Answer Key

1. Which one of the following accounts would not appear in the consolidated financial statements at the end of
the first fiscal period of the combination?
A. Goodwill.
B. Equipment.
C. Investment in Subsidiary.
D. Common Stock.
E. Additional Paid-In Capital.
2. Which of the following internal record-keeping methods can a parent choose to account for a subsidiary
acquired in a business combination?
A. Initial value or book value.
B. Initial value, lower-of-cost-or-market-value, or equity.
C. Initial value, equity, or partial equity.
D. Initial value, equity, or book value.
E. Initial value, lower-of-cost-or-market-value, or partial equity.
3. Which one of the following varies between the equity, initial value, and partial equity methods of accounting
for an investment?
A. The amount of consolidated net income.
B. Total assets on the consolidated balance sheet.
C. Total liabilities on the consolidated balance sheet.
D. The balance in the investment account on the parent's books.
E. The amount of consolidated cost of goods sold.
4. Under the partial equity method, the parent recognizes income when
A. dividends are received from the investee.
B. dividends are declared by the investee.
C. the related expense has been incurred.
D. the related contract is signed by the subsidiary.
E. it is earned by the subsidiary.

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5. Push-down accounting is concerned with the

A. impact of the purchase on the subsidiary's financial statements.
B. recognition of goodwill by the parent.
C. correct consolidation of the financial statements.
D. impact of the purchase on the separate financial statements of the parent.
E. recognition of dividends received from the subsidiary.
6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers maintained its incorporation.
Which of Racer's account balances would vary between the equity method and the initial value method?
A. Goodwill, Investment in Tangiers Co., and Retained Earnings.
B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D. Common Stock, Goodwill, and Investment in Tangiers Co.
E. Expenses, Goodwill, and Investment in Tangiers Co.
7. How does the partial equity method differ from the equity method?
A. In the total assets reported on the consolidated balance sheet.
B. In the treatment of dividends.
C. In the total liabilities reported on the consolidated balance sheet.
D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment
account.
E. Under the partial equity method, the balance in the investment account is not decreased by amortization on
allocations made in the acquisition of the subsidiary.
8. Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2010, for $257,000.
Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2010
and $50,000 in 2011 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2010
and $47,000 in 2011 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance
on Jansen's books as of December 31, 2011, if the equity method has been applied?
A. $286,000.
B. $295,000.
C. $276,000.
D. $344,000.
E. $324,000.
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the fair value of the
subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of
$640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to
use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's
separate balance sheet and on Velway's consolidated balance sheet, respectively?
A. $400,000 and $900,000
B. $400,000 and $970,000
C. $470,000 and $900,000
D. $470,000 and $970,000
E. $470,000 and $1,040,000

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10. Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price in excess of the
subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair
value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of
$350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2011,
Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a
book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment
account as of December 31, 2011?
A. $387,000.
B. $497,000.
C. $508.000.
D. $537,000.
E. $570,000.
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate
incorporation. Cale used the equity method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity accounts:
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
11. The 2010 total amortization of allocations is calculated to be
A. $4,000.
B. $6,400.
C. $(2,400).
D. $(1,000).
E. $3,800.
12. In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary
earnings?
A. $77,000.
B. $79,000.
C. $125,000.
D. $127,000.
E. $81,800.
13. What is the balance in Cale's investment in subsidiary account at the end of 2010?
A. $1,099,000.
B. $1,020,000.
C. $1,096,200.
D. $1,098,000.
E. $1,144,400.
14. At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a
credit to Investment in Kaltop Co. for
A. $124,400.
B. $126,000.
C. $127,000.
D. $76,400.
E. $0.

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15. If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of
consolidated net income?
A. $569,000.
B. $570,000.
C. $571,000.
D. $566,400.
E. $444,000.
On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For 2010, Hurlem earned
net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included
in the acquisition was $6,000.
16. How much difference would there have been in Franel's income with regard to the effect of the investment,
between using the equity method or using the initial value method of internal recordkeeping?
A. $190,000.
B. $360,000.
C. $164,000.
D. $354,000.
E. $150,000.
17. How much difference would there have been in Franel's income with regard to the effect of the investment,
between using the equity method or using the partial equity method of internal recordkeeping?
A. $170,000.
B. $354,000.
C. $164,000.
D. $6,000.
E. $174,000.
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's
reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The
amortization of allocations related to the investment was $24,000. Cashen's net income, not including the
investment, was $3,180,000, and it paid dividends of $900,000.
18. On the consolidated financial statements for 2010, what amount should have been shown for Equity in
Subsidiary Earnings?
A. $432,000.
B. $-0-.
C. $408,000.
D. $120,000.
E. $288,000.
19. On the consolidated financial statements for 2010, what amount should have been shown for consolidated
dividends?
A. $900,000.
B. $1,020,000.
C. $876,000.
D. $996,000.
E. $948,000.

3-24

20. What is the amount of consolidated net income for the year 2010?
A. $3,180,000.
B. $3,612,000.
C. $3,300,000.
D. $3,588,000.
E. $3,420,000.
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000.
Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an
unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in
each of these two years. Selected account balances as of December 31, 2011, for the two companies follow.
21. If the partial equity method had been applied, what was 2011 consolidated net income?
A. $840,000.
B. $768,400.
C. $822,000.
D. $240,000.
E. $600,000.
22. If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within
the records of Jans at the end of 2011?
A. $612,100.
B. $744,000.
C. $774,150.
D. $372,000.
E. $844,150.
23. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had inventory with a book
value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2010. Also,
on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000.
Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year
remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in
the consolidated financial statements for the year ended December 31, 2010 related to the acquisition
allocations of Green?
A. $43,000.
B. $33,000.
C. $ 5,000.
D. $15,000.
E. 0.
24. All of the following are acceptable methods to account for a majority-owned investment in subsidiary
except
A. The equity method.
B. The initial value method.
C. The partial equity method.
D. The fair-value method.
E. Book value method.

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25. Under the equity method of accounting for an investment,

A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. Goodwill is amortized over 20 years.
D. Income reported by the subsidiary increases the investment account.
E. Dividends received increase the investment account.
26. Under the partial equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. The allocations for excess fair value allocations over book value of net assets at date of acquisition are
applied over their useful lives to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment
account.
27. Under the initial value method, when accounting for an investment in a subsidiary,
A. Dividends received by the subsidiary decrease the investment account.
B. The investment account is adjusted to fair value at year-end.
C. Income reported by the subsidiary increases the investment account.
D. The investment account remains at initial value.
E. Dividends received are ignored.
28. According to GAAP regarding amortization of goodwill and other intangible assets, which of the following
statements is true?
A. Goodwill recognized in consolidation must be amortized over 20 years.
B. Goodwill recognized in consolidation must be expensed in the period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E. Goodwill recognized in consolidation must be amortized over 40 years.
29. When a company applies the initial method in accounting for its investment in a subsidiary and the
subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation
worksheet?
A. A above
B. B above
C. C above
D. D above
E. E above
30. When a company applies the initial value method in accounting for its investment in a subsidiary and the
subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?
A. A above
B. B above
C. C above
D. D above
E. E above

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31. When a company applies the partial equity method in accounting for its investment in a subsidiary and the
subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made
in a year subsequent to the initial acquisition of the subsidiary?
A. A above
B. B above
C. C above
D. D above
E. E above
32. When a company applies the partial equity method in accounting for its investment in a subsidiary and
initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet
entry would be made?

A. A above
B. B above
C. C above
D. D above
E. E above

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33. When consolidating a subsidiary under the equity method, which of the following statements is true?
A. Goodwill is never recognized.
B. Goodwill required is amortized over 20 years.
C. Goodwill may be recorded on the parent company's books.
D. The value of any goodwill should be tested annually for impairment in value.
E. Goodwill should be expensed in the year of acquisition.
34. When consolidating a subsidiary under the equity method, which of the following statements is true with
regard to the subsidiary subsequent to the year of acquisition?
A. All net assets are revalued to fair value and must be amortized over their useful lives.
B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized
over their useful lives.
C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their
useful lives.
D. Only depreciable net assets that have excess fair value over book value must be amortized over their useful
lives.
E. Only assets that have excess fair value over book value must be amortized over their useful lives.
35. Which of the following statements is false regarding push-down accounting?
A. Push-down accounting simplifies the consolidation process.
B. Fewer worksheet entries are necessary when push-down accounting is applied.
C. Push-down accounting provides better information for internal evaluation.
D. Push-down accounting must be applied for all business combinations under a pooling of interests.
E. Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and
liabilities.
36. Which of the following is false regarding contingent consideration in business combinations?
A. Contingent consideration payable in cash is reported under liabilities.
B. Contingent consideration payable in stock shares is reported under stockholders' equity.
C. Contingent consideration is recorded because of its substantial probability of eventual payment.
D. The contingent consideration fair value is recognized as part of the acquisition regardless of whether
eventual payment is based on future performance of the target firm or future stock price of the acquirer.
E. Contingent consideration is reflected in the acquirer's balance sheet at the present value of the potential
expected future payment.
37. Factors that should be considered in determining the useful life of an intangible asset include
A. Legal, regulatory, or contractual provisions.
B. The residual value of the asset.
C. The entity's expected use of the intangible asset.
D. The effects of obsolescence, competition, and technological change.
E. All of the above choices are used in determining the useful life of an intangible asset.

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38. Consolidated net income using the equity method for an acquisition combination is computed as follows:
A. Parent company's income from its own operations plus the equity from subsidiary's income recorded by the
parent.
B. Parent's reported net income.
C. Combined revenues less combined expenses less equity in subsidiary's income less amortization of fair-value
allocations in excess of book value.
D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by
parent.
E. All of the above.
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of
that date Hurley has the following trial balance;
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an
indefinite life. FIFO inventory valuation method is used.
39. Compute the consideration transferred in excess of book value acquired at January 1, 2010.
A. $150.
B. $700.
C. $2,200.
D. $550.
E. $2,900.
40. Compute goodwill, if any, at January 1, 2010.
A. $150.
B. $250.
C. $700.
D. $1,200.
E. $550.
41. Compute the amount of Hurley's inventory that would be reported in a January 1, 2010, consolidated
balance sheet.
A. $800.
B. $100.
C. $900.
D. $150.
E. $0.
42. Compute the amount of Hurley's buildings that would be reported in a December 31, 2010, consolidated
balance sheet.
A. $1,560.
B. $1,260.
C. $1,440.
D. $1,160.
E. $1,140.

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43. Compute the amount of Hurley's equipment that would be reported in a December 31, 2010, consolidated
balance sheet.
A. $1,000.
B. $1,250.
C. $875.
D. $1,125.
E. $750.
44. Compute the amount of total expenses reported in an income statement for the year ended December 31,
2010, in order to recognize acquisition-date allocations of fair value and book value differences.
A. $140.
B. $190.
C. $260.
D. $285.
E. $310.
45. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2010,
consolidated balance sheet.
A. $1,800.
B. $1,700.
C. $1,725.
D. $1,675.
E. $3,500.
46. Compute the amount of Hurley's buildings that would be reported in a December 31, 2011, consolidated
balance sheet.
A. $1,620.
B. $1,380.
C. $1,320.
D. $1,080.
E. $1,500.
47. Compute the amount of Hurley's equipment that would be reported in a December 31, 2011, consolidated
balance sheet.
A. $0.
B. $1,000.
C. $1,250.
D. $1,125.
E. $1,200.
48. Compute the amount of Hurley's land that would be reported in a December 31, 2011, consolidated balance
sheet.
A. $900.
B. $1,300.
C. $400.
D. $1,450.
E. $2,200.
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49. Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2011,
consolidated balance sheet.
A. $1,700.
B. $1,800.
C. $1,650.
D. $1,750.
E. $3,500.

Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration
over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid
dividends of $100.
50. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of
Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.
51. Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result
of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.
52. Assume the initial value method is applied. How much will Kaye's income increase or decrease as a result
of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $100 increase.
E. $210 increase.
53. Assume the partial equity method is used. In the years following acquisition, what additional worksheet
entry must be made for consolidation purposes that is not required for the equity method?
A. Entry A.
B. Entry B.
C. Entry C.
D. Entry D.
E. Entry E.

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54. Assume the initial value method is used. In the year subsequent to acquisition, what additional worksheet
entry must be made for consolidation purposes that is not required for the equity method?
A. Entry A.
B. Entry B.
C. Entry C.
D. Entry D.
E. Entry E.
55. Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on
January 1, 2011:
(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.
On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be
A. $18,000.
B. $16,500.
C. $20,000.
D. $18,500.
E. $19,500.
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several
of Green's accounts have been omitted.
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock
with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings
were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and
the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining
life. There was no goodwill associated with this investment.
56. Compute the book value of Vega at January 1, 2009.
A. $997,500.
B. $857,500.
C. $1,200,000.
D. $1,600,000.
E. $827,500.
57. Compute the December 31, 2013, consolidated revenues.
A. $1,400,000.
B. $800,000.
C. $500,000.
D. $1,590,375.
E. $1,390,375.
58. Compute the December 31, 2013, consolidated total expenses.
A. $620,000.
B. $280,000.
C. $900,000.
D. $909,625.
E. $299,625.

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59. Compute the December 31, 2013, consolidated buildings.

A. $1,037,500.
B. $1,007,500.
C. $1,000,000.
D. $1,022,500.
E. $1,012,500.
60. Compute the December 31, 2013, consolidated equipment.
A. $800,000.
B. $808,000.
C. $840,000.
D. $760,000.
E. $848,000.
61. Compute the December 31, 2013, consolidated land.
A. $220,000.
B. $180,000.
C. $670,000.
D. $630,000.
E. $450,000.ds.
62. Compute the December 31, 2013, consolidated trademark.
A. $50,000.
B. $46,875.
C. $0.
D. $34,375.
E. $37,500.
63. Compute the December 31, 2013, consolidated common stock.
A. $450,000.
B. $530,000.
C. $555,000.
D. $635,000.
E. $525,000.
64. Compute the December 31, 2013, consolidated additional paid-in capital.
A. $210,000.
B. $75,000.
C. $1,102,500.
D. $942,500.
E. $525,000.
65. Compute the December 31, 2013 consolidated retained earnings.
A. $1,645,375.
B. $1,350,000.
C. $1,565,375.
D. $1,840,375.
E. $1,265,375.

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66. Compute the equity in Vega's income to be included in Green's consolidated income statement for 2013.
A. $500,000.
B. $300,000.
C. $190,375.
D. $200,000.
E. $290,375.
67. One company acquires another company in a combination accounted for as an acquisition. The acquiring
company decides to apply the initial value method in accounting for the combination. What is one reason the
acquiring company might have made this decision?
A. It is the only method allowed by the SEC.
B. It is relatively easy to apply.
C. It is the only internal reporting method allowed by generally accepted accounting principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E. When the initial method is used, no worksheet entries are required in the consolidation process.
68. One company acquires another company in a combination accounted for as an acquisition. The acquiring
company decides to apply the equity method in accounting for the combination. What is one reason the
acquiring company might have made this decision?
A. It is the only method allowed by the SEC.
B. It is relatively easy to apply.
C. It is the only internal reporting method allowed by generally accepted accounting principles.
D. Operating results on the parent's financial records reflect consolidated totals.
E. When the equity method is used, no worksheet entries are required in the consolidation process.
69. When is a goodwill impairment loss recognized?
A. Annually on a systematic and rational basis.
B. Never.
C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective
carrying values.
D. If the fair value of a reporting unit falls below its original acquisition price.
E. Whenever the fair value of the entity declines significantly.
70. Which of the following will result in the recognition of an impairment loss on goodwill?
A. Goodwill amortization is to be recognized annually on a systematic and rational basis.
B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying
values.
C. The fair value of the entity declines significantly.
D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition.
E. The entity is investigated by the SEC and its reputation has been severely damaged.
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an amount in excess of
Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of
$120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of
$1,200,000 (10-year remaining life). On December 31, 2011, Goehler has equipment with a book value of
$975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair
value of $125,000.
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71. If Goehler applies the equity method in accounting for Kenneth, what is the consolidated balance for the
Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
72. If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for
the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
73. If Goehler applies the initial value method in accounting for Kenneth, what is the consolidated balance for
the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
74. How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal,
regulatory, contractual, competitive, economic, or other factors that limit its life?
A. Equally over 20 years.
B. Equally over 40 years.
C. Equally over 20 years with an annual impairment review.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
E. No amortization over an indefinite period time.
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A
contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of
$27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at
least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of
$16,500 at 5%, using a probability weighted approach, is $3,142.
75. What will Harrison record as its Investment in Rhine on January 1, 2010?
A. $400,000.
B. $403,142.
C. $406,000.
D. $409,142.
E. $416,500.
76. Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will Harrison record the
$16,500 payment of cash on April 15, 2011 in satisfaction of its contingent obligation?
A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.
B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance
obligation $13,358, and Credit Cash $16,500.
C. Debit Investment in Subsidiary and Credit Cash, $16,500.
D. Debit Goodwill and Credit Cash, $16,500.
E. No entry.
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77. When recording consideration transferred for the acquisition of Rhine on January 1, 2010, Harrison will
record a contingent performance obligation in the amount of:
A. $628.40.
B. $2,671.60.
C. $3,142.
D. $13,358.
E. $16,500.
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A
contingent payment of $12,000 will be paid on April 1, 2011 if Gataux generates cash flows from operations of
$26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at
least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of
$12,000 at 4%, using a probability weighted approach, is $3,461.
78. What will Beatty record as its Investment in Gataux on January 1, 2010?
B. $503,461.
79. Assuming Gataux generates cash flow from operations of $27,200 in 2010, how will Beatty record the
$12,000 payment of cash on April 1, 2011 in satisfaction of its contingent obligation? B. Debit Contingent
performance obligation $3,461, debit Loss from revaluation of contingent performance obligation $8,539, and
Credit Cash $12,000.
80. When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will
record a contingent performance obligation in the amount of:
A. $692.20.
B. $3,040.
C. $3,461.
D. $12,000.
E. $15,200.
Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value
of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of
$1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
81. If push-down accounting is used, what amounts in the Building account appear in Duchess' separate balance
sheet and in the consolidated balance sheet immediately after acquisition?
B. $500,000 and $1,700,000.
82. If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate
balance sheet and on the consolidated balance sheet immediately after acquisition?
C. $400,000 and $1,700,000.
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen
owns only three assets and has no liabilities:
83. If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building
in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?
B. $285,000.
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84. If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building
in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?
B. $285,000.
85. If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's
Equipment in a consolidation at December 31, 2012, assuming the book value of the equipment at that date is
still $80,000?
D. $76,500.
E. $80,000.
86. If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization,
should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?
E. $(3,500).
87. If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented
in a January 2, 2010 consolidation?
A. $200,000.
B. $225,000.
C. $273,000.
D. $279,000.
E. $300,000.
88. If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented
in a December 31, 2010 consolidated balance sheet?
A. $40,000.
B. $50,000.
C. $0.
D. $10,000.
E. $90,000.
89. If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in
dividends during 2010, what amount would be reflected in consolidated net income for 2010 as a result of the
acquisition?
A. $20,000 under the initital value method.
B. $30,000 under the partial equity method.
C. $50,000 under the partial equity method.
D. $44,500 under the equity method.
E. $34,500 regardless of the internal accounting method used.

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