Advanced ACCT Midterm MC

Mittelstaedt, Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $267,000 but had a fair value of $576,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover? - $309,000. - $415,800. - $160,200. - $576,000.

- $576,000.

When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as - A deduction from the investor's share of the investee's profits. - A deduction from the stockholders' equity account, Dividends to Stockholders. - A deduction from the investment account. - Dividend income.

- A deduction from the investment account.

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest? - A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership. - Consolidated financial statements should be primarily for the benefit of the parent company's stockholders. - Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company. - Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry.

- A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.

When is a goodwill impairment loss recognized? - Only after both a quantitative and qualitative assessment of the fair value of goodwill of a reporting unit. - After only definitive quantitative assessments of the fair value of goodwill is completed. - After only definitive qualitative assessments of the fair value of goodwill is completed. - If the fair value of a reporting unit falls to zero or below its original acquisition price. - Never.

- After only definitive quantitative assessments of the fair value of goodwill is completed.

What is goodwill? - An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination - An expense that an acquiring firm recognizes for the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination - A concept representing synergies resulting from a business combination but not recognized for financial reporting purposes - An internally developed intangible asset that is recognized on a business firm's balance sheet as the business generates profits in excess of a normal rate of return on its identifiable net assets

- An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination

The equity method tends to be most appropriate if - An investment enables the investor to influence the operating and financial decisions of the investee. -Majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the investor. - An investment represents 50 percent or more of the voting stock of an investee. - The investor is unable to obtain representation on the -investee's board of directors.

- An investment enables the investor to influence the operating and financial decisions of the investee.

What best describes the type of business combination in which there is control without dissolution? - Business combination in which only one of the two companies continues to exist as a legal entity. - A takeover completed within one year of the initial tender offer. - Business combination in which both companies cease to exist as legal entities and a newly created entity is formed. - Business combination in which both companies continue to exist as legal entities. - A merger approved by the Securities and Exchange Commission.

- Business combination in which both companies continue to exist as legal entities.

Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee? - Intra-entity profits from upstream sales. - Changes in the fair value of the investor's ownership shares of the investee. - The investee's reported income adjusted for excess cost over book value amortizations. - Other comprehensive income reported by the investee.

- Changes in the fair value of the investor's ownership shares of the investee.

According to GAAP regarding amortization of goodwill, which of the following statements is true? - Goodwill recognized in consolidation must be amortized over 20 years. - Goodwill recognized in consolidation must be expensed in the period of acquisition. - Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. - Goodwill recognized in consolidation can never be written off. - Goodwill recognized in consolidation must be amortized over 40 years.

- Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.

The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized? - In the owners' equity section. - In the liability section. - The noncontrolling interest is not recognized in the consolidated balance sheet. - In a mezzanine section between liabilities and owners' equity.

- In the owners' equity section.

Under the equity method of accounting for an investment: - The investment account remains at initial value. - Dividends received are recorded as revenue. - Goodwill is amortized over 20 years. - Income reported by the subsidiary increases the investment account. - Dividends received increase the investment account.

- Income reported by the subsidiary increases the investment account.

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision? - It is a relatively easy method to apply. - GAAP now requires the use of this particular method for internal reporting purposes. - Consolidation is not required when the parent uses the initial value method. - Operating results appearing on the parent's financial records reflect consolidated totals.

- It is a relatively easy method to apply.

One company acquires another company in a combination accounted for under the acquisition method. The acquiring company decides to apply the initial value (cost) method in accounting for the combination. What is one reason the acquiring company might have made this decision? - It is the only method allowed by the SEC. - It is relatively easy to apply. - It is the only internal reporting method allowed by generally accepted accounting principles.​ - Operating results on the parent's financial records reflect consolidated totals. - When the initial value (cost) method is used, no worksheet entries are required in the consolidation process.

- It is relatively easy to apply.

Which of the following does not represent a primary motivation for business combinations? - Synergies may be available through quick entry for new and existing products into markets. - Combinations are often a vehicle to accelerate growth and competitiveness. - Cost savings can be achieved through elimination of duplicate facilities and staff. - Larger firms are less likely to fail.

- Larger firms are less likely to fail.

Which of the following is true regarding non-controlling interest? - In the consolidated balance sheet non-controlling interest is recognized in the liability section. - Non-controlling interest reflects a scenario in which the parent acquired100% percent of the subsidiary's outstanding shares. - When there exists a non-controlling interest, consolidation does not occur. - Non-controlling interest represents an outside ownership in a subsidiary that is not attributable to the parent. - In the consolidated balance sheet non-controlling interest is recognized in the asset section.

- Non-controlling interest represents an outside ownership in a subsidiary that is not attributable to the parent.

Whole Foods is a wholly owned (i.e. 100% ownership) subsidiary of Amazon. Given this information, and assuming all other subsidiaries of Amazon are wholly owned, which account will not be seen in Amazon's 2019 year-end Consolidated Financial Statements? - Additional paid-in capital. - Noncontrolling interests. - Goodwill. - Retained earnings. - Common stock.

- Noncontrolling interests.

According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be - Included in recognized goodwill. - Capitalized as part of the overall fair value acquired in the merger. - Recorded as an expense in the period the merger takes place. - Written off over a five-year maximum useful life.

- Recorded as an expense in the period the merger takes place.

Under the initial value method, when accounting for an investment in a subsidiary, - Dividends received by the subsidiary decrease the investment account. - The investment account is adjusted to fair value at year-end. - Income reported by the subsidiary increases the investment account. - The investment account does not change from year to year. - Dividends received are ignored.

- The investment account does not change from year to year.

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. - Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company. - The acquired company dissolves as a separate corporation and becomes a division of the acquiring company. - The acquiring company acquires the stock of the acquired company as an investment. - A statutory consolidation is no longer a legal option.

- The original companies dissolve while remaining as separate divisions of a newly created company.

How does the initial value (cost) method differ from the equity method? - In the total assets reported on the consolidated balance sheet. - In the total liabilities reported on the consolidated balance sheet. - Under the initial value method, the balance in the parent's investment account remains unchanged from acquisition date (assuming no subsequent purchase or sale of shares). - Under the initial value method, the balance in the parent's investment account is decreased by amortization on allocations made in the acquisition of the subsidiary. - Under the initial value method, subsidiary income increases the balance in the parent's investment account.

- Under the initial value method, the balance in the parent's investment account remains unchanged from acquisition date (assuming no subsequent purchase or sale of shares).

When does a Gain on Bargain Purchase accompany a business combination? - In a combination created in the middle of a fiscal year. - In an acquisition when the value of all assets and liabilities cannot be determined. - When the amount paid is greater than the fair value of net identifiable assets acquired. - When the acquirer purchases less than 100% of the entity. - When the amount paid is less than the fair value of net identifiable assets acquired.

- When the amount paid is less than the fair value of net identifiable assets acquired.

When should a consolidated entity recognize a goodwill impairment loss? - When the fair value of a reporting unit exceeds its respective carrying amount - Whenever the entity's fair value declines significantly - Annually on a systematic and rational basis - When the fair value of a reporting unit with goodwill falls below its carrying amount

- When the fair value of a reporting unit with goodwill falls below its carrying amount

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination? Goodwill. Equipment. Retained Earnings. Common Stock. Equity in Subsidiary Earnings.

Equity in Subsidiary Earnings.