Here are the responses for each statement:

1. True: In a centralized accounting system for branches, the branch accounting records are
typically maintained by the home office. This allows for centralized control and oversight of
branch operations.

2. False: Horizontal business combinations involve constituent companies in the same or similar
industries. Vertical business combinations, on the other hand, involve companies in different
stages of the supply chain.

3. True: Goodwill recognized in a business combination is entered in the accounting records of the
acquiring company (combiner) as part of the purchase price allocation.

4. False: In the combined financial statements for the home office and the branch, you would
typically see the Home Office ledger account but not the Investment in Branch account. The
Investment in Branch account is used in the home office's individual records to track the
investment in the branch.

5. False: In a statutory merger, all constituent companies are typically merged or combined into a
single surviving entity. None of the constituent companies are necessarily "liquidated" in the
sense of ceasing to exist, but their assets and liabilities are transferred to the surviving entity.

1. The implication of the foregoing journal entry is that the consideration issued by the parent company
for the outstanding common stock of the subsidiary was:

**D. Cash, bonds, or common stock**

This entry doesn't specify the nature of the consideration, so it could be any of the options provided.

2. The traditional definition of control for a parent company–subsidiary relationship (parent’s ownership
of more than 50% of the subsidiary’s outstanding common stock) emphasizes:

**A. Legal form**

The traditional definition of control in a parent-subsidiary relationship is primarily based on the legal
form, specifically ownership of more than 50% of the subsidiary's outstanding common stock.

Here are the answers to the questions:

3. In a completed working paper elimination (in journal entry format) for a parent company and its
wholly owned subsidiary on the date of the business combination, the total of the debits generally
equals the:

**C. Current fair value of the subsidiary’s identifiable net assets**

The debits in the elimination entry typically represent the fair value of the identifiable net assets of the
subsidiary.

4. An investor company that owns more than 50% of the outstanding voting common stock of an
investee may not control the investee if:

**B. There is a large passive minority interest in the investee**

The presence of a large passive minority interest can prevent an investor from having control.

5. FASB Statement No. 94, “Consolidation of All Majority Owned Subsidiaries,” exempts from
consolidation:

**C. Finance-related subsidiaries of the parent company**

Statement No. 94 provides an exemption from consolidation for certain finance-related subsidiaries.

6. On the date of the business combination of a parent company and its partially owned subsidiary,
under the computation method, the amount assigned to minority interest in net assets of the subsidiary
is based on the:
 **C. Current fair value of the subsidiary’s identifiable net assets**

The computation method typically assigns the minority interest based on the fair value of the
identifiable net assets.

7. If, on the date of the business combination, C = consideration given to the former stockholders of
wholly-owned subsidiary Stacey Company by Passey Corporation; DOP = direct out-of-pocket costs of
the combination; CA = carrying amount, and CFV = current fair value of Stacey’s identifiable net assets;
and GW = goodwill:

**A. C + DOP = CA + GW**

This equation represents the consideration given, out-of-pocket costs, carrying amount, and goodwill
in the context of the business combination.

Here are the answers to the questions:

8. In the working paper for the consolidated balance sheet prepared on the date of the business
combination of a parent company and its wholly owned subsidiary, whose liabilities had current fair
values equal to their carrying amounts, the total of the Eliminations column is equal to:

**C. The current fair value of the subsidiary’s total net assets, including goodwill**

The Eliminations column typically accounts for the adjustments to the subsidiary's carrying amounts to
reflect their current fair values in the consolidated financial statements.

9. On the date of the business combination of Pobre Corporation and its wholly owned subsidiary, Sabe
Company, Pobre paid (1) $100,000 to the former stockholders of Sabe for their stockholders’ equity of
$65,000 and (2) $15,000 for direct out-of-pocket costs of the combination. Goodwill recognized in the
business combination was $10,000. The current fair value of Sabe’s identifiable net assets was:
 **B. $75,000**

The current fair value of identifiable net assets is calculated as the total consideration paid minus
goodwill and direct out-of-pocket costs.

10. Differences between current fair values and carrying amounts of the identifiable net assets of a
subsidiary on the date of a business combination are recognized in a:

**D. Note to the consolidated financial statements**

Differences between current fair values and carrying amounts are typically disclosed in the notes to
the consolidated financial statements to provide transparency to users of the financial statements.

Work out

1. Sure, here are the journal entries for Sal Corporation to record its merger with Mel
Company on January 31, 2005:
1. To record the acquisition of Mel's assets and liabilities at their fair
values:

Current Assets $120,000

Other Assets $850,000
Goodwill $ 10,000 [($120,000+$850,000+$10,000) - ($80,000+
$240,000)]
To Current Liabilities $80,000
To Long-term Debt $240,000

2. To record the issuance of common stock to Mel's stockholders:

Common Stock $ 35,000 [35,000 shares * $1 par]

Paid-in Capital $665,000 [(35,000 shares * $20) - $35,000]
To Current Assets $120,000
To Other Assets $850,000
To Goodwill $ 10,000
To Current Liabilities$80,000
To Long-term Debt $240,000

3. To record the direct out-of-pocket costs of the business combination:

Organization Expense $40,000

To Cash $40,000
4. To record the costs of registering and issuing common stock:

Organization Expense $70,000

To Cash $70,000

Please note that the goodwill is calculated as the excess of the fair value of
consideration transferred over the net amount of the recognized identifiable assets
acquired and liabilities assumed.

2,

a. Sure, here are the journal entries for Ploy Corporation on February 28, 2005, to
record the business combination with Skye Company:
1. To record the acquisition of Skye's assets and liabilities at their fair
values:

Inventories $20,000
Plant Assets $80,000
Goodwill $10,000 [($50,000 + $100,000 + $20,000 + $80,000) -
($10,000 + $30,000 + $60,000)]
Bonds Payable $30,000
To Cash $50,000
To Common Stock $50,000 [5,000 shares * $10 par]
To Paid-in Capital $50,000 [(5,000 shares * $20) - $50,000]

2. To record the out-of-pocket costs of the business combination:

Organization Expense $15,000

To Cash $15,000

3. To record the costs of registering and issuing common stock:

Organization Expense $10,000

To Cash $10,000

Please note that the goodwill is calculated as the excess of the fair value of
consideration transferred over the net amount of the recognized identifiable assets
acquired and liabilities assumed.

b. 1) The amount of Goodwill in the consolidated balance sheet of Ploy Corporation and subsidiary on
February 28, 2005, can be calculated as follows:

Goodwill is recognized for the excess of the consideration transferred over the net amount of the
recognized identifiable assets acquired and liabilities assumed. In this case, the consideration
transferred by Ploy Corporation is $50,000 cash and 5,000 shares of Ploy’s $10 par common stock with a
current fair value of $20 a share. So, the total consideration transferred is $50,000 + (5,000 * $20) =
$150,000.

The net amount of the recognized identifiable assets acquired and liabilities assumed is calculated as the
sum of the carrying amounts of Skye's identifiable assets ($10,000 common stock + $30,000 additional
paid-in capital + $60,000 retained earnings + $20,000 inventories + $80,000 plant assets) minus the
carrying amount of Skye's liabilities ($30,000 bonds payable). So, this amount is ($10,000 + $30,000 +
$60,000 + $20,000 + $80,000) - $30,000 = $170,000.

Therefore, the Goodwill recognized in the consolidated balance sheet of Ploy Corporation and subsidiary
on February 28, 2005 is:

Goodwill = Consideration transferred - Net identifiable assets

= $150,000 - $170,000

= -$20,000

Since Goodwill cannot be negative (it represents an intangible asset that adds value to the company),
there is no Goodwill recognized in this case. The negative value indicates that Ploy Corporation
purchased Skye Company for less than its fair value. This situation is often referred to as a "bargain
purchase". In such cases, a gain on bargain purchase would be recognized instead of Goodwill. However,
it's important to note that these calculations are based on the provided information and actual
accounting practices may require additional considerations.

2) The minority interest in the net assets of the subsidiary represents the portion of the subsidiary's net
assets that is not owned by the parent company. In this case, Ploy Corporation owns 88% of Skye
Company, so the minority interest is 12%.

The net assets of Skye Company are calculated as the sum of its equity and the fair value adjustments to
its identifiable assets and liabilities. From the given information, Skye's equity is $10,000 (common
stock) + $30,000 (additional paid-in capital) + $60,000 (retained earnings) = $100,000. The fair value
adjustments are $20,000 (inventories) + $80,000 (plant assets) - $30,000 (bonds payable) = $70,000.
So, the total net assets of Skye Company are $100,000 (equity) + $70,000 (fair value adjustments) =
$170,000.

Therefore, the minority interest in the net assets of Skye Company is 12% of $170,000:

Minority Interest = 0.12 * $170,000 = $20,400