Helo
Chapter 5
Questions
1. Distinguish among the following concepts: a) Difference between cost and book value. b) Excess of cost over fair value. c) Excess of fair value over cost. d) Deferred excess of fair value over cost.
2. In what account is “the difference between cost and book value” recorded on the books of the investor? In what account is the “excess of cost over fair value” recorded?
3. How do you determine the amount of “the difference between cost and book value” to be allocated to a specific asset of a less than wholly owned subsidiary?
4. The parent company’s share of the fair value of the net assets of a subsidiary may exceed acquisition cost. How must this excess be treated in the preparation of consolidated financial statements?
5. Why are marketable securities excluded from the noncurrent assets to which any excess of fair value over cost is to be allocated?
6. P Company acquired a 100% interest in S Company. On the date of acquisition the fair value of the assets and liabilities of S Company was equal to their book value except for land that had a fair value of $1,500,000 and a book value of $300,000. At what amount should the land of S Company be included in the consolidated balance sheet? At what amount should the land of S Company be included in the consolidated balance sheet if P Company acquired an 80% interest in S Company rather than a 100% interest?
7. Corporation A purchased the net assets of Corporation B for $80,000. On the date of A’s purchase, Corporation B had no long-term investments in marketable securities and $10,000 (book and fair value) of liabilities. The fair values of Corporation B’s assets, when acquired, were
Current assets $ 40,000 Noncurrent assets 60,000 Total $ 100,000
How should the $10,000 difference between the fair value of the net assets acquired ($90,000) and the cost
Questions
1. Distinguish among the following concepts: a) Difference between cost and book value. b) Excess of cost over fair value. c) Excess of fair value over cost. d) Deferred excess of fair value over cost.
2. In what account is “the difference between cost and book value” recorded on the books of the investor? In what account is the “excess of cost over fair value” recorded?
3. How do you determine the amount of “the difference between cost and book value” to be allocated to a specific asset of a less than wholly owned subsidiary?
4. The parent company’s share of the fair value of the net assets of a subsidiary may exceed acquisition cost. How must this excess be treated in the preparation of consolidated financial statements?
5. Why are marketable securities excluded from the noncurrent assets to which any excess of fair value over cost is to be allocated?
6. P Company acquired a 100% interest in S Company. On the date of acquisition the fair value of the assets and liabilities of S Company was equal to their book value except for land that had a fair value of $1,500,000 and a book value of $300,000. At what amount should the land of S Company be included in the consolidated balance sheet? At what amount should the land of S Company be included in the consolidated balance sheet if P Company acquired an 80% interest in S Company rather than a 100% interest?
7. Corporation A purchased the net assets of Corporation B for $80,000. On the date of A’s purchase, Corporation B had no long-term investments in marketable securities and $10,000 (book and fair value) of liabilities. The fair values of Corporation B’s assets, when acquired, were
Current assets $ 40,000 Noncurrent assets 60,000 Total $ 100,000
How should the $10,000 difference between the fair value of the net assets acquired ($90,000) and the cost