Question: Variable interest entities (VIEs) are discussed in

> Prepare in general journal form the workpaper entries to eliminate Prancer Company’s investment in Saltez Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:

> Patel Company issued 100,000 shares of $1 par value common stock (market value of $6/share) for the net assets of Seely Company on January 1, 2014, in a statutory merger. Seely Company had the following assets, liabilities, and owners’

> The following balance sheets were reported on January 1, 2014, for Peach Company and Stream Company: Required: Appraisals reveal that the inventory has a fair value of $120,000, and the equipment has a current value of $410,000. The book value and fair

> On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impairment using the

> Company S has no long-term marketable securities. Assume the following scenarios: Case A Assume that P Company paid $130,000 cash for 100% of the net assets of S Company. Case B Assume that P Company paid $110,000 cash for 100% of the net assets of S C

> Effective December 31, 2013, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stoc

> Price Company issued 8,000 shares of its $20 par value common stock for the net assets of Sims Company in a business combination under which Sims Company will be merged into Price Company. On the date of the combination, Price Company common stock had a

> Assume the same information as in Exercise 2-5 except that instead of paying a cash earnout, Pritano Company agreed to issue 10,000 additional shares of its $10 par value common stock to the stockholders of Succo if the average postcombination earnings o

> Pritano Company acquired all the net assets of Succo Company on December 31, 2013, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed: As part of the negotiations, Pritano agreed to pay the stockholders

> On January 1, 2012, Parker Company purchased 95% of the outstanding common stock of Sid Company for $160,000. At that time, Sid’s stockholders’ equity consisted of common stock, $120,000; other contributed capital, $10

> P Company acquired the assets and assumed the liabilities of S Company on January 1, 2013, for $510,000 when S Company’s balance sheet was as follows: Fair values of S Company’s assets and liabilities were equal to t

> Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2015. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 t

> The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its uni

> Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company’s balance sheet was as follows: Required: A. Prepare the journal entries on the

> On January 1, 2013, Point Corporation acquired an 80% interest in Sharp Company for $2,000,000. At that time Sharp Company had capital stock of $1,500,000 and retained earnings of $700,000. The book values of Sharp Company’s assets and liabilities were e

> Padilla Company purchased 80% of the common stock of Sanoma Company in the open market on January 1, 2013, paying $31,000 more than the book value of the interest acquired. The difference between book value and the value implied by the purchase price is

> On January 1, 2014, Packard Company purchased an 80% interest in Sage Company for $600,000. On this date Sage Company had common stock of $150,000 and retained earnings of $400,000. Sage Company’s equipment on the date of Packard Company’s purchase had a

> Park Company acquires an 85%interest in Sunland Company on January 2, 2015. The resulting difference between book value and the value implied by the purchase price in the amount of $120,000 is entirely attributable to equipment with an original life of 1

> On January 1, 2014, P Company purchased an 80% interest in S Company for $600,000, at which time S Company had retained earnings of $300,000 and capital stock of $350,000. Any difference between book value and the value implied by the purchase price was

> On January 1, 2015, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500. An examination of Salem Company’s balance sheet reve

> Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2011, for $450,000. At that time, Score Company had stockholders’ equity consisting of common stock, $200,000; other contributed capital, $160,00

> Pace Company purchased 20,000 of the 25,000 shares of Saddler Corporation for $525,000. On January 3, 2014, the acquisition date, Saddler Corporation’s capital stock and retained earnings account balances were $500,000 and $100,000, res

> On January 1, 2015, Payne Corporation purchased a 75% interest in Salmon Company for $585,000. A summary of Salmon Company’s balance sheet on that date revealed the following: The equipment had an original life of 15 years and has a r

> On January 1, 2013, Porsche Company acquired 100% of Saab Company’s stock for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impai

> A 90% interest in Saxton Corporation was purchased by Palm Incorporated on January 2, 2014. The capital stock balance of Saxton Corporation was $3,000,000 on this date, and the balance in retained earnings was $1,000,000. The cost of the investment to Pa

> LoJack is a leading global provider of technology products and services for the tracking and recovery of valuable mobile assets and people at risk of wandering. According to a recent Federal Bureau of Investigation Uniform Crime Report for 2009, a motor

> On February 23, 2005, eBay acquired Viva Group, Inc., which does business under the name Rent.com, for a cash purchase price of approximately $435.365 million including net cash and investments of approximately $18 million. Rent.com is an Internet listin

> During 2005, eBay acquired 100% of four different companies as follows (assume all companies have a December 31 year-end). Net income amounts are stated in thousands of dollars; assume that the net income is earned uniformly throughout the year 2005.

> On October 14, 2005, eBay acquired all of the outstanding securities of Skype Technologies S.A. (“Skype”), for a total initial consideration of approximately $2.6 billion, plus potential performance based payments of approximately $1.3 billion (based on

> In the following table, General Electric’s Balance Sheet from its 2005 annual report is shown. There are six columns of numbers. In the first two columns, GE’s consolidated balance sheets for 2010 and 2009, respectivel

> Consider the following information from Alliance Data Systems Corporation 2009 10K. On October 30, 2009, the Company assumed the operations of the Charming Shoppes’ credit card program, including the service center operations associate

> On January 1, 2011, Plank Company purchased 80% of the outstanding capital stock of Scoba Company for $53,000. At that time, Scoba’s stockholders’ equity consisted of capital stock, $55,000; other contributed capital,

> On January 26, 2010, the Emdeon acquired all of the voting interest of FutureVision Investment Group, L.L.C. and substantially all of the assets of two related companies, FVTech, Inc. and FVTech Arizona, Inc. (collectively, “FVTech&acir

> Consider the following footnote from a company’s 2012 10K concerning an acquisition occurring during February of 2011 (The Company’s year-end is January 31). The measurement period adjustment did not occur until Januar

> On November 19, 2009, eBay sold all the capital shares of Skype to Springboard Group. eBay received cash proceeds of approximately $1.9 billion, a subordinated note issued by a subsidiary of the Buyer in the principal amount of $125.0 million and an equi

> On October 14, 2005, eBay acquired all of the outstanding securities of Skype Technologies S.A. (“Skype”), for a total initial consideration of approximately $2.593 billion, plus potential performance- based payments of up to approximately $1.3 billion (

> When does the SEC staff believe that push down accounting should be applied?

> What is a reverse acquisition? How should the consideration transferred in a reverse acquisition be measured?

> FASB Statement No. 142 changed the guidance for goodwill and other intangibles. List all the topics in the Codification where this information can be found (i.e., ASC XXX). (Hint: There are two general topics.)

> What is the objective of the statement of cash flows?

> Management changed an accounting method. Several executives would have qualified for additional bonuses totaling $50,000 in the prior year under the new method. Can the firm restate the previous year’s income statement to include this expense?

> You are writing a research paper on the accounting for treasury stock. You wonder if it is possible to treat treasury stock as an asset. If not, you wonder if, over the history of GAAP, it has ever been acceptable for treasury stock to be classified as a

> On January 1, 2012, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2016, the trial balances of the two companies

> Can a firm choose a fair value option for reporting some of its investments on the balance sheet? If so, describe the conditions that must be met.

> Suppose that a company accounts for an investment using the equity method. Describe the appropriate accounting if the combined loss reported by the investee exceeds the investor’s balance in the investment account.

> Describe the equity method for accounting for investments. In order to qualify for the equity method, describe the conditions that must be met.

> A company changed its method of accounting for inventory and determined that it was impractical to determine the cumulative effect for all prior periods. The company decided to use the new method on a prospective basis. Is this acceptable under current G

> Is a correction of an error in the financial statements considered an accounting change?

> A company reported net income of $15,000, including an extraordinary loss of $3,000. Another company owns 40% of this company and uses the equity method to account for the investment. On the investee company’s books, does the investee report the net inco

> Suppose a firm purchases treasury stock but pays an amount significantly larger than the market value of the stock. Describe the appropriate accounting for the treasury stock.

> Can treasury stock be listed as an asset on the balance sheet?

> There are two specific operating cash payments that are required to be disclosed as supplemental information to the statement of cash flows (if not presented as line items under the direct method). What are they and where is this located in the Codificat

> Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2012, for $400,000. Trial balances at the end of 2012 for the companies were: Inventory balances on December 31, 2012, were $25,000 for Place and $15,000 for Shaw, Inc. Shaw&ac

> Accounting for contingencies was originally addressed in SFAS No. 5. Where is this information included in the Codification? Is all the guidance listed within one topic?

> A company considered displaying negative amounts using red print in a manner that clearly distinguishes the negative attribute. When determining methods of display, does the company need to give consideration to the limitations of reproduction and microf

> The rules providing accounting guidance on subsequent events were originally listed in FASB Statement No. 165. Where is this information located in the Codification? List all the topics and subtopics in the Codification where this information can be foun

> List all the topics found under General Topic 200—Presentation (Hint: There are 15 topics).

> What instruments qualify as cash equivalents?

> In the 1990s, the pooling of interest method was a preferred method of accounting for consolidations by many managers because of the creation of instant earnings if the acquisition occurred late in the year. Can the firms that used pooling of interest in

> Does current GAAP require that the information on the income statement be reported in chronological order with the most recent year listed first, or is the reverse order acceptable as well?

> GAAP requires that firms test for goodwill impairment on an annual basis. One reporting unit performs the impairment test during January while a second reporting unit performs the impairment test during July. If the firm reports annual results on a calen

> Distinguish between an asset acquisition and the acquisition of a business.

> Can the provisions of the Codification be ignored if the item is immaterial?

> Passion Company is trying to decide whether or not to acquire Desiree Inc. The following balance sheet for Desiree Inc. provides information about book values. Estimated market values are also listed, based upon Passion Company’s appraisals.

> How many years of comparative financial statements are required under current GAAP?

> If guidance for a transaction is not specifically addressed in the Codification, what is the appropriate procedure to follow in identifying the proper accounting?

> Suppose a firm entered into a capital lease, debiting an asset account and crediting a lease liability account for $150,000. Does this transaction need to be disclosed as part of the statement of cash flows? If so, where?

> The rules defining the conditions to classify an item as extraordinary on the income statement were originally listed in APB Opinion No 30, paragraph 20. Where is this information located in the Codification?

> The conditions determining whether a lease is classified as an operating lease or a capital lease were prescribed in SFAS No. 13, paragraph 7. Where is this located in this Codification?

> Perkins Company acquired 100% of Schultz Company on January 1, 2012, for $161,500. On December 31, 2012, the companies prepared the following trial balances: Required: A. What method is being used by Perkins to account for its investment in Schultz Com

> Parry Corporation acquired a 100% interest in Sent Company on January 1, 2011, paying $140,000. Financial statement data for the two companies for the year ended December 31, 2011 follow: Required: A. What method is being used by Parry to account for i

> From 1999 to 2001, Tyco’s revenue grew approximately 24% and it acquired over 700 companies. It was widely rumored that Tyco executives aggressively managed the performance of the companies that they acquired by suggesting that before the acquisition, th

> On January 1, 2011, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long-term investment. The purchase price of $4,972,000 was paid in cash. At the purchase date, the balance sheet of Singer Compa

> The following information from the financial statements of Kraft Foods and Cadbury PLC is available for the three years prior to their merger. Evaluate the performance of each company leading up to the year of the acquisition (2010). Note that Cadbury&ac

> On February, 2, 2010, Cadbury’s Board of Directors recommended that Cadbury’s shareholders accept the terms of Kraft’s final offer to acquire Cadbury. This ended one of the larger hostile takeovers that combined one company (Kraft) that reported using U.

> What is insider trading anyway? Consider the following: Many years ago, a student in a consolidated financial statements class came to me and said that Grand Central (a multi-store grocery and variety chain in Salt Lake City and surrounding towns and c

> On April 5, 2006, the New York State Attorney sued a New York online advertising firm for surreptitiously installing spyware advertising programs on consumers’ computers. The Attorney General claimed that consumers believed they were downloading free gam

> Part I. You are working on the valuation of accounts receivable, and bad debt reserves for the current year’s annual report. The CFO stops by and asks you to reduce the reserve by enough to increase the current year’s EPS by 2 cents a share

> There have been several recent cases of a CEO or CFO resigning or being ousted for misrepresenting academic credentials. For instance, during February 2006, the CEO of RadioShack resigned by “mutual agreement” for inflating his educational background. Du

> On October 14, 2005, eBay acquired Skype, paying $1.3 billion in cash plus $1.3 billion in stock. However, approximately 60% of the Skype shareholders opted for a lower cash amount and stock up front for the possibility of receiving a potential performan

> During 2005, eBay acquired four different companies. In the schedule below, the acquired companies are listed with the aggregate purchase price and with the estimated acquisition-related costs (dollars in thousands). Required: 1. What are acquisition-r

> If a parent company elects to use the partial equity method rather than the cost method to record its investments in subsidiaries, what effect will this choice have on the consolidated financial statements? If the parent company elects the complete equit

> When stock is exchanged for stock in a business combination, how is the stock exchange ratio generally expressed?

> Pequity Company purchased 85% of the common stock of Sequity Company on April 1, Year 1. The fair value of the consideration transferred consisted of a cash payment of $545,000 and contingent consideration as described in the earnout agreement below. Und

> Is the recognition of a deferred tax asset or deferred tax liability when allocating the difference between book value and the value implied by the purchase price affected by whether or not the affiliates file a consolidated income tax return? (See onlin

> Business combinations may be classified into three types based upon the relationships among the combining entities (e.g., combinations with suppliers, customers, competitors, etc.). Identify and define these types.

> Meredith Company and Kyle Company were combined in a purchase transaction. Meredith was able to acquire Kyle at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded

> 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 ass

> On a consolidated workpaper for a parent and its partially owned subsidiary, the noncontrolling interest column accumulates the noncontrolling interests’ share of several account balances. What are these accounts?

> Peep Inc. acquired 100% of the outstanding common stock of Shy Inc. for $2,500,000 cash and 15,000 shares of its common stock ($2 par value). The stock’s market value was $40 on the acquisition date. Required: Prepare the journal entry to record the acq

> Polychromasia, Inc. had a number of receivables from subsidiaries at the balance sheet date, as well as several payables to subsidiaries. Of its five subsidiaries, four are consolidated in the financial statements (Green Company, Black Inc., White & Sons

> Define a tender offer and describe its use.

> Why are consolidated workpapers used in preparing consolidated financial statements?

> Accounting textbooks under the former GAAP hierarchy were considered level 4 authoritative. Where do accounting textbooks stand in the Codification?

> Pcost Company purchased 85% of the common stock of Scost Company on April 1, Year 1. The fair value of the consideration transferred consisted of a cash payment of $545,000 and contingent consideration as described in the earnout agreement below. Under t

> Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash loss

> What is the primary legal constraint on business combinations? Why does such a constraint exist?

> What are pro forma financial statements? What is their purpose?

> How should nonconsolidated subsidiaries be reported in consolidated financial statements?

> What is the effect on the noncontrolling share of consolidated income that results from the recording in the consolidated statements workpaper of differences between book value and the value implied by the purchase price (and their allocation to deprecia