Advanced Accounting Test 2 Quizlet- Chapter 3 LearnSmarts

Under the partial equity method the parent records income from its subsidiary as:

Equity in subsidiary earnings and an increase in the investment in subsidiary account.

When a depreciable asset acquired in a business combination has an acquisition-date book value in excess of its fair value, the excess will be allocated over time as a __________________ to consolidated depreciation expense

reduction

Consolidation Entry P:

removes the balances from intra-entity receivables and payables

Within the consolidated entity, goodwill impairment tests are conducted at the ________ ________ level

reporting unit

When the parent employs either the initial value or the partial equity method, establishing an appropriate beginning ______________ ________________ balance for the parent is crucial to the preparation of consolidated financial statements.

retained earnings

Worksheet entries focus on the parent's beginning retained earnings as needed to partially adjust to the full-accrual basis. To complete the adjustment, we combine the current year consolidated ___________ and _____________ to arrive at full-accrual ending retained earnings.

revenues and expenses

Among the most prominent internal record-keeping methods for accounting for an investment in a subsidiary are:

the partial equity method, the initial value method, and the equity method

When a parent company uses the partial equity method to account for an investment in a subsidiary, Consolidation Entry asterisk C is needed to:

Update the parent's retained earnings for past years' amortizations acquisition-date fair value adjustments, and to simulate the equity method for the parent's retained earnings in deriving consolidated totals.

In applying a qualitative test as to whether a reporting unit's goodwill is impaired, a firm assesses the _________________ that a reporting unit's fair value is less than its carrying amount.

likelihood

How does a parent company account for contingent consideration at the date of the acquisition of a subsidiary company?

A cash payment contingency based on future performance is recorded as a liability for its acquisition-date fair value, and a stock-based contingency is recorded as an additional paid-in capital for its acquisition-date fair value.

Which of the following is a characteristic of the partial equity method of accounting for a parent company's investment in a subsidiary company?

The parent company accrues income as reported by the subsidiary.

Although maintained on the books of the parent, the Investment in Subsidiary account is always brought to a ____________ balance

Zero

In conjunction with combining a subsidiary's revenues and expenses with those of the parent company, the income from subsidiary account accrued by a parent is brought to a __________________ balance as part of the consolidation process

Zero

In the first step of the quantitative goodwill impairment test, for each reporting unit:

a comparison is made between the reporting unit's carrying amount (INCLUDING goodwill) and fair value

When the parent uses the equity method, Consolidation Entry D:

eliminates the intra-entity subsidiary dividends attributable to the parent company.

In step two of the measurement of goodwill impairment the _____________ __________________ _______________ of goodwill is computed in a manner similar to the determination of goodwill in a business combination.

implied fair value

Impairment testing (as opposed to amortization) is considered appropriate for measuring a decline in goodwill because goodwill is considered to have an _____________ life

indefinite

A parent agrees to issue additional shares of stock to the former owners of an acquired subsidiary if a contingency is met. The contingent stock issue is reported on the acquisition-date consolidated balance sheet as a component of:

stockholder's equity

Subsequent to acquisition, consolidated depreciation expense is based on:

the acquisition-date fair values of the subsidiary's depreciable assets

Under the initial value method, the parent records income when the subsidiary declares a:

Dividend

Prior to impairment testing for an indefinite-lived intangible asset, a reporting entity has the option to:

perform a qualitative assessment as to the likelihood of impairment

When the acquisition-date fair value of subsidiary long-term debt exceeds its carrying amount, the difference serves to reduce interest expense over the life of the debt, similar to amortizing a bond ________________

premium

The quantitative testing and measurement procedures for goodwill impairment involve a __________________ - ________________ process

two - step

Which of the following Exhibit 3.4 accounts are simply combined (without adjustment) in preparing consolidated financial statements for the parent and its subsidiary?

Liabilities and current assets

Which of the following account balances are identical across the parent's records and consolidated totals when the parent applies the equity method for its investment in Subsidiary account?

Net income and retained earnings

What effect does the parent's selection of the equity method vs. the initial value method have on consolidated financial statements?

No effect.

Goodwill recognized in a business combination must be assigned to reproting units of the consolidated entity in order to:

Properly subject goodwill to impairment assessment.

When the parent applies the initial value method for its investment accounting, Consolidation Entry I is needed to:

Remove the balance in the parent's Dividend Income and the subsidiary's Dividends Declared.

Which of the following Exhibit 3.4 income statement accounts are of the parent and subsidiary are simply added together (without adjustment).

Revenues, Cost of goods sold

Why does Consolidation Entry S remove the subsidiary's stockholders' equity accounts?

Subsidiary ownership accounts are not relevant, because consolidated statements are prepared for the parent company owners.

Which of the following are characteristics of the equity method of accounting for a parent company's investment in a subsidiary company?

The parent recognizes the income effect of amortizing excess subsidiary acquisition-date fair over book value, the parent company accrues income as earned by the subsidiary, and unrealized gains on intra-entity transactions are deferred from income.

Under the initial value method of accounting for an investment in a subsidiary company, the parent company recognizes income when the subsidiary:

declares a dividend

If a parent uses either the initial value or partial equity method, then a worksheet adjustment must be made to bring the parent's retained earnings balance to equal that of the _______ method

equity

Why does FASB allow a firm the option to assess qualitative factors to determine whether further testing is required for detecting goodwill impairment?

The determination of fair values for a reporting unit's assets and liabilities is a costly periodic exercise.

A parent agreed to pay an additional cash amount to the former owners of its acquired subsidiary if certain performance metrics were achieved in the first year subsequent to acquisition. The amount paid to the former owners exceeds the fair value originally recorded by the parent. In accounting for the cash payment to the former owners, the parent records:

A loss on the revaluation of the contingent performance obligation, a reduction of the performance obligation, and a credit to cash.

Consolidation Enry A, in the first year subsequent acquisition, adjusts the subsidiary's asset and liability balances to acquisition date _______ values.

fair

Under FASB's proposed simplification of accounting for goodwill impairment, goodwill impairment is measured as the excess of the carrying amount of a reporting unit (with residing good will) over its ______________ value.

fair