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CPA FAR Business Combinations and Consolidations
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In the Financial Accounting and Reporting (FAR) section of the CPA exam, Business Combinations and Consolidations are critical topics that focus on how a parent company reports its financial interest in another entity.  1. Business Combinations (ASC 805) A business combination occurs when an acquirer obtains control of one or more businesses.  The Acquisition Method: All business combinations are accounted for using the acquisition method. Key steps include: Identify the Acquirer: The entity that obtains control. Determine the Acquisition Date: The date control is transferred. Recognize... Show more
CPA FAR Business Combinations and Consolidations
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1. Prunty Corp. owns all of the outstanding common stock of Shelly, Inc. On January 1, Year 2, Prunty sells a machine with a carrying value of $30,000 to Shelly for $40,000. Shelly uses straight line depreciation and intends to use the machine for five years. The net adjustments required to compute consolidation net income for Year 2 and Year 3 are:
2. On February 14, Year 11, Heart Corp. acquired 25% of Flower Corp.’s common stock. On October 1, Year 13, Heart acquires 65% of Flower’s outstanding common stock. Flower Inc. continues in existence as Heart’s subsidiary. How much of Flower’s Year 13 net income should be reported as accruing to Heart?
3. How much is the implied value of B Corporation based on purchase price?,$350
4. On January 1, Year 1, Peter Co. paid $250,000 for 70% of the outstanding common stock of Sally Co. At that time, Sally reported the following balance sheet amounts: Current assets $30,000; Property, plant, and equipment $270,000; Liabilities $120,000; and Stockholders’ equity $180,000. On January 1, the fair value of the property, plant, and equipment was $30,000 more than its book value. Fair values approximated the book values for all other assets and liabilities. What amount of goodwill should Peter report on its acquisition date balance sheet under the IFRS partial goodwill method?
5. On the December 31, Year 13, consolidated balance sheet, stockholders’ equity is equal to Peyton Corp.’s stockholders’ equity:
6. How much is the debit to investment in subsidiary on September 22, Year 12?
7. Calculate the noncontrolling interest at December 31, Year 13.
8. What is the goodwill to be reported on Poplar Corp.’s December 31, Year 1, balance sheet under US GAAP?
9. How much goodwill or gain should be recorded by Potomac Corp. on the consolidated financial statements dated December 31, Year 13?
10. The journal entry to record the investment in subsidiary would include a credit to:,common stock for $800
11. Paul Co. owns 75% of Sal Co.’s common stock. During the third quarter of the current year, Sal sold inventory to Paul for $200,000. At December 31 of the current year, 50% of this inventory remained in Paul’s ending inventory. For the current year, Paul’s gross profit was 30%, while Sal’s gross profit was 40%. How much unrealized profit should be eliminated from the December 31 ending inventory?
12. On December 30, Year 4, Policastro Inc. paid $960,000 for all of the issued and outstanding common stock of Salva Corp. On that date, the book value of Salva’s assets and liabilities were $900,000 and $280,000 respectively. The fair values of Salva’s assets and liabilities were $940,000 and $240,000 respectively. On Policastro’s December 31, Year 4, balance sheet, what amount should be recorded as goodwill?
13. On November 1, Year 3, Plato Corp. acquired 100% of Socrates Corp. for $375,000. The carrying value of Socrates assets was $550,000, and the fair value was $750,000 at the date of acquisition. The book and fair value of Socrates liabilities on November 1, Year 3, was $300,000. Additionally, Socrates had identifiable intangible assets at the date of acquisition with a fair value of $165,000. How much goodwill or gain is to be reported on Plato’s December 31, Year 3, consolidated income statement?
14. Using the acquisition method, calculate the amount of noncontrolling interest at the date of acquisition on January 1, Year 13.
15. In the eliminating journal entry made just after the acquisition, how would noncontrolling interest be recorded?
16. On the consolidated financial statements dated December 31, Year 13, consolidated property plant and equipment would be reported at
17. How much goodwill should be recorded by Corporation A on the consolidated financial statements dated December 31, Year 1?

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