Chapter 8

c8
Student: ___________________________________________________________________________
1. A Inc. owns 80% of B's outstanding voting shares.

Under which of the following scenarios would A's
ownership percentage of B change?
A.
B.
C.
D.
2. Assume that X Corp. controls Y Corp., X constantly

purchases and sells Y's voting shares on the open
market while always ensuring that it maintains a
controlling interest over Y. Which of the following
statements pertaining to X buying and selling activity is
correct?
A.
B.
C.
D.
ABC Inc. purchased 35,000 voting shares out of 123

Inc.'s 50,000 outstanding voting shares for $350,000 on
January 1, 2018. On the date of acquisition, 123's
common shares and retained earnings were valued at
$120,000 and $180,000, respectively. 123's book values
approximated its fair values on the acquisition date with
the exception of a patent and a trademark, neither of
which had been previously recorded. The fair values of
the patent and trademark on the date of acquisition were
$30,000 and $20,000 respectively.
On January 2, 2018, ABC sold 14,000 shares of 123 on

the open market for $98,000.
ABC Inc. uses the equity method to account for its

investment in 123 Inc.
3. What is the amount of goodwill arising from this
business combination?
A.
B.
C.
D.
4. What percentage of its Investment in 123 was sold by

ABC?
A.
B.
C.
D.
5. What is ABC's ownership interest in 123 after its sale?
A.
B.
C.
D.
6. What would be the balance in the investment in 123

Inc. accounts after the sale?
A.
B.
C.
D.
7. What would be the amount of the gain or loss on the

sale of the 14,000 shares?
A.
B.
C.
D.
8. What is the amount of unamortized acquisition
differential (including goodwill) after the sale?
A.
B.
C.
D.
9. What is the amount of the non-controlling interest at

acquisition?
A.
B.
C.
D.
10. What is the carrying value of the trademark after the

sale?
A.
B.
C.
D.
On January 1, 2018, Hanson Inc. purchased 54,000
voting shares out of Marvin Inc.'s 90,000 outstanding
voting shares for $240,000. On that date, Marvin's
$60,000 and $90,000, respectively. Marvin's book
values approximated its fair values on the acquisition
date with the exception of the company's equipment,
which was estimated to have a fair value that was
$50,000 in excess of its recorded book value. The
equipment was estimated to have a useful life of eight
years. Both companies use straight line amortization
exclusively.
On January 1, 2019, Hanson purchased an additional

9,000 shares of Marvin Inc. on the open market for
$45,000. On this date, Marvin's book values were equal
to its fair values with the exception of the company's
equipment, which is now thought to be undervalued by
$60,000. Moreover, the equipment's estimated useful
life was revised to 5 years on this date.
Marvin's net income and dividends for 2018 and 2019

are as follows:
Net Income
Dividends
Marvin's goodwill suffered an impairment loss of

$5,000 during 2018. Hanson Inc. uses the equity
method to account for its investment in Marvin Inc.
11. What is the amount of goodwill arising from Hanson's

January 1, 2018 acquisition?
A.
B.
C.
D.
12. What percentage of Marvin's shares was purchased by
Hanson on January 1, 2018?
A.
B.
C.
D.
13. Assuming that Hanson had no recorded goodwill prior

to January 1, 2018, what would be the amount of
goodwill appearing on Hanson's December 31, 2018
consolidated balance sheet?
A.
B.
C.
D.

goodwill appearing on Hanson' December 31, 2019
Consolidated Balance Sheet?
A.
B.
C.
D.
15. What is Hanson's ownership interest in Marvin after its

January 1, 2019 purchase?
A.
B.
C.
D.
16. What is the amount of the acquisition differential

amortization for 2018 (excluding goodwill
impairment)?
A.
B.
C.
D.
amortization (excluding goodwill impairment) for
2019?
A.
B.
C.
D.
18. What would be the amount of the unamortized

acquisition differential (excluding goodwill) at the end
of 2019?
A.
B.
C.
D.
19. What effect (if any) would Hanson's January 1, 2019

purchase have on the company's consolidated cash
flows for the year?
A.
B.
C.
D.
20. By how much would the non-controlling interest

amount have changed as a result of the Hanson's second
purchase?
A.
B.
C.
D.
21. What effect would the purchase at January 1, 2019 have

on the consolidated equity of Hanson?
A.
B.
C.
D.
22. What would be the balance in Hanson's investment in
Marvin account on December 31, 2019?
A.
B.
C.
D.
23. Assuming that A acquired a controlling interest in B

through numerous small acquisitions, what would be
appropriate accounting with respect to these
acquisitions?
A.
B.
C.
D.
24. A owns 80% of B, which in turn owns 55% of C.

Which of the following statements is correct?
A.
B.
C.
D.
25. X owns 70% of Y, which in turn owns 25% of Z. X,

also owns 20% of Z. Which of the following statements
is correct?
A.
B.
C.
D.
P Corp. owns 800 voting common shares out of Q
Corp.'s 1,000 outstanding voting common shares, which
it accounts for using the equity method. On December
31, 2018, the shareholder's equity section of Q Corp.
was comprised of $15,000 in common shares and
retained earnings with the amount of $450,000.
Q Corp. reported net Income and paid dividends of

$120,000 and $20,000 respectively for the year ended
December 31, 2019.
On January 1, 2020, P Corp. sold 200 shares of its

investment in Q Corp. for $125,000. On January 1,
2019, the investment account had a balance of
$420,000. The acquisition differential was to be
allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
26. What is the gain or loss on P's sale of its shares on Q

Corp.?
A.
B.
C.
D.
27. What is the balance in the investment in Q account

immediately following the sale?
A.
B.
C.
D.
28. What is the amount of Goodwill that arose from P's

investment in Q?
A.
B.
C.
D.
29. How much of the acquisition differential was allocated
to patents?
A.
B.
C.
D.

to equipment?
A.
B.
C.
D.
31. What was the amount of acquisition differential

amortization for 2019?
A.
B.
C.
D.
The following information pertains to the shareholdings
of an affiliated group of companies. The respective
ownership interest of each company is outlined below.
A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using

the equity method.
The Net Incomes for these companies for the year

ended December 31, 2018 were as follows:
A Inc.
J Inc.
G Inc.
D Inc.
Y Inc.
Unrealized intercompany profits (pre-tax) earned by the

various companies for the year ended December 31,
2018 are shown below:
G Inc.
Y Inc.
J Inc.
All companies are subject to a 25% tax rate.
32. How much is A Inc.'s Consolidated Net Income for

2018?
A.
B.
C.
D.
33. How much is the non-controlling interest in A Inc.'s

Consolidated Net Income for 2018?
A.
B.
C.
D.
34. What is the Consolidated Net Income for the year

attributable to the shareholders of A Inc.?
A.
B.
C.
D.
Whine purchased 80% of the outstanding voting shares
of Dine Inc. on December 31, 2018. The balance sheets
of both companies on that date are shown below (after
Whine acquired the shares):
Cash
Accounts Receivable
Inventory
Investment in Dine Inc.
Land
Equipment (net)
Total Assets
Current Liabilities
Bonds Payable
Common Shares
Retained Earnings
Total Liabilities and Equity
Also on December 31, 2018 (after the financial

statements appearing above had been prepared)
Chompster Inc., one of Whine's main competitors has
agreed to acquire an equity interest in Dine Inc. As a
result of the agreement, Dine Inc. would issue another
8,000 shares (over and above the 32,000 shares it
currently has outstanding) to Chompster for $20 per
share.
The acquisition differential on the date of acquisition

was attributed entirely to equipment, which had a
remaining useful life of ten years from the date of
acquisition.
Whine Inc. uses the equity method to account for its

investment in Dine Inc. There were no unrealized
intercompany profits on December 31, 2018.
35. What would be the amount of cash appearing on
Whine's December 31, 2018 consolidated balance sheet
(after the issue of shares to Chompster)?
A.
B.
C.
D.

acquisition differential on December 31, 2018?
A.
B.
C.
D.
37. What would be Whine's ownership interest in Dine

following Chompster's purchase of shares in Dine?
A.
B.
C.
D.
38. What would be the gain or loss arising from Dine's

share issue to Chompster?
A.
B.
C.
D.
39. What would be the amount of the non-controlling

interest appearing on Whine's consolidated balance
sheet as at December 31, 2018 before the issue of
shares to Chompster?
A.
B.
C.
D.
sheet as at December 31, 2018 after the issue of shares
to Chompster?
A.
B.
C.
D.
41. The amount of retained earnings appearing on the

December 31, 2018 consolidated balance sheet would
be:
A.
B.
C.
D.
42. The amount of goodwill appearing on the December 31,

2018 consolidated balance sheet would be:
A.
B.
C.
D.
43. The amount of common shares appearing on the

be:
A.
B.
C.
D.
44. The amount appearing under equipment on the

be:
A.
B.
C.
D.
45. What is the correct method of treating an acquisition
differential arising from a Preferred Share Issue?
A.
B.
C.
D.
46. Which of the following statements pertaining to

preferred shares is correct?
A.
B.
C.
D.
47. Which of the following is not included in the amount of

shareholders' equity allocated to the holders of the
preference shares on the consolidated balance sheet?
A.
B.
C.
D.
48. If the shareholders' equity allocated to the subsidiary's

preference shares amounts to $240,000 and the parent
company acquires 60% of the subsidiary's preference
shares at a cost of $150,000, how much will the non-
controlling interest in the preferred shares amount to
after the purchase by the parent?
A.
B.
C.
D.
shares at a cost of $150,000, what effect will the
transaction have on consolidated shareholders' equity?
A.
B.
C.
D.

shares at a cost of $150,000, how much will the amount
of cash on the consolidated balance sheet change as a
result of this transaction?
A.
B.
C.
D.
The financial statements of Lime Inc. and its subsidiary
Stone Corp. on December 31, 2017 are shown below:
RETAINED EARNINGS STATEMENTS

Balance, January 1, 2017
Net Income
Less: dividends
Retained earnings
BALANCE SHEETS
Cash
Accounts receivable
Inventory
Land
Plant and equipment
Accumulated depreciation
Investment in Stone (common)
Total Assets
Accounts payable
Accrued liabilities
Preferred shares
Common shares
Retained earnings
Other Information:
On January 1, 2014 Stone's balance sheet showed the

following shareholders' equity:
$3 cumulative preferred shares, 20,000 shares issued

Common shares, 100,000 shares issued
Surplus (Deficit)
On this date, Lime acquired 80,000 common shares for

$900,000.
* Stone's preferred share dividends were one year in

arrears on that date.
Stone's fair values approximated its book values on that

date with the following exceptions:
Inventory had a fair value that was $30,000 higher than

its book value. Plant and equipment had a fair value
$10,000 lower than their book value.
The plant and equipment had an estimated remaining

useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as

follows:
Lime to Stone:
Stone to Lime:
Unrealized intercompany profits in inventory for 2017

were as follows:
January 1, 2017:
Stone's Inventory
Lime's Inventory
December 31, 2017:
Stone's Inventory
Lime's Inventory
On January 1, 2015, Stone sold equipment to Lime for
$30,000. The equipment had a carrying value of
$27,000 on that date and an estimated useful life of 3
years. The inventory on hand at the start of 2017 was
sold to outsiders during the year. Both companies are
subject to a tax rate of 40%. There were no dividends in
arrears on December 31, 2016. Lime uses the cost
method to account for its investment in Stone.
Consolidated retained earnings on December 31, 2016
is $523,120.
51. Compute the Goodwill on the date of the acquisition.
52. a) Prepare a schedule of intercompany profits as at

December 31, 2017 for both companies.
b) Compute the amount of deferred taxes that should

appear on the December 31, 2017 Consolidated Balance
Sheet.
53. Compute the Consolidated Net Income for 2017 and
show its allocation between the controlling and non-
controlling interests. Do not prepare an Income
Statement.
54. Prepare a calculation of non-controlling interest as at

December 31, 2017.
55. Prepare a calculation of Consolidated Retained

Earnings at as December 31, 2018.
56. Prepare Lime's December 31, 2017 Consolidated
Balance Sheet.
57. The following information was derived from the 2017

consolidated financial statements of X Inc., which owns
80% of Y Inc. as well as 40% of Z Inc.:
Equity Earnings from Z Inc.

Decrease in Accounts Payable
Increase in Accounts Receivable
Increase in Inventory
Increase in Bonds Payable
Depreciation
Loss on sale of machinery
Carrying value of machinery sold
Dividends received from Z Inc.
Purchase of a building for cash
Goodwill impairment loss
Entity Net Income allocated to non-controlling interest
Consolidated net income allocated to Parent
Dividends paid by X Inc.
Dividends paid by Y Inc.
The cash balance at the start of 2017 was $200,000.
Required:
Prepare the consolidated statement of cash flows for

Lime Inc for the year ended December 31, 2017.
The trial balances of Ash Inc. and its subsidiary Cinder
Corp. on December 31, 2018 are shown below:
Inventory
Plant and Equipment (net)
Dividends Declared
Investment in Cinder
Cost of Goods Sold
Other Expenses
Total Assets
Liabilities
Common Shares
Retained Earnings
Sales and Other Revenue
Other Information:
Ash acquired Cinder in three stages:
January 1, 2015:
January 1, 2017:
December 31, 2018:
Cinder was incorporated on January 1, 2013. On that

date, Cinder issued 100,000 voting shares. Any
difference between the cost and book value is
attributable entirely to trademarks, which are to be
amortized over 5 years. The company has neither issued
nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of

$20,000 on January 1, 2017. These assets had a 10 year
remaining life.
Intercompany sales of inventory during 2018 amounted
to $250,000. Unrealized inventory profits for each
company are shown below for 2018. The amounts
indicate the amount of profit in each company's
inventory.
Ash
January 1, 2018:
December 31, 2018:
Cinder
January 1, 2018:
December 31, 2018:
All inventories on hand at the start of 2018 were sold to

outsiders during the year. The net Incomes of both
companies are evenly earned throughout the year. Both
companies are subject to an effective corporate tax rate
of 20%.
58. What amount will be shown in the consolidated balance

sheet of Ash as at December 31, 2018, for trademarks?
59. Compute consolidated inventory for Ash as at
December 31, 2018.
60. Compute the Consolidated Cost of Goods Sold for

2018.
61. Beta Corp. owns 80% of Gamma Corp. The
Consolidated Financial Statements of Beta Corp. for
2018 and 2019 are shown below:
Beta Corp.
Consolidated Balance Sheet,
December 31, 2019
Cash
Accounts Receivable
Inventory
Land
Plant and Equipment
Accumulated Depreciation
Goodwill
Total Assets
Accounts Payable
Accrued Liabilities
Bonds Payable
Less Bond Discount
Non-Controlling Interest
Common Shares
Retained Earnings
Beta Corp.
Consolidated Income Statement,
For the year ended December 31, 2019
Sales
Cost of aales
Depreciation
Interest expense
Gain on land sale
Net income
Attributable to:
Shareholders of Parent
Other Information:
Beta purchased its interest in Gamma on January 1,

2015 for $360,000 when the company's net assets were
valued at $300,000. The acquisition differential was
allocated equally between goodwill and equipment,
which was estimated to have a remaining useful life of
ten years from the acquisition date.
Gamma reported a net income of $75,000 and paid
dividends of $5,000 during 2019.
Beta issued $300,000 in bonds during the year. Beta
reported an equity method net Income of $300,000 and
paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for

Beta Corp. for 2019.
Parrot Company purchased 75% of the outstanding
common shares and 50% of the outstanding preference
shares of Saltines Inc. on January 1, 2019, on which
date the balance sheet and fair values of Saltines' assets
and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2018
Cash
Accounts receivable
Inventory
Capital assets (net)
Current liabilities
Long-term debt
Common shares
Preferred shares
Contributed surplus
Retained earnings
Parrot paid $460,000 for the common shares and

$105,000 for the preference shares. The contributed
surplus arose from the issue of the preferred shares at a
price higher than their stated value. The preferred
shares paid cumulative dividends of 5% of their stated
value but dividends for 2017 and 2018 were unpaid.
The shares were redeemable, at the option of the issuer,
at a premium of 8%. The capital assets of Saltines had a
remaining useful life of ten years at January 1, 2009.
Any unallocated acquisition differential would be
treated as goodwill, which is assessed annually for
impairment. Parrot accounts for its interest in Saltines
using the cost method and accounts for the non-
controlling interest in its consolidated financial
statements based on the fair value of the subsidiary,
proportionate to the price paid for the controlling
interest.
Parrot's net income for 2019 was $300,000 and Parrot
paid dividends of $150,000 on December 31, 2019.
Saltines' net income for 2019 was $120,000 before a
loss from discontinued operations of $60,000 (net of
tax). Saltines paid dividends of $75,000 in 2019. (Parrot
included all dividends received in its income for 2019.)
62. Calculate the amount of the non-controlling interest on

the consolidated balance sheet of Parrot and its
subsidiary as at December 31, 2019.
63. Calculate the consolidated net income of Parrot and its

64. Parrot has no contributed surplus on its own balance
sheet as at the end of 2019. Calculate the amount of the
contributed surplus shown on the consolidated balance
sheet of Parrot and its subsidiary as at December 31,
2019.
65. On January 1, 2018, Philcorp acquired 8,000 of the

outstanding 10,000 shares of Anderco by issuing its
own shares with a market value of $400,000. On June
30, 2019, Anderco issued an additional 2,000 shares for
cash consideration of $60 per share, none of which
were acquired by Philcorp. Immediately before the
issue, the shareholders' equity of Anderco amounted to
$500,000 and the unamortized purchase discrepancy
was $65,000. Philcorp uses the equity method to record
its investment in Anderco.
Required:
What gain or loss will appear in the consolidated

financial statements of Philcorp and its subsidiary
Anderco as a result of this transaction?
c8 Key
1. A Inc. owns 80% of B's outstanding voting shares.
Under which of the following scenarios would A's
ownership percentage of B change?
A.
B.
C.
D.
Accessibility: Keyboard Navigation
Bloom's: Comprehension
Difficulty: Easy
Gradable: automatic
Hilton - Chapter 08 #1
Learning Objective: 08-02 Prepare consolidated financial statements in situations where the parent's ownership has increased (step purchase).
Topic: 08-04 Block Acquisitions of Subsidiary (Step Purchases)
Topic: 08-10 Numerous Small Purchases
Topic: 08-11 Repurchase of Shares by Subsidiary
Topic: 08-12 Consolidated Retained EarningsCost Method
2. Assume that X Corp. controls Y Corp., X constantly

purchases and sells Y's voting shares on the open
market while always ensuring that it maintains a
controlling interest over Y. Which of the following
statements pertaining to X buying and selling activity is
correct?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
ABC Inc. purchased 35,000 voting shares out of 123
Inc.'s 50,000 outstanding voting shares for $350,000 on
January 1, 2018. On the date of acquisition, 123's
$120,000 and $180,000, respectively. 123's book values
approximated its fair values on the acquisition date with
the exception of a patent and a trademark, neither of
which had been previously recorded. The fair values of
the patent and trademark on the date of acquisition were
$30,000 and $20,000 respectively.
On January 2, 2018, ABC sold 14,000 shares of 123 on

the open market for $98,000.
ABC Inc. uses the equity method to account for its

investment in 123 Inc.
Hilton - Chapter 08
3. What is the amount of goodwill arising from this

business combination?
A.
B.
C.
D.
Calculation and allocation of acquisition differential:
Bloom's: Application
Difficulty: Easy
Gradable: automatic
Learning Objective: 08-03 Prepare consolidated financial statements after the parent's ownership has decreased.
Topic: 08-14 Parent Sells Some of Its Holdings in Subsidiary
Topic: 08-15 Income Statement Analysis
Topic: 08-16 Subsidiary Issues Additional Shares to Public
Topic: 08-17 Consolidated Cash Flow Analysis
4. What percentage of its Investment in 123 was sold by
ABC?
A.
B.
C.
D.
The sale by ABC Inc. of 14,000 123 Inc shares

represents a 40% reduction in ABC Inc.'s investment
[14,000 / 35,000 = 40%].
Difficulty: Easy
Gradable: automatic
5. What is ABC's ownership interest in 123 after its sale?
A.
B.
C.
D.
ABC Inc shares held in 123 Inc after the sale = 21,000
[35,000 - 14,000].Percentage ownership interest after
the sale is 42% [21,000 / 50,000].
Difficulty: Easy
Gradable: automatic
6. What would be the balance in the investment in 123
Inc. accounts after the sale?
A.
B.
C.
D.
Balance in investment account after sale = $210,000.
Difficulty: Moderate
Gradable: automatic
7. What would be the amount of the gain or loss on the

sale of the 14,000 shares?
A.
B.
C.
D.
Loss on sale = $42,000.
Gradable: automatic
8. What is the amount of unamortized acquisition

differential (including goodwill) after the sale?
A.
B.
C.
D.
Amount of unamortized acquisition differential

(including goodwill) after the sale = $200,000.
Gradable: automatic
9. What is the amount of the non-controlling interest at

acquisition?
A.
B.
C.
D.
Amount of unamortized acquisition differential

(including goodwill) after the sale = $200,000.
Difficulty: Easy
Gradable: automatic
10. What is the carrying value of the trademark after the

sale?
A.
B.
C.
D.
Carrying value of trademark after the sale remains the

same at $20,000.
Difficulty: Easy
Gradable: automatic
On January 1, 2018, Hanson Inc. purchased 54,000
voting shares out of Marvin Inc.'s 90,000 outstanding
voting shares for $240,000. On that date, Marvin's
$60,000 and $90,000, respectively. Marvin's book
values approximated its fair values on the acquisition
date with the exception of the company's equipment,
which was estimated to have a fair value that was
$50,000 in excess of its recorded book value. The
equipment was estimated to have a useful life of eight
years. Both companies use straight line amortization
exclusively.
On January 1, 2019, Hanson purchased an additional

9,000 shares of Marvin Inc. on the open market for
$45,000. On this date, Marvin's book values were equal
to its fair values with the exception of the company's
equipment, which is now thought to be undervalued by
$60,000. Moreover, the equipment's estimated useful
life was revised to 5 years on this date.
Marvin's net income and dividends for 2018 and 2019

are as follows:
Net Income
Dividends
Marvin's goodwill suffered an impairment loss of

$5,000 during 2018. Hanson Inc. uses the equity
method to account for its investment in Marvin Inc.
Hilton - Chapter 08
11. What is the amount of goodwill arising from Hanson's
January 1, 2018 acquisition?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
12. What percentage of Marvin's shares was purchased by

Hanson on January 1, 2018?
A.
B.
C.
D.
54,000 / 90,000 shares = 60%
Difficulty: Easy
Gradable: automatic
goodwill appearing on Hanson's December 31, 2018
consolidated balance sheet?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic

goodwill appearing on Hanson' December 31, 2019
Consolidated Balance Sheet?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
15. What is Hanson's ownership interest in Marvin after its
January 1, 2019 purchase?
A.
B.
C.
D.
(54,000 + 9,000) / 90,000 shares = 63,000 / 90,000

shares = 70%
Difficulty: Easy
Gradable: automatic

amortization for 2018 (excluding goodwill
impairment)?
A.
B.
C.
D.
Schedule of Acquisition Differential Amortization and

Impairment:
Difficulty: Easy
Gradable: automatic
amortization (excluding goodwill impairment) for
2019?
A.
B.
C.
D.

Impairment:
Gradable: automatic

acquisition differential (excluding goodwill) at the end
of 2019?
A.
B.
C.
D.

Impairment:
Gradable: automatic
19. What effect (if any) would Hanson's January 1, 2019
purchase have on the company's consolidated cash
flows for the year?
A.
B.
C.
D.
There would be a decrease in cash of $45,000 to the

consolidated entity.
Difficulty: Easy
Gradable: automatic
Learning Objective: 08-01 Prepare a consolidated cash flow statement by applying concepts learned in prior courses and unique consolidation concepts discussed here.
Topic: 08-01 Consolidated Cash Flow Statement
Topic: 08-02 Preparing the Consolidated Cash Flow Statement
Topic: 08-03 Changes in Parent's Ownership Interest
20. By how much would the non-controlling interest

amount have changed as a result of the Hanson's second
purchase?
A.
B.
C.
D.
A decrease of $43,975.
Gradable: automatic
21. What effect would the purchase at January 1, 2019 have
on the consolidated equity of Hanson?
A.
B.
C.
D.
There would be a reduction in consolidated retained

earnings of $1,025.
Gradable: automatic
22. What would be the balance in Hanson's investment in

Marvin account on December 31, 2019?
A.
B.
C.
D.
Difficulty: Difficult
Gradable: automatic
23. Assuming that A acquired a controlling interest in B

through numerous small acquisitions, what would be
appropriate accounting with respect to these
acquisitions?
A.
B.
C.
D.
Bloom's: Knowledge
Difficulty: Easy
Gradable: automatic
24. A owns 80% of B, which in turn owns 55% of C.

Which of the following statements is correct?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
Learning Objective: 08-05 Calculate consolidated net income attributable to the shareholders of the parent and non-controlling interest in situations where a parent
has direct and indirect control over a number of subsidiary companies.
Topic: 08-23 Indirect Shareholdings
25. X owns 70% of Y, which in turn owns 25% of Z. X,

also owns 20% of Z. Which of the following statements
is correct?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
P Corp. owns 800 voting common shares out of Q
Corp.'s 1,000 outstanding voting common shares, which
it accounts for using the equity method. On December
31, 2018, the shareholder's equity section of Q Corp.
was comprised of $15,000 in common shares and
retained earnings with the amount of $450,000.
Q Corp. reported net Income and paid dividends of

$120,000 and $20,000 respectively for the year ended
December 31, 2019.
On January 1, 2020, P Corp. sold 200 shares of its

investment in Q Corp. for $125,000. On January 1,
2019, the investment account had a balance of
$420,000. The acquisition differential was to be
allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).

Hilton - Chapter 08
26. What is the gain or loss on P's sale of its shares on Q

Corp.?
A.
B.
C.
D.
Gradable: automatic
27. What is the balance in the investment in Q account

immediately following the sale?
A.
B.
C.
D.
Difficulty: Difficult
Gradable: automatic
28. What is the amount of Goodwill that arose from P's

investment in Q?
A.
B.
C.
D.
Gradable: automatic

to patents?
A.
B.
C.
D.
Gradable: automatic

to equipment?
A.
B.
C.
D.
Gradable: automatic
31. What was the amount of acquisition differential
amortization for 2019?
A.
B.
C.
D.

Impairment:
Gradable: automatic
The following information pertains to the shareholdings
of an affiliated group of companies. The respective
ownership interest of each company is outlined below.
A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using

the equity method.
The Net Incomes for these companies for the year

ended December 31, 2018 were as follows:
A Inc.
J Inc.
G Inc.
D Inc.
Y Inc.
Unrealized intercompany profits (pre-tax) earned by the

various companies for the year ended December 31,
2018 are shown below:
G Inc.
Y Inc.
J Inc.
All companies are subject to a 25% tax rate.

Hilton - Chapter 08
32. How much is A Inc.'s Consolidated Net Income for

2018?
A.
B.
C.
D.
Calculation of Consolidated Net Income
Difficulty: Easy
Gradable: automatic
33. How much is the non-controlling interest in A Inc.'s

Consolidated Net Income for 2018?
A.
B.
C.
D.
Consolidated net income allocated to non-controlling

interest = $373,875.Calculation of Consolidated Net
Income
Gradable: automatic
34. What is the Consolidated Net Income for the year
attributable to the shareholders of A Inc.?
A.
B.
C.
D.
Consolidated net income allocated to the shareholders

of A Inc = $1,796,125.Calculation of Consolidated Net
Income
Gradable: automatic
Whine purchased 80% of the outstanding voting shares
of Dine Inc. on December 31, 2018. The balance sheets
of both companies on that date are shown below (after
Whine acquired the shares):
Cash
Accounts Receivable
Inventory
Investment in Dine Inc.
Land
Equipment (net)
Total Assets
Current Liabilities
Bonds Payable
Common Shares
Retained Earnings
Also on December 31, 2018 (after the financial

statements appearing above had been prepared)
Chompster Inc., one of Whine's main competitors has
agreed to acquire an equity interest in Dine Inc. As a
result of the agreement, Dine Inc. would issue another
8,000 shares (over and above the 32,000 shares it
currently has outstanding) to Chompster for $20 per
share.
The acquisition differential on the date of acquisition

was attributed entirely to equipment, which had a
remaining useful life of ten years from the date of
acquisition.
Whine Inc. uses the equity method to account for its

investment in Dine Inc. There were no unrealized
intercompany profits on December 31, 2018.
Hilton - Chapter 08
35. What would be the amount of cash appearing on
Whine's December 31, 2018 consolidated balance sheet
(after the issue of shares to Chompster)?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic

acquisition differential on December 31, 2018?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
37. What would be Whine's ownership interest in Dine

following Chompster's purchase of shares in Dine?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
38. What would be the gain or loss arising from Dine's
share issue to Chompster?
A.
B.
C.
D.
Gradable: automatic

sheet as at December 31, 2018 before the issue of
shares to Chompster?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic

sheet as at December 31, 2018 after the issue of shares
to Chompster?
A.
B.
C.
D.
Gradable: automatic
41. The amount of retained earnings appearing on the
be:
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
42. The amount of goodwill appearing on the December 31,

2018 consolidated balance sheet would be:
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
43. The amount of common shares appearing on the

be:
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
44. The amount appearing under equipment on the
be:
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
45. What is the correct method of treating an acquisition

differential arising from a Preferred Share Issue?
A.
B.
C.
D.
Bloom's: Knowledge
Difficulty: Easy
Gradable: automatic
Learning Objective: 08-04 Prepare consolidated financial statements in situations where the subsidiary has preferred shares in its capital structure.
Topic: 08-19 Subsidiary with Preferred Shares Outstanding
Topic: 08-20 IllustrationPreferred Shareholdings
Topic: 08-21 Other Types of Preferred Shares
Topic: 08-22 Subsidiary Preferred Shares Owned by Parent
46. Which of the following statements pertaining to

preferred shares is correct?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
47. Which of the following is not included in the amount of
shareholders' equity allocated to the holders of the
preference shares on the consolidated balance sheet?
A.
B.
C.
D.
Gradable: automatic

shares at a cost of $150,000, how much will the non-
controlling interest in the preferred shares amount to
after the purchase by the parent?
A.
B.
C.
D.
Gradable: automatic

shares at a cost of $150,000, what effect will the
transaction have on consolidated shareholders' equity?
A.
B.
C.
D.
Gradable: automatic

shares at a cost of $150,000, how much will the amount
of cash on the consolidated balance sheet change as a
result of this transaction?
A.
B.
C.
D.
Difficulty: Easy
Gradable: automatic
The financial statements of Lime Inc. and its subsidiary
Stone Corp. on December 31, 2017 are shown below:
RETAINED EARNINGS STATEMENTS

Balance, January 1, 2017
Net Income
Less: dividends
Retained earnings
BALANCE SHEETS
Cash
Accounts receivable
Inventory
Land
Plant and equipment
Accumulated depreciation
Investment in Stone (common)
Total Assets
Accounts payable
Accrued liabilities
Preferred shares
Common shares
Retained earnings
Other Information:
On January 1, 2014 Stone's balance sheet showed the

following shareholders' equity:
$3 cumulative preferred shares, 20,000 shares issued

Common shares, 100,000 shares issued
Surplus (Deficit)
On this date, Lime acquired 80,000 common shares for

$900,000.
* Stone's preferred share dividends were one year in

arrears on that date.
Stone's fair values approximated its book values on that

date with the following exceptions:
Inventory had a fair value that was $30,000 higher than

its book value. Plant and equipment had a fair value
$10,000 lower than their book value.
The plant and equipment had an estimated remaining

useful life of 10 years from the date of acquisition.
Intercompany sales of inventory for the year were as

follows:
Lime to Stone:
Stone to Lime:
Unrealized intercompany profits in inventory for 2017

were as follows:
January 1, 2017:
Stone's Inventory
Lime's Inventory
December 31, 2017:
Stone's Inventory
Lime's Inventory
On January 1, 2015, Stone sold equipment to Lime for
$30,000. The equipment had a carrying value of
$27,000 on that date and an estimated useful life of 3
years. The inventory on hand at the start of 2017 was
sold to outsiders during the year. Both companies are
subject to a tax rate of 40%. There were no dividends in
arrears on December 31, 2016. Lime uses the cost
method to account for its investment in Stone.
Consolidated retained earnings on December 31, 2016
is $523,120.
Hilton - Chapter 08
51. Compute the Goodwill on the date of the acquisition.
Preferred
Preferred Dividend Arrearages
Common
Total Share Capital
Deficit:
Total Equity
Acquisition Differential:
Imputed value of 100% of common shares
Less: book value of common shares
Acquisition differential
Allocated:
Plant & Equipment
Inventory
Goodwill
Gradable: manual
52. a) Prepare a schedule of intercompany profits as at
December 31, 2017 for both companies.
b) Compute the amount of deferred taxes that should

appear on the December 31, 2017 Consolidated Balance
Sheet.
a) Inventory
January 1, 2017
Stone's Inventory (downstream)
Lime's Inventory (upstream)
December 31, 2017

Stone's Inventory (downstream)
Lime's Inventory (upstream)
Dividends paid by Stone during 2017:
Total:
Less:
Paid to Preferred Shareholders
Paid to Common Shareholders
Intercompany portion (80%)
b) Deferred Taxes:
Unrealized Profits in Ending Inventory (total)

Future Income Tax ($14,000 x 40%)
Gradable: manual
53. Compute the Consolidated Net Income for 2017 and
show its allocation between the controlling and non-
controlling interests. Do not prepare an Income
Statement.
Lime's 2017 Net income

Intercompany dividends
Realized profits from opening inventory (downstream)
Unrealized profits in ending inventory (downstream)
Stone's Net income
Amortization of acquisition differential
Realized from open inventory (upstream)
Unrealized in ending inventory (upstream)
Realized from equipment sale
Consolidated Net Income

Non-controlling interest:
Preferred shares
Common shares
(20% of [$230,800 - $60,000])
Controlling interest ($551,200 - $94,160)
Gradable: manual
54. Prepare a calculation of non-controlling interest as at

December 31, 2017.
Equity - Common Shareholders

Goodwill
Less: Unamortized acquisition differential
Less: Unrealized profit
20% NCI (Common shares)

Preferred shares
Non-Controlling Interest (Total)
Gradable: manual
55. Prepare a calculation of Consolidated Retained

Earnings at as December 31, 2018.
Calculation of Consolidated Retained Earnings:
Lime's Retained Earnings

Unrealized profit in ending inventory (downstream)
Stone's Retained Earnings
Less: at acquisition (include div in arrears)
Increase in Retained Earnings
Unrealized profit in end inventory (upstream)
Less; NCI share

Consolidated Retained Earnings
Gradable: manual
56. Prepare Lime's December 31, 2017 Consolidated
Balance Sheet.
Lime Inc.
Consolidated Balance Sheet
As At December 31, 2017
Assets
Cash
Accounts Receivable
Inventory
Land
Goodwill
Deferred Taxes
Total Assets
Liabilities and Equity

Accounts Payable
Accrued Liabilities
Common Shares
Retained Earnings
Gradable: manual
57. The following information was derived from the 2017
consolidated financial statements of X Inc., which owns
80% of Y Inc. as well as 40% of Z Inc.:
Equity Earnings from Z Inc.

Decrease in Accounts Payable
Increase in Bonds Payable
Depreciation
Loss on sale of machinery
Carrying value of machinery sold
Dividends received from Z Inc.
Purchase of a building for cash
Entity Net Income allocated to non-controlling interest
Consolidated net income allocated to Parent
Dividends paid by X Inc.
Dividends paid by Y Inc.
The cash balance at the start of 2017 was $200,000.
Required:
Prepare the consolidated statement of cash flows for

Lime Inc for the year ended December 31, 2017.
X Inc.
Consolidated Statement of Cash Flows
Consolidated net income

Add (Deduct):
Depreciation
Loss on machinery sale
Equity earnings from Z Inc.
Dividends from Z Inc.
Increase in inventory
Decrease in accounts payable
Increase in accounts receivable
Cash flow from operations:
Investing
Purchase of a building
Sale of equipment
Total cash from investing
Financing
Bond Issue
Dividends - to X Inc.'s shareholders
Dividends - Non-controlling shareholders
Cash from Financing
Net change in cash
Increase (decrease) in cash
Add: Opening cash balance
Cash Balance - December 31, 2017
Gradable: manual
The trial balances of Ash Inc. and its subsidiary Cinder
Corp. on December 31, 2018 are shown below:
Inventory
Dividends Declared
Investment in Cinder
Cost of Goods Sold
Other Expenses
Total Assets
Liabilities
Common Shares
Retained Earnings
Sales and Other Revenue
Other Information:
Ash acquired Cinder in three stages:
January 1, 2015:
January 1, 2017:
December 31, 2018:
Cinder was incorporated on January 1, 2013. On that

date, Cinder issued 100,000 voting shares. Any
difference between the cost and book value is
attributable entirely to trademarks, which are to be
amortized over 5 years. The company has neither issued
nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of

$20,000 on January 1, 2017. These assets had a 10 year
remaining life.
Intercompany sales of inventory during 2018 amounted
to $250,000. Unrealized inventory profits for each
company are shown below for 2018. The amounts
indicate the amount of profit in each company's
inventory.
Ash
January 1, 2018:
December 31, 2018:
Cinder
January 1, 2018:
December 31, 2018:
All inventories on hand at the start of 2018 were sold to

outsiders during the year. The net Incomes of both
companies are evenly earned throughout the year. Both
companies are subject to an effective corporate tax rate
of 20%.
Hilton - Chapter 08
58. What amount will be shown in the consolidated balance

sheet of Ash as at December 31, 2018, for trademarks?
Consideration (fair value of 60,000 shares)

Implied value of NCI (40%)
Fair value of Cinder at December 31, 2018 (acquisition date)
New book value at acquisition
Acquisition differential, allocated to patents
Difficulty: Easy
Gradable: manual
59. Compute consolidated inventory for Ash as at
December 31, 2018.
Book value of inventory

Less:
Unrealized Profits ($20,000 + $40,000)
Difficulty: Easy
Gradable: manual
60. Compute the Consolidated Cost of Goods Sold for

2018.
Cost of Goods Sold as reported:

Add: (Deduct)
Intercompany Sales
Unrealized Inventory Profit (opening)
Unrealized Inventory Profit (ending)
Consolidated Cost of Goods Sold:
Difficulty: Easy
Gradable: manual
61. Beta Corp. owns 80% of Gamma Corp. The
Consolidated Financial Statements of Beta Corp. for
2018 and 2019 are shown below:
Beta Corp.
Consolidated Balance Sheet,
December 31, 2019
Cash
Accounts Receivable
Inventory
Land
Plant and Equipment
Accumulated Depreciation
Goodwill
Total Assets
Accounts Payable
Accrued Liabilities
Bonds Payable
Less Bond Discount
Common Shares
Retained Earnings
Beta Corp.
Consolidated Income Statement,
For the year ended December 31, 2019
Sales
Cost of aales
Depreciation
Interest expense
Gain on land sale
Net income
Attributable to:
Shareholders of Parent
Other Information:
Beta purchased its interest in Gamma on January 1,

2015 for $360,000 when the company's net assets were
valued at $300,000. The acquisition differential was
allocated equally between goodwill and equipment,
which was estimated to have a remaining useful life of
ten years from the acquisition date.
Gamma reported a net income of $75,000 and paid
dividends of $5,000 during 2019.
Beta issued $300,000 in bonds during the year. Beta
reported an equity method net Income of $300,000 and
paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for

Beta Corp. for 2019.
Beta Corp.
Consolidated Statement of Cash Flows
Net Income
Add (Deduct)
Depreciation
Gain on land sale
Add: Bond discount amortization
Increase in Accounts Payable
Increase in Accrued Liabilities
Cash from Operations
Investing
Purchase of plant/equipment
Sale of land
Cash from Investing
Financing
Bond Issue
Dividends - to Beta's shareholders
Dividends - Non-Controlling shareholders
Cash from Financing
Increase (decrease) in Cash
Add: Opening Cash Balance
Cash Balance - December 31, 2019
Gradable: manual
Parrot Company purchased 75% of the outstanding
common shares and 50% of the outstanding preference
shares of Saltines Inc. on January 1, 2019, on which
date the balance sheet and fair values of Saltines' assets
and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2018
Cash
Accounts receivable
Inventory
Capital assets (net)
Current liabilities
Long-term debt
Common shares
Preferred shares
Contributed surplus
Retained earnings
Parrot paid $460,000 for the common shares and

$105,000 for the preference shares. The contributed
surplus arose from the issue of the preferred shares at a
price higher than their stated value. The preferred
shares paid cumulative dividends of 5% of their stated
value but dividends for 2017 and 2018 were unpaid.
The shares were redeemable, at the option of the issuer,
at a premium of 8%. The capital assets of Saltines had a
remaining useful life of ten years at January 1, 2009.
Any unallocated acquisition differential would be
treated as goodwill, which is assessed annually for
impairment. Parrot accounts for its interest in Saltines
using the cost method and accounts for the non-
controlling interest in its consolidated financial
statements based on the fair value of the subsidiary,
proportionate to the price paid for the controlling
interest.
Parrot's net income for 2019 was $300,000 and Parrot
paid dividends of $150,000 on December 31, 2019.
Saltines' net income for 2019 was $120,000 before a
loss from discontinued operations of $60,000 (net of
tax). Saltines paid dividends of $75,000 in 2019. (Parrot
included all dividends received in its income for 2019.)
Hilton - Chapter 08
62. Calculate the amount of the non-controlling interest on
the consolidated balance sheet of Parrot and its
Consideration for 75% of common shares

Implied value of 100% of common shares
Net book value at acquisition
Allocated to preferred shares:
Stated value
Redemption premium
Dividends in arrears
Acquisition differential
Allocated to:
Accounts receivable
Inventory
Capital assets
Goodwill
Accounts receivable
Inventory
Capital assets
Goodwill
Total value of company:

NBV at beginning of year
Net income
Dividends
Unamortized acquisition differential
Allocated to preferred shares:
Stated value
Redemption premium
Dividends in arrears
Allocated to common shares
Non-controlling interest:
In preferred shares (50% of $216,000)
In common shares (25% of $650,333)
Gradable: manual
63. Calculate the consolidated net income of Parrot and its

Parent's net income

Less: dividends from subsidiary
Preferred shares (50% of $30,000)
Common shares (75% of [$75,000 - $30,000])
Subsidiary's net income
Consolidated net income, before loss from discontinued operation
Loss from discontinued operations
Consolidated Net Income
Gradable: manual
64. Parrot has no contributed surplus on its own balance

sheet as at the end of 2019. Calculate the amount of the
contributed surplus shown on the consolidated balance
sheet of Parrot and its subsidiary as at December 31,
2019.
Amount paid for preferred shares

Carrying value of 50% of preferred shares at acquisition
Contributed surplus
Difficulty: Easy
Gradable: manual
65. On January 1, 2018, Philcorp acquired 8,000 of the
outstanding 10,000 shares of Anderco by issuing its
own shares with a market value of $400,000. On June
30, 2019, Anderco issued an additional 2,000 shares for
cash consideration of $60 per share, none of which
were acquired by Philcorp. Immediately before the
issue, the shareholders' equity of Anderco amounted to
$500,000 and the unamortized purchase discrepancy
was $65,000. Philcorp uses the equity method to record
its investment in Anderco.
Required:
What gain or loss will appear in the consolidated

financial statements of Philcorp and its subsidiary
Anderco as a result of this transaction?
Investment account balance prior to new issue:

Share of net book value (80% of $500,000)
Share of unamortized acquisition differential
Shares outstanding:
Before new issue

New issue
After new issue
Deemed disposition of (80% - 67%) / 80%) = 16.67%
Deemed proceeds (66.67% of 2,000 @ $60)

Deemed cost (16.67% of $452,000)
Gain (to consolidated contributed surplus)
Gradable: manual
c8 Summary

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c8

1. A Inc. owns 80% of B's outstanding voting shares.

2. Assume that X Corp. controls Y Corp., X constantly

ABC Inc. purchased 35,000 voting shares out of 123

On January 2, 2018, ABC sold 14,000 shares of 123 on

ABC Inc. uses the equity method to account for its

4. What percentage of its Investment in 123 was sold by

5. What is ABC's ownership interest in 123 after its sale?

6. What would be the balance in the investment in 123

7. What would be the amount of the gain or loss on the

9. What is the amount of the non-controlling interest at

10. What is the carrying value of the trademark after the

On January 1, 2019, Hanson purchased an additional

Marvin's net income and dividends for 2018 and 2019

Marvin's goodwill suffered an impairment loss of

11. What is the amount of goodwill arising from Hanson's

13. Assuming that Hanson had no recorded goodwill prior

14. Assuming that Hanson had no recorded goodwill prior

15. What is Hanson's ownership interest in Marvin after its

16. What is the amount of the acquisition differential

18. What would be the amount of the unamortized

19. What effect (if any) would Hanson's January 1, 2019

20. By how much would the non-controlling interest

21. What effect would the purchase at January 1, 2019 have

23. Assuming that A acquired a controlling interest in B

24. A owns 80% of B, which in turn owns 55% of C.

25. X owns 70% of Y, which in turn owns 25% of Z. X,

Q Corp. reported net Income and paid dividends of

On January 1, 2020, P Corp. sold 200 shares of its

60% to patents (6 year remaining life).

30% to equipment (9 year remaining life).

26. What is the gain or loss on P's sale of its shares on Q

27. What is the balance in the investment in Q account

28. What is the amount of Goodwill that arose from P's

30. How much of the acquisition differential was allocated

31. What was the amount of acquisition differential

A Inc. owns 75% of J Inc. and 60% of G Inc.

J Inc. owns 60% of D Inc. and 20% of G Inc.

G Inc. owns 10% of D Inc. and 80% of Y Inc.

All intercompany investments are accounted for using

The Net Incomes for these companies for the year

Unrealized intercompany profits (pre-tax) earned by the

All companies are subject to a 25% tax rate.

32. How much is A Inc.'s Consolidated Net Income for

33. How much is the non-controlling interest in A Inc.'s

34. What is the Consolidated Net Income for the year

Also on December 31, 2018 (after the financial

The acquisition differential on the date of acquisition

Whine Inc. uses the equity method to account for its

36. What would be the amount of the unamortized

37. What would be Whine's ownership interest in Dine

38. What would be the gain or loss arising from Dine's

39. What would be the amount of the non-controlling

41. The amount of retained earnings appearing on the

42. The amount of goodwill appearing on the December 31,

43. The amount of common shares appearing on the

44. The amount appearing under equipment on the

46. Which of the following statements pertaining to

47. Which of the following is not included in the amount of