Mergers and Acquisitions Paper 6


On January 1, year 1, Palm, Inc. purchased 80% of the stock of Stone Corp. for $4,000,000 cash. Prior to the acquisition, Stone had 100,000 shares of stock outstanding. On the date of acquisition, Stone’s stock had a fair value of $52 per share. During the year Stone reported $280,000 in net income and paid dividends of $50,000. What is the balance in the noncontrolling interest account on Palm’s balance sheet on December 31, year 1?


When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of


A subsidiary was acquired for cash in a business combination on January 1, year 1. The consideration given exceeded the fair value of identifiable net assets. The acquired company owned equipment with a market value in excess of the carrying amount as of the date of combination. A consolidated balance sheet prepared on December 31, year 1, would


Pride, Inc. owns 80% of Simba, Inc.’s outstanding common stock. Simba, in turn, owns 10% of Pride’s outstanding common stock. What percentage of the common stock cash dividends declared by the individual companies should be reported as dividends declared in the consolidated financial statements?
Dividends declared by Pride
Dividends declared by Simba


It is generally presumed that an entity is a variable interest entity subject to consolidation if its equity is


Morton Inc., Gilman Co., and Willis Corporation established a special-purpose entity (SPE) (variable interest entity) to perform leasing activities for the three corporations. If at the time of formation the SPE is determined to be a variable interest entity subject to consolidation, which of the corporations should consolidate the SPE?


The determination of whether an interest holder must consolidate a variable interest entity is made


Matt Co. included a foreign subsidiary in its year 5 consolidated financial statements. The subsidiary was acquired in year 1 and was excluded from previous consolidations. The change was caused by the elimination of foreign exchange controls. Including the subsidiary in the year 5 consolidated financial statements results in an accounting change that should be reported


Clark Co. had the following transactions with affiliated parties during year 1:
• Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert significant influence.
• Purchases of raw materials totaling $240,000 from Kent Corp., a wholly owned subsidiary. Kent’s gross profit on the sale was $48,000. Clark had $60,000 of this inventory remaining on December 31, year 1.
Before eliminating entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31, year 1 consolidated balance sheet for current assets?


During year 1, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31, year 1, one-half of these goods were included in Seed’s ending inventory. Reported year 1 selling expenses were $1,100,000 and $400,000 for Pard and Seed, respectively. Pard’s selling expenses included $50,000 in freight-out costs for goods sold to Seed. What amount of selling expenses should be reported in Pard’s year 1 consolidated income statement?


Total Questions:
Correct Answers:
Wrong Answers: