1, 4, 8, 11, & 38

1. Bailey, Inc., buys 60 percent of the outstanding stock of Luebs, Inc., in an acquisition that resulted
in the recognition of goodwill. Luebs owns a piece of land that cost $200,000 but was worth
$500,000 at the acquisition date. What value should be attributed to this land in a consolidated
balance sheet at the date of takeover?
 a. $120,000.
 b. $300,000.
 c. $380,000.
 d. $500,000.

4. On January 1, 2009, Turner, Inc., reports net assets of $480,000 although a building (with a 10-
year life) having a book value of $260,000 is now worth $300,000. Plaster Corporation pays
$540,000 on that date for a 90 percent ownership in Turner. On December 31, 2011, Turner reports a
Building account of $182,000 and Plaster reports a Building account of $510,000. What is the
consolidated balance of the Building account?
 a. $720,000.
 b. $724,000.
 c. $780,000.
 d. $810,000.

Payment for 90% ownership $510,000

Building worth (fair value) 300,000
Amortization of 3 years (300,000/10) - 90,000
Consolidated Buildings $720,000

8. James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31,
consolidated income statement, how should James account for Mark-Right's revenues and expenses
that occurred before April 1.
 a. Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition
portion as noncontrolling interest in net income.
 b. Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition
expenses from their respective consolidated totals.
 c. Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition
expenses from consolidated expenses.
 d. Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition
period from consolidated net income.
11. On April 1, Pujols, Inc., exchanges $430,000 fair-value consideration for 70 percent of the
outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares
continued to trade at a collective fair value of $165,000. Ramirez' identifiable assets and liabilities
each had book values that equaled their fair values on April 1 for a net total of $500,000. During the
remainder of the year, Ramirez generates revenues of $600,000 and expenses of $360,000 and paid
no dividends. On a December 31 consolidated balance sheet, what amount should be reported as
noncontrolling interest?

 a. $219,000.
 b. $237,000.
 c. $234,000.
 d. $250,500.

Fair Value of 30% non-controlling interest on April 1 165,000

Revenue – Expenses
600,000 – 360,000 x .30 =
72,000
Non-controlling December 31 237,000

38. Bon Air, Inc., acquired 70 percent (2,800 shares) of the outstanding voting stock of Creedmoor
Corporation on January 1, 2006, for $250,000 cash. Creedmoor's net assets on that date totaled
$230,000, but this balance included three accounts having fair values that differed from their book
values:

As of December 31, 2009, the two companies report the following balances:
 Prepare a worksheet to consolidate these two companies as of December 31, 2009. Because Bon
Air acquired Creedmoor before the effective date of SFAS 141R, the purchase method is
appropriate.
1) Land (BV) 30,000 (FV) 40,000
2) Equipment (14 year life) – (BV) 50,000 (FV) 118,000
3) Liabilities (10 year life) – (BV) -70,000 (FV) -50,000
As of December 31, the two companies reported the following balance:
Prepare a worksheet to consolidate these two companies as of December 31, 2009. Because Bon
Air acquired Creedmoor before the effective date of SFAS 141R, the purchase method is
appropriate.

Purchase Price Allocation and Excess Amortizations

Purchase price $250,000

Book value acquired
($230,000 × 70%) 161,000
Price in excess of book value $89,000 Annual Excess
Allocation based on fair value Life Amortizations
Land ($10,000 × 70%) $7,000
Equipment ($68,000 × 70%) 47,600 14 yrs. $3,400
Liabilities ($20,000 × 70%) 14,000 10 yrs. 1,400
68,600
 Goodwill $20,400 indefinite -0-
Total $4,800

The parent uses the equity method: Investment income of $44,200 = $49,000 (70% × $70,000)
less $4,800 amortization expense.

Bon Air Creedmoor Adjustments & Eliminations NCI Consolidated

Revenues (694,800) (250,000) (944,800)
Operating expenses 630,000 180,000 (E) 4,800 814,800
Investment income (44,200) -0- (I) 44,200 -0-
Noncontrolling int(E)erest in Creedmoor income (21,000) 21,000
Net income (109,000) (70,000) (109,000)

Retained earnings, 1/1/09 (760,000) (260,000) (S)260,000 (760,000)

Net income (109,000) (70,000) (109,000)
Dividends paid 68,000 10,000 (D) 7,000 3,000 68,000
Retained earnings, 12/31/09 (801,000) (320,000) (801,000)

Current assets 72,000 120,000 192,000

Investment in Creedmoor 321,800 -0- (D) 7,000 (S)210,000
(I) 44,200 -0-
(A)74,600
Land 241,000 50,000 (A) 7,000 298,000
Buildings (net) 289,000 200,000 489,000
Equipment (net) 165,200 40,000 (A)37,400 3,400 239,200
Goodwill -0- -0- (A)20,400 20,400
Total assets 1,089,000 410,000 1,238,600

Liabilities (180,000) (50,000) (A) 9,800 (E) 1,400

(221,600)
Common stock (50,000) (40,000) (S) 40,000 (50,000)
Additional paid-in capital (58,000) -0- (58,000)
Noncontrolling interest 1/1/09 (S)90,000 (90,000)
Noncontrolling interest 12/31/09 108,000 (108,000)
Retained earnings, 12/31/09 (801,000) (320,000) (801,000)
Total liabilities and equities (1,089,000) (410,000) 430,600 430,600
(1,238,600)