Question

Part A: Multiple Choice Questions

1. In a business combination resulting in a parent company-subsidiary relationship, the parent company's Investment in Subsidiary Common Stock ledger account balance is:

1. Allocated to individual asset and liability ledger accounts in a parent company journal entry
2. Displayed among noncurrent assets in the consolidated balance sheet
3. Used as a basis for adjusting the subsidiary's asset and liability account balances in the subsidiary's ledger to current fair values
4. Eliminated with a working paper elimination for the working paper for consolidated balance sheet

2. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to:

1. Recognize as negative goodwill in the accounting records of the combinee
2. Recognize as additional paid-in capital in the accounting records of the combinor
3. Reduce proportionately current fair values assigned to the combinee's nonmonetary assets and recognize any remaining excess as a deferred credit
4. Take some other action

3. How is the minority interest in net assets of subsidiary displayed in a consolidated balance sheet under the economic unit concept of consolidated financial statements?

1. As a separate item in the stockholders' equity section
2. As a deduction from consolidated goodwill if any
3. By means of a note to the consolidated financial statements
4. As a separate item in the liabilities section

4. On the date of a business combination resulting in a parent-subsidiary relationship, the differences between current fair values and carrying amounts of the subsidiary's identifiable net assets are:

1. Recognized in the applicable asset and liability ledger accounts of the parent company
2. Recognized in the applicable asset and liability ledger accounts of the subsidiary
3. Included in a working paper elimination
4. Accounted for in some other manner

Answer 1

1)

Option d

The investment of parent company in subsidiary is eliminated through working paper elimination while doing consolidation of accounts. (Because we cannot account for such investment, as both the entities are present in consolidated financials)

2)

Option d

We will take some other action.

The excess of current fair value over the cost is recognised bas bargain purchase.

3)

Option a

In economic unit concept, the minority interest in subsidiary net assets is displayed in stock holders equity section

4)

Option c

Included in working paper elimination. Not accounted anywhere in the books of accounts