Advanced Accounting Exam 1

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What accounting transactions are not recorded by an accountant during partnership liquidation?

The initiation of legal action by creditors of the partnership

What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act?

The partner with a deficit balance must contribute personal assets to cover the deficit balance

Which one of the following statements is incorrect regarding a predistribution plan?

a predistribution plan is prepared at the end of a liquidation to confirm actual cash distributions

Under the equity method, when the company's share of cumulative losses equals its investment and the company has no obligation or intention to fund such additional losses, which of the following statements is true?

the investor should suspend applying the equity method and not record any equity in income of investee until its share of future profits is sufficient to recover losses that have not previously been recorded

The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors?

they may seek remuneration from any partner they choose.

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Year Cost to Acker Transfer Price Held by Howell 2020 $55,000 $75,000 $15,000 2021 70,000 110,000 55,000 Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year. What is the balance in Acker's investment in Howell account at December 31, 2021?

$624,000 (beg bal+equity in NI-dividends)

Cleary, Wasser, and Nolan formed a partnership on January 1, 2020, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2020 and $180,000 in 2021. Each partner withdrew $1,000 for personal use every month during 2020 and 2021.What was Wasser's total share of net income for 2020?

$63,000

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Year Cost to Acker Transfer Price Held by Howell 2020 $55,000 $75,000 $15,000 2021 70,000 110,000 55,000 Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year. What is the amount of unrealized intra-entity inventory profit to be deferred on December 31, 2021?

$8,000 (1-Cost ratio *held by howell, *ownership)

Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2021 and paid dividends of $60,000 on October 1, 2021. How much income should Gaw recognize on this investment in 2021?

$9,000 ($60,000*.15)

Which of the following is not a characteristic of a partnership?

A partnership requires written Articles of Partnership

An example of a difference in types of business combination is:

A statutory merger requires dissolution of the acquired company while a statutory consolidation does not require dissolution

Luffman Inc. owns 30% of Bruce Inc. and appropriately applies the equity method. During the current year, Bruce bought inventory costing $52,000 and then sold it to Luffman for $80,000. At year-end, all of the merchandise had been sold by Luffman to other customers. What amount of unrealized intercompany profit must be deferred by Luffman?

$0 (all inventory was sold, no deferral)

On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. In this acquisition business combination, what total amount of common stock and additional paid-in capital is recorded on Goodwin's books?

$1,165 (stock issued-issue costs)

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Year Cost to Acker Transfer Price Held by Howell 2020 $55,000 $75,000 $15,000 2021 70,000 110,000 55,000 Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year. What is the amount of unrealized intra-entity inventory profit to be deferred on December 31, 2020

$1,600

Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Vicker's accounts: Bullen Vicker Fair Value Retained Earnings 1/1 $250,000 $240,000 Cash & Receivables 170,000 70,000 $70,000 Inventory 230,000 170,000 210,000 Land 280,000 220,000 240,000 Buildings (net) 480,000 240,000 270,000 Equipment (net) 120,000 90,000 90,000 Liabilities 650,000 430,000 420,000 Common Stock 360,000 80,000 APIC 20,000 40,000 Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock. In this acquisition transaction, how much is the purchase premium?

$104,000 (12,000*47=564,000-bv(460,000)=premium(104000))

On January 1, 2020, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2021 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The balance in the investment in Sacco account at December 31 2020

$107,500

A partnership began its first year of operations with the following capital balances: Young, Capital $143,000 Eaton, Capital 104,000 Thurman, Capital 143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner:Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.Each partner withdrew $13,000 per year.Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.What was Young's total share of net loss for the first year?

$11,700 loss

On January 1, 2020, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2021 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The balance in the investment in Sacco account at December 31, 2021 is

$119,500 (Beg balance+equity in NI-dividends)

On January 1, 2020, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2021 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The equity in income of Sacco for 2020 is

$13,500 (Net income-amortization)

On January 1, 2020, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2021 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The amount allocated to goodwill at January 1, 2020, is

$16,000

Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands). Compute the investment to be recorded at date of acquisition.

$1755 (=50*35+5)

Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders' equity figures: Botkins Volkerson Common Stock ($1 par) $220,000 54,000 APIC 110,000 25,000 Retained Earnings 360,000 130,000 Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. At what amount did Botkins record the investment in Volkerson?

$182,000 (56,000*3.25)

A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Ding, Capital $60,000 Laurel, Capital 67,000 Ezzard, Capital 17,000 Tillman, Capital 96,000 Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time.If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received?

$2,500

On January 1, 2020, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2020, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2021 it reported income of $75,000 and dividends of $30,000. Assume Dawson has the ability to significantly influence the operations of Sacco. The equity in income of Sacco for 2021 is

$21,000 (Net income-amortization)

Jerry, a partner in the JSK partnership, begins the year on January 1, 2021 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on this weighted average capital balance.• On March 1, 2021, when the partnership tax return for 2020 was completed, Jerry's capital account was credited for his share of 2020 profit of $120,000.• Jerry withdrew this amount quarterly, beginning April 1.• On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he brought to the partnership.What amount of interest will be attributed to Jerry for year 2021 that will go toward his profit distribution for the year?

$6150

What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation?

If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records ofthe acquiring company

In a step acquisition, which of the following statements is false?

Income from subsidiary is computed for the entire year for a new purchase acquired during the year

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?

Income from subsidiary is recognized fromd ate of acquisition to year-end

On January 1, 2019, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2021, Dermot purchased 28% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method?

It must restate the financial statements for 2020 and 2019 as if the equity method had been used for those two years

Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax purposes? (check all that apply)

Limited Liability Company, Limited Liability Partnership, Subchapter S Corporation

Which of the following statements is true?

Neither the purchase method nor the pooling of interests method is allowed for new business combinations

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill

In an acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

Parent- book value, subsidiary-fair value

In accounting for the liquidation of a partnership, cash payments to partners after all creditors' claims have been satisfied, but before final cash distribution, should be according to:

Safe payment computations

Which of the following statements is true regarding a statutory merger?

The acquired company dissolves as a separate corporation and becomes a division of the acquiring company

Which of the following statements is true concerning the distribution of safe payments?

The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership

Which statement is true concerning unrealized profits in intra-entity inventory transfers when an investor uses the equity method?

The investor must defer downstream ending inventory profits

Which one of the following is a characteristic of a business combination accounted for as an acquisition?

The transaction established an acquisition fair value basis for the company being acquired

Which of the following results in a decrease in the Equity in Investee Income account when applying the equity method?

Unconfirmed gain on intra-entity inventory transfers for the current year

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

a gain on bargain purchase is recorded

Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in

a worksheet

In a partnership liquidation, how is the final allocation of business assets made to the partners?

according to the balances of the partners' loan and capital accounts

Acquired in-process research and development is considered as

an indefinnite-lived asset subject to testing for impairment

A statutory merger is a(n)

business combination in which only one of the two companies continues to exist as a legal corporation

At the date of an acquisition which is not a bargain purchase, the acquisition method

consolidates all subsidiary assets and liabilities at fair value

Using the acquisition method for a business combination, goodwill is generally defined as:

cost of the investment less the subsidiary's fair value at acquisition date

How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?

direct combination costs are expensed and stock issuance costs are a reduction to apic

Which of the following is a not a reason for a business combination to take place?

increase in stock price of the acquired company

A company should always use the equity method to account for an investment if:

it has the ability to exercise significant influence over the operating policies of the investee

An upstream sale of inventory is a sale:

made by the investee to the investor

All of the following would require use of the equity method for investments except:

valuation at fair value

The dissolution of a partnership occurs

when there is any change in the individuals who make up the partnership

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

net assets of the acquired company are reported at their fair values

A guideline for the cash distributions to be made to the partners during a liquidation is called:

predistribution plan

Atlarge Inc. owns 30% of the outstanding voting common stock of Ticker Co. and has the ability to significantly influence the investee's operations and decision making. On January 1, 2021, the balance in the Investment in Ticker Co. account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2021, Ticker earned income of $108,000 and paid cash dividends of $36,000. Previously in 2020, Ticker had sold inventory costing $28,800 to Atlarge for $48,000. All but 25% of this merchandise was consumed by Atlarge during 2020. The remainder was used during the first few weeks of 2021. Additional sales were made to Atlarge in 2021; inventory costing $33,600 was transferred at a price of $60,000. Of this total, 40% was not consumed until 2022.What amount of equity income would Atlarge have recognized in 2021 from its ownership interest in Ticker?

$22,672

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2020 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2021 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. When recordng consideration transferred for the acquisition of Rhine on January 1, 2020, Harrison will record a contingent performance obligation in the amount of:

$3,142

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Cash $10,000 Liabilities $130,000 Noncash Assets 300,000 Keaton, Capital 60,000 Lewis, Capital 40,000 Meador, Capital 80,000 Total $310,000 Total $130,000 Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $180,000. Liquidation expenses were $10,000.Assume that Lewis was personally insolvent and could not contribute any assets to the partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton have received from the distribution of partnership assets?

$30,000

The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Cash $100,000 Liabilities $40,000 Noncash Assets 210,000 Keaton, Capital 90,000 Lewis, Capital 60,000 Meador, Capital 120,000 Total $310,000 Total $310,000 Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $60,000. How much will each partner receive in the liquidation? Keaton Lewis Meador A $40,000 $26,667 $ 53,333 B $24,000 $48,000 $ 48,000 C $60,000 $0 $ 60,000 D $0 $0 $120,000 E $36,000 $12,000 $ 72,000

$30,000

On January 3, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of the investment, Gainsville's total stockholders' equity was $8,000,000. Austin gathered the following information about Gainsville's assets and liabilities: Book Value Fair Value Buildings (10 yr life) $400,000 $500,000 Equipment (5 yr life) 1,000,000 1,300,000 Franchises (8 yr life) 0 400,000 For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair value was attributed to goodwill, which has not been impaired.What is the amount of goodwill associated with the investment?

$300,000

Tower Inc. owns 30% of Yale Co. and applies the equity method. During the current year, Tower bought inventory costing $66,000 and then sold it to Yale for $120,000. At year-end, only $24,000 of merchandise was still being held by Yale. What amount of intra-entity inventory profit must be deferred by Tower?

$3240 (66,000/120,000=55% cost ratio, markup=1-55%=45%, 24,000*45%=10800, 10800*30%=3240)

The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2011, were as follows: Apple, Capital $143,000 Bere, Capital 104,000 Carrol, Capital 143,000 Total Capital $150,000 The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is:

$37,500 (150,000/.8 -150,000)

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Year Cost to Acker Transfer Price Held by Howell 2020 $55,000 $75,000 $15,000 2021 70,000 110,000 55,000 Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year. What is the Equity in Howell Income that should be reported by Acker in 2020??

$38,400 (net income*ownership -end inventory)

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2020 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2021 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. What will Harrison record as its investment in Rhine on Jan 1?

$403,142 (400,000+3124)

Acker Inc. bought 40% of Howell Co. on January 1, 2020 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: Year Cost to Acker Transfer Price Held by Howell 2020 $55,000 $75,000 $15,000 2021 70,000 110,000 55,000 Howell reported net income of $100,000 in 2020 and $120,000 in 2021 while paying $40,000 in dividends each year. What is the balance in Acker's investment in Howell account at December 31, 2020?

$598,400 (Beg bal+equity in ni-dividends)

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill?

$60,000 (40,000/.2 - (50,000+30,000+20,000+40,000)

The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Cash $16,000 Noncash Assets 434,000 Liabilities $150,000 Total $450,000 Abrams, Capital 80,000 Bartle, Capital 90,000 Creighton, Capital 130,000 Total $450,000 Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000.The noncash assets were sold for $134,000. Which partner(s) would have had to contribute assets to the partnership to cover a deficit in his or her capital account?

Abrams and Creighton

Which of the following results in an increase in the Equity in Investee Income account when applying the equity method?

Confirmed gain on intra-entity inventory transfers for the prior year

Which of the following is false regarding contingent consideration in business combinations?

Contingent consideration is recorded because of its substantial probability of eventual payment

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.C contributes $10,000 to the partnership and the goodwill method is used. What will be the result of the goodwill calculation?

Goodwill of $15,000 all to C (=100,000/.8 - 110,000 FMV-Actual Capital)

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2020 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2021 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142. Assuming Rhine generates cash flow from operations of $27,200 in 2020, how will Harrison record the $16,500 payment of cash on April 15,2021 in satisfaction of its contingent obligation?

Debit contingent performance obligation $3142, debit loss from revaluation of contingent performance obligation$13,358, and credit cash $16,500

How are direct and indirect costs accounted for when applying the acquisition method for a business combination?

Direct costs and indirect costs are both expensed

All of the following statements regarding the investment account using the equity method are true except:

Dividends received are reported as revenue

On January 1, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Moody Osorio Cash $180 $40 Receivables 810 180 Inventories 1,80 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts Payable (450) (80) Long Term Debt (1,290) (400) Common Stock (330) (240) APIC (1,080) (340) Retained Earnings (1,260) (340) Note: Parentheses indicate a credit balance.In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.What amount was recorded as goodwill arising from this acquisition?

none. there is a gain on bargain purchase of $230 (price paid-bv=discount-fmv=bargain purchase)

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements?

preacquisition earnings are ignored in the consolidated income statement

Protecting the interests of partnership creditors is a significant duty because:

the Uniform Partnership Act specifies that they have first priority to the assets held by the partnership at dissolution

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?

the book value of the subsidiary will increase

When applying the equity method, how is the excess of cost over book value accounted for?

the excess is allocated to the difference between fiar value and book value multiplied by the percent ownership of net assets with any remaining amount allocated to goodwill

Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Quincy to the partnership? the bonus method. the equity method. the goodwill method. the proportionate method. the cost method.

the goodwill method

Stanley, a partner of the Newtown partnership, made a loan to the partnership. The partnership is now in liquidation. Which one of the following statements is incorrect regarding the status of this loan during the liquidation process?

the loan must be repaid before any cash distribution is made to the other partners, even if Stanley does not have a sufficient amount of capital to absorb all possible losses

Which of the following statements is true regarding a statutory consolidation?

the original companies dissolve while remaining as separate divisions of a newly created company

A partnership is liquidating and one of the partner's capital accounts has a deficit balance. What should happen?

the partner with the deficit should contribute enough personal assets to eliminate the deficit balance


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