Question : 31. Purchaser Corporation acquires 30% of the outstanding voting common shares : 1230383

31. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Between the time of the acquisition and the end of Purchaser Corporation’s next accounting period, Investee Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock,

Investee Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.

Assume now that Purchaser Corporation sells one-fourth of its investment in Investee Corporation for $165,000. The entry is as follows:  
A. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    165,000
   Investment in Stock of Investee Corporation. . . . . . . . . . . . . . . . . . . . . 158,250
   Gain on Sale of Investment in Stock of Investee Corporation. . . . . . . . . . 6,750
B. Investment in Stock of Investee Corporation. . . . . . . . . . . . . . . 158,250
Gain on Sale of Investment in Stock of Investee Corporation. . . . 6,750
   Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .  . .165,000
C. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    165,000
   Investment in Stock of Investee Corporation. . . . . . . . . . . . . . . . . . . . . 158,250
   Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6,750
D. Investment in Stock of Investee Corporation. . . . . . . . . . . . . . . 158,250
Equity in Earnings of Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . .  6,750
  Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165,000
E. Investment in Stock of Investee Corporation. . . . . . . . . . . . . . . 158,250
Gain on Sale of Investment in Stock of Investee Corporation. . . . 6,750
   Equity in Earnings of Affiliate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $657,000

32. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Between the time of the acquisition and the end of Purchaser Corporation’s next accounting period, Investee Corporation reports earnings of $80,000; and pays a dividend of $30,000 to holders of its common stock,

Investee Corporation reports earnings of $100,000 and pays dividends of $40,000 during the subsequent accounting period.

During the next accounting period, Purchaser Corporation sells one-fourth of its investment in Investee Corporation for $165,000.

After the sale, the balance in the Investment in Stock of Investee Corporation account is:  
A. $462,750
B. $465,750
C. $474,750
D. $481,750
E. $486,750

33. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.
When Purchaser Corporation acquired 30% of Investee Corporation’s common shares for $600,000, Investee Corporation’s total shareholders’ equity was $1.5 million. Purchaser Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)]. Purchaser Corporation may pay this premium because 
A. the fair values of S’s net assets differ from their carrying values, only
B. of unrecorded assets (for example, trade secrets), only.
C. the fair values of S’s net assets differ from their carrying values and/or unrecorded assets (for example, trade secrets).
D. the liquidation values of S’s net assets differ from their carrying values, only.
E. of unrecorded liabilities (for example, contingent liabilities), only.

34. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

When Purchaser Corporation acquired 30% of Investee Corporation’s common shares for $600,000, Investee Corporation’s total shareholders’ equity was $1.5 million. Purchaser Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)].   What is/are the accounting procedure(s) for this premium? 
A. The investor’s accounting for the excess purchase price embedded in the Investment in Stock of Investee Corporation account is similar to the treatment of an excess purchase price in a business combination.
B. The investor identifies any recorded assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities.
C. The investor attributes the excess purchase price to the assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities, based on the investor’s proportionate ownership interest .
D. The investor attributes the excess purchase price to the assets and liabilities with fair values that differ from their carrying values, as well as any unrecorded assets and liabilities, based on the investor’s proportionate ownership interest and any remaining excess purchase price to goodwill..
E. all of the above

35. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.
When Purchaser Corporation acquired 30% of Investee Corporation’s common shares for $600,000, Investee Corporation’s total shareholders’ equity was $1.5 million. Purchaser Corporation’s cost exceeds the carrying value of the net assets acquired by $150,000 [ $600,000 – (0.30 x $1,500,000)].  

Purchaser Corporation attributes the $150,000 excess purchase price as follows: $100,000 to remeasure buildings and equipment to fair value and $50,000 to goodwill.  Which of the following is/are true? 
A. Purchaser Corporation does not reclassify this excess out of its Investment in Stock of Investee Corporation account to Buildings and Equipment and to Goodwill.
B. Purchaser Corporation must amortize (or depreciate) any amount attributed to assets with limited lives.
C. Purchaser Corporation must depreciate the $100,000 attributed to buildings and equipment over their remaining useful lives.
D. U.S. GAAP and IFRS do not permit the investor to amortize the excess purchase price attributed to goodwill and other assets with indefinite lives. Instead, the investor must test the investment account annually for possible impairment.
E. all of the above

36. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Investee Corporation’s other comprehensive income during the first period is as follows:

Unrealized Holding Gains from Marketable Securities. . .$ 3,000
Unrealized Losses from Cash Flow Hedges . . . . . . . . . .   (2,000)
Other Comprehensive Income. . . . . . . . . . . . . . . . . . . .    $ 1,000

Purchaser Corporation would make the following entry to recognize its share of the items of other comprehensive income of Investee Corporation: 
A. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Realized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Realized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
B. Investment in Stock of Investee Corporation . . . . . . . . . . 300
Realized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Realized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
C. Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Unrealized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Unrealized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
D. Investment in Stock of Investee Corporation . . . . . . . . . . 300
Unrealized Holding Losses from Cash Flow Hedges
(Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . 600
      Unrealized Holding Gains from Marketable Securities
     (Other Comprehensive Income) . . . . . . . . . . . . . . . . . . . . . . .900
E. none of the above

37. Purchaser Corporation acquires 30% of the outstanding voting common shares of the Investee Corporation for $600,000. Purchaser Corporation acquires the investment in Investee Corporation by buying previously issued shares of Investee Corporation from other investors.

Which of the following is/are true?  
A. On the balance sheet, an investment accounted for with the equity method appears among noncurrent assets.
B. On the balance sheet, the amount shown generally equals the acquisition cost of the shares, plus Purchaser Corporation’s share of Investee Corporation’s undistributed earnings (or losses) since the date Purchaser Corporation acquired the shares, plus or minus amortization of any excess cost at the date of acquisition attributable to assets with limited lives.
C. On the income statement, Purchaser Corporation  reports each period its share of Investee Corporation’s income (or loss) as revenue (or expense), as well as any amortization of excess cost.
D. Purchaser Corporation  also recognizes its share of the investee’s other comprehensive income.
E. all of the above

38. Which of the following is/are true? 
A. When one firm, P, owns more than 50% of the voting stock of another company, S, P can control the activities of S in terms of broad policy making.
B. When one firm, P, owns more than 50% of the voting stock of another company, S, P can control the activities of S in terms of day-to-day operations.
C. When one firm, P, owns more than 50% of the voting stock of another company, S, common usage refers to the majority investor as the parent and to the majority-owned company as the subsidiary.
D. U.S. GAAP and IFRS require the parent to combine the financial statements of majority-owned companies with those of the parent in consolidated financial statements.
E. all of the above

39. Business firms have several reasons for preferring to operate as a group of legally separate corporations, rather than as a single entity. From the standpoint of the parent company, the more important reasons for maintaining legally separate subsidiary companies include which of the following? 
A. To reduce the parent’s legal or operational risk.
B. To reduce the costs of dealing with jurisdiction-specific differences in corporate laws and tax rules.
C. To expand or diversify.
D. To reduce the costs of divesting assets.
E. all of the above

40. Business firms have several reasons for preferring to operate as a group of legally separate corporations, rather than as a single entity. From the standpoint of the parent company, the more important reasons for maintaining legally separate subsidiary companies include which of the following? 
A. To reduce the parent’s legal or operational risk.
B. To reduce the costs of dealing with jurisdiction-specific differences in corporate laws and tax rules.
C. To expand or diversify.
D. To reduce the costs of divesting assets.
E. all of the above