Advanced struggling Chapter 3 MC

Push-down accounting is concerned with the A. impact of the purchase on the subsidiary's financial statements. B. recognition of goodwill by the parent. C. correct consolidation of the financial statements. D. impact of the purchase on the separate financial statements of the parent. E. recognition of dividends received from the subsidiary.

A. impact of the purchase on the subsidiary's financial statements.

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

B. It is relatively easy to apply.

When is a goodwill impairment loss recognized? A. Annually on a systematic and rational basis. B. Never. C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. D. If the fair value of a reporting unit falls below its original acquisition price. E. Whenever the fair value of the entity declines significantly.

C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.

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? A. Goodwill. B. Equipment. C. Investment in Subsidiary. D. Common Stock. E. Additional Paid-In Capital.

C. Investment in Subsidiary

Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method? A. Goodwill, Investment in Tangiers Co., and Retained Earnings. B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings. C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings. D. Common Stock, Goodwill, and Investment in Tangiers Co. E. Expenses, Goodwill, and Investment in Tangiers Co.

C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.

Under the partial equity method of accounting for an investment, A. The investment account remains at initial value. B. Dividends received are recorded as revenue. C. The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account. D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account. E. Dividends received increase the investment account.

D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.

How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life? A. Equally over 20 years. B. Equally over 40 years. C. Equally over 20 years with an annual impairment review. D. No amortization, but annually reviewed for impairment and adjusted accordingly. E. No amortization over an indefinite period time.

D. No amortization, but annually reviewed for impairment and adjusted accordingly.

One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision? A. It is the only method allowed by the SEC. B. It is relatively easy to apply. C. It is the only internal reporting method allowed by generally accepted accounting principles. D. Operating results on the parent's financial records reflect consolidated totals. E. When the equity method is used, no worksheet entries are required in the consolidation process.

D. Operating results on the parent's financial records reflect consolidated totals.

All of the following are acceptable methods to account for a majority-owned investment in subsidiary except A. The equity method. B. The initial value method. C. The partial equity method. D. The fair-value method. E. Book value method.

D. The fair- value method.

Under the initial value method, when accounting for an investment in a subsidiary, A. Dividends received by the subsidiary decrease the investment account. B. The investment account is adjusted to fair value at year-end. C. Income reported by the subsidiary increases the investment account. D. The investment account remains at initial value. E. Dividends received are ignored.

D. The investment account remains at initial value.

When consolidating a subsidiary under the equity method, which of the following statements is true? A. Goodwill is never recognized. B. Goodwill required is amortized over 20 years. C. Goodwill may be recorded on the parent company's books. D. The value of any goodwill should be tested annually for impairment in value. E. Goodwill should be expensed in the year of acquisition.

D. The value of any goodwill should be tested annually for impairment in value.

Factors that should be considered in determining the useful life of an intangible asset include A. Legal, regulatory, or contractual provisions. B. The residual value of the asset. C. The entity's expected use of the intangible asset. D. The effects of obsolescence, competition, and technological change. E. All of these choices are used in determining the useful life of an intangible asset.

E. All of these choices are used in determining the useful life of an intangible asset.

How does the partial equity method differ from the equity method? A. In the total assets reported on the consolidated balance sheet. B. In the treatment of dividends. C. In the total liabilities reported on the consolidated balance sheet. D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account. E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

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

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

Which of the following will result in the recognition of an impairment loss on goodwill? A. Goodwill amortization is to be recognized annually on a systematic and rational basis. B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. C. The fair value of the entity declines significantly. D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition. E. The entity is investigated by the SEC and its reputation has been severely damaged.

B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition? A. All net assets are revalued to fair value and must be amortized over their useful lives. B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives. C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives. D. Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives. E. Only assets that have excess fair value over book value must be amortized over their useful lives.

B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives.

Which of the following is false regarding contingent consideration in business combinations? A. Contingent consideration payable in cash is reported under liabilities. B. Contingent consideration payable in stock shares is reported under stockholders' equity. C. Contingent consideration is recorded because of its substantial probability of eventual payment. D. The contingent consideration fair value is recognized as part of the acquisition regardless of whether eventual payment is based on future performance of the target firm or future stock price of the acquirer. E. Contingent consideration is reflected in the acquirer's balance sheet at the present value of the potential expected future payment.

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

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

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

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? A. initial value or book value. B. initial value, lower-of-cost-or-market-value, or equity. C. initial value, equity, or partial equity. D. initial value, equity, or book value. E. initial value, lower-of-cost-or-market-value, or partial equity.

C. initial value, equity, or partial equity.

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

D. Income reported by the subsidiary increases the investment account.

Consolidated net income using the equity method for an acquisition combination is computed as follows: A. Parent company's income from its own operations plus the equity from subsidiary's income recorded by the parent. B. Parent's reported net income. C. Combined revenues less combined expenses less equity in subsidiary's income less amortization of fair-value allocations in excess of book value. D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent. E. All of these.

D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent

Which of the following statements is false regarding push-down accounting? A. Push-down accounting simplifies the consolidation process. B. Fewer worksheet entries are necessary when push-down accounting is applied. C. Push-down accounting provides better information for internal evaluation. D. Push-down accounting must be applied for all business combinations under a pooling of interests. E. Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and liabilities.

D. Push-down accounting must be applied for all business combinations under a pooling of interests.

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment? A. the amount of consolidated net income. B. total assets on the consolidated balance sheet. C. total liabilities on the consolidated balance sheet. D. the balance in the investment account on the parent's books. E. the amount of consolidated cost of goods sold.

D. the balance in the investment account on the parent's books.

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is: A. Goodwill recognized in consolidation may be amortized uniformly and only tested if the amortization method originally chosen is changed. B. Goodwill recognized in consolidation must only be impairment tested prior to disposal of the consolidated unit to eliminate the impairment of goodwill from the gain or loss on the sale of that specific entity. C. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by quantitative assessment of the possible impairment of the fair value of the unit relative to the book value, and then a qualitative assessment as to why the impairment, if any, occurred for disclosure. D. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for disclosure. E. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

E. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

Under the partial equity method, the parent recognizes income when A. dividends are received from the investee. B. dividends are declared by the investee. C. the related expense has been incurred. D. the related contract is signed by the subsidiary. E. it is earned by the subsidiary.

E. it is earned by the subsidiary.