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Parent and sub financial statement transactions; adjustment

1. Consolidated financial statements are appropriate even without a majority ownership if which of the following exists:

a. the subsidiary has the right to appoint members of the parent company's board of directors.
b the parent company has an ability to assume the role of general partner in a limited partnership with the approval of the subsidiary's board of directors.
c the subsidiary owns a large minority voting interest in the parent company.
d the parent company has the right to appoint a majority of the members of the subsidiary's board of directors through a large minority voting interest.

2. Pagach Company purchased 100% of the voting common stock of Rage Company for $1,800,000. The following book and fair values are available:

Book Value Fair Value
Current assets $150,000 $300,000
Land and building 280,000 280,000
Machinery 400,000 700,000
Bonds payable (300,000) (250,000)
Goodwill 150,000 ?

The bonds payable will appear on the consolidated balance sheet
a. at $300,000 (with no premium or discount shown).
b. at $300,000 less a discount of $50,000.
c. at $0; assets are recorded net of liabilities.
d. at an amount less than $250,000 since it is a bargain purchase

3. In performing impairment test for goodwill, the company had the following 20X6 and 20X7 information available.

20X6 20X7
Fair value of the reporting unit $350,000 $400,000
Net book value (including $50,000 goodwill) $360,000 $380,000

Assume that the carry value of the identifiable assets are a reasonable approximation of their fair values. Based upon this information what are the 20X6 and 20X7 adjustment to goodwill, if any?

20X6 20X7
a. no adjustment $20,000 decrease
b. $10,000 increase $20,000 decrease
c. $10,000 decrease $20,000 decrease
d. $10,000 decrease no adjustment

Solution Preview

Your tutorial gives you a sentence or two explaining why each choice was made. I answered according to IFRS.

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1. Consolidated financial statements are appropriate even without a majority ownership if which of the following exists:

a. the subsidiary has the right to appoint members of the parent company's board of directors.
b the parent company has an ability to assume the role of general partner in a limited partnership with the approval of the subsidiary's board of directors.
c the subsidiary owns a large minority voting interest in the parent company.
d the parent company has the right to appoint a majority of the members of the subsidiary's board of directors through a large minority voting interest.

You can consolidate with "control." A general partner or a parent that can appoint a majority of the board both have the element of control needed to consolidate. However, in ...

Solution Summary

A sentence or two explains the rule and choice made. A schedule illustrates the goodwill impairment amounts.

$2.19