Options for the first question:
a? Goodwill will be recognized if acquisition value exceeds fair value of net assets acquired.
b? Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired.
c? Subsidiary net assets are valued at their book values before consolidating entries are made.
d? Parent company net income will exceed controlling interest in consolidated net income when fair value of depreciable assets acquired exceeds book value of depreciable assets.
e? Parent company net income will equal controlling interest in consolidated net income when initial value, book value, and fair value of the investment are equal.
Information regarding the second question:
Book Value Fair Value
Buildings (10-year life) $10,000 $8,000
Equipment (4-year life) $13,000 $17,000
Land $5,000 $12,000
In consolidation at January 1, 2017, what adjustment is necessary for Hogan's Equipment account?
Answer:
Answer to the first question:
- B) Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired.
Answer to the second question:
- The fair market value of the equipment is higher than the book value, therefore the equipment account must increase by = $17,000 - $13,000 = $4,000
Explanation:
The partial equity method is used when the company's stake is not significant in the subsidiary or when the parent doesn't exercise operating control over the subsidiary.
