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Entry G (inventory transfer)

(Dr.) Cost of Goods Sold (Cr.) Inventory for amount of gross profit remaining in inventory

Downstream sales of inventory *G Entry

(Dr.) Investment in Subsidiary (Cr.) Cost of Goods Sold for amount of gross profit in inventory

Upstream sales of inventory *G Entry

(Dr.) Retained Earnings - Subsidiary (Cr.) Cost of Goods Sold for amount of gross profit in inventory

Entry TI (intra-entity sales/purchases)

(Dr.) Sales (Cr.) Cost of Goods Sold for amount of intra-entity sale/purchase

30. When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet? A) Retained earnings Investment in subsidiary B) Investment in subsidiary Retained earnings C) Investment in subsidiary Equity in subsidiary's income D) Investment in subsidiary Additional paid-in capital E) Retained Earnings Additional paid-in capital

A. A above

31. When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary? A) Retained earnings Investment in subsidiary B) Investment in subsidiary Retained earnings C) Investment in subsidiary Equity in subsidiary's income D) Investment in subsidiary Additional paid-in capital E) Retained Earnings Additional paid-in capital

A. A above

5. 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.

29. When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation worksheet? A) Retained earnings Investment in subsidiary B) Investment in subsidiary Retained earnings C) Investment in subsidiary Equity in subsidiary's income D) Equity in subsidiary's income Investment in subsidiary E) Additional paid-in capital Retained Earnings

B) Investment in subsidiary Retained earnings

91. 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.

70. 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.

34. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A. Income from subsidiary is not recognized until there is an entire year of consolidated operations. B. Income from subsidiary is recognized from date of acquisition to year-end. C. Excess cost over acquisition value is recognized at the beginning of the fiscal year. D. No goodwill can be recognized. E. Income from subsidiary is recognized for the entire year.

B. Income from subsidiary is recognized from date of acquisition to year-end.

67. 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.

34. 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.

1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: A. identifiable assets acquired, at fair value. B. liabilities assumed, at book value. C. non-controlling interest, at fair value. D. goodwill or a gain from bargain purchase. E. none of these choices is correct.

B. liabilities assumed, at book value.

28. In measuring non-controlling interest at the date of acquisition, which of the following would not be indicative of the value attributed to the non-controlling interest? A. Fair value based on stock trades of the acquired company. B. Subsidiary cash flows discounted to present value. C. Book value of subsidiary net assets. D. Projections of residual income. E. Consideration transferred by the parent company that implies a total subsidiary value.

C. Book value of subsidiary net assets.

36. 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.

28. 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.

69. 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.

38. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? A. If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. B. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss. C. If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital. D. If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. E. If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.

C. If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.

36. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? A. If majority control is still maintained, consolidated financial statements are still required. B. If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required. C. If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required. D. If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required. E. A gain or loss calculation must be prepared if control is lost.

C. If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.

32. In a step acquisition, which of the following statements is false? A. The acquisition method views a step acquisition essentially the same as a single step acquisition. B. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year. C. Income from subsidiary is computed for the entire year for a new purchase acquired during the year. D. Obtaining control through a step acquisition is a significant remeasurement event. E. Preacquisition earnings are not included in the consolidated income statement.

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

1. 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

6. 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.

31. When a parent uses the partial equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? A. Parent company net income will equal controlling interest in consolidated net income when initial value, book value, and fair value of the investment are equal. B. Parent company net income will exceed controlling interest in consolidated net income when fair value of depreciable assets acquired exceeds book value of depreciable assets. C. Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired. D. Goodwill will be recognized if acquisition value exceeds fair value of net assets acquired. E. Subsidiary net assets are valued at their book values before consolidating entries are made.

C. Parent company net income will be less than controlling interest in consolidated net income when fair value of net assets acquired exceeds book value of net assets acquired.

29. When a parent uses the equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet? A. Parent company net income equals controlling interest in consolidated net income. B. Parent company retained earnings equals consolidated retained earnings. C. Parent company total assets equals consolidated total assets. D. Parent company dividends equals consolidated dividends. E. Goodwill will not be recorded on the parent's books.

C. Parent company total assets equals consolidated total assets.

33. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock? A. The parent recognizes a larger percent of subsidiary income. B. A step acquisition resulting in control may result in a parent recognizing a gain on revaluation. C. The book value of the subsidiary will increase. D. The parent's percent ownership in subsidiary will increase. E. Non-controlling interest in subsidiary's net income will decrease

C. The book value of the subsidiary will increase.

39. Jax Company uses the acquisition method for accounting for its investment in Saxton Company. Jax sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true? A. The difference between selling price and acquisition value is recorded as a realized gain or loss. B. The difference between selling price and acquisition value is recorded as an unrealized gain or loss. C. The difference between selling price and carrying value is recorded as a realized gain or loss. D. The difference between selling price and carrying value is recorded as an unrealized gain or loss. E. The difference between selling price and carrying value is recorded as an adjustment to retained earnings.

C. The difference between selling price and carrying value is recorded as a realized gain or loss.

2. 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.

26. 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.

25. 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.

74. 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.

68. 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.

30. When a parent uses the initial value method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is true before making adjustments on the consolidated worksheet? A. Parent company net income equals consolidated net income. B. Parent company retained earnings equals consolidated retained earnings. C. Parent company total assets equals consolidated total assets. D. Parent company dividends equal consolidated dividends. E. Goodwill needs to be recognized on the parent's books.

D. Parent company dividends equal consolidated dividends.

38. 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.

35. 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.

24. 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.

27. 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.

37. All of the following statements regarding the sale of subsidiary shares are true except which of the following? A. The use of specific identification based on serial number is acceptable. B. The use of the FIFO assumption is acceptable. C. The use of the averaging assumption is acceptable. D. The use of specific LIFO assumption is acceptable. E. The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

D. The use of specific LIFO assumption is acceptable.

33. 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.

92. In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true? A. U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. B. U.S. GAAP and IFRS both require acquisition-date fair value measurement. C. U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement. D. U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. E. U.S. GAAP and IFRS both apportion goodwill to the parent only.

D. U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.

3. 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.

37. 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.

32. When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet entry would be made? A) Retained earnings Investment in subsidiary B) Investment in subsidiary Retained earnings C) Investment in subsidiary Equity in subsidiary's income D) Investment in subsidiary Additional paid-in capital E) No entry is necessary.

E. E above

35. 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? A. Preacquisition earnings are deducted from consolidated revenues and expenses. B. Preacquisition earnings are added to consolidated revenues and expenses. C. Preacquisition earnings are deducted from the beginning consolidated stockholders' equity. D. Preacquisition earnings are added to the beginning consolidated stockholders' equity. E. Preacquisition earnings are ignored in the consolidated income statement.

E. Preacquisition earnings are ignored in the consolidated income statement.

7. 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.

4. 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.