Accy 117 midterm

Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, what is true?

A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.

What is push down accounting?

A subsidiary's recording of the fair-value allocations as well as subsequent amortization.

James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1? A) Exclude 100 percent of the reacquisition revenues and 100 percent of the reacquisition expenses from their respective consolidated totals. B) Include 100 percent of Mark-Right's revenues and expenses and deduct the reacquisition portion as non controlling interest in net income. C) Exclude 15 percent of the reacquisition revenues and15 percent of the reacquisition expenses that occurred before April 1.

A) Exclude 100 percent of the reacquisition revenues and 100 percent of the reacquisition expenses from their respective consolidated totals.

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

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

For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except:

B. liabilities assumed, at book value.

The non controlling 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? A) In the liability section B) In a mezzanine section between liabilities and owners' equity. C) In the owners' equity section D) The non controlling interest is not recognized in the consolidated balance sheet

C) In the owners' equity section

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?

C. Book value of subsidiary net assets.

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

C. Consolidates all subsidiary assets and liabilities at fair value.

When is a goodwill impairment loss recognized?

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

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

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

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

D. Cost of the investment less the subsidiary's fair value at the acquisition date.

Under the equity method of accounting for an investment

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

James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1? Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income. Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses. Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income

Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals.

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 would a company make this decision?

It is a relatively easy method to apply.

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 equity method. Why would a company make this decision?

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

What happens to the equity in acquiree's earnings on the consolidated financial statements?

The account gets eliminated

An intercompany transaction exists due to the sale of depreciable assets between affiliates. How does this transfer affect the financial statement?

The original costs is reported not the consolidated balance sheet.

in computing the non controlling interest's share of consolidated net income, how should the subsidiary's net income be adjusted from intra-entity transfers?

The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the non controlling interest's allocation.

In computing the noncontrolling interest's share of consolidated net income, how should the subsidiary's net income be adjusted for intra-entity transfers?

The subsidiary's reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interest's allocation.

A parent buys 60% of a subsidiary in one year and then purchases an additional 25% in the next year. How is the second acquisition of 25% treated? The valuation basis for the subsidiary's net assets was established in the first acquisition when control was obtained. Any differences between transaction prices and the underlying subsidiary book values are adjustments to Additional Paid In Capital. All subsequent purchases are valued based on the fair values at the time purchase and allocations will be calculated for each purchase. A gain or loss is recognized from the adjustment to the subsidiary's fair value on the second purchase. All subsequent purchases are based on the fair values at the time of the first acquisition and any adjustments are recorded as a gain. The acquisition method views the subsidiary as whole and can only be used if 100% of the subsidiary has been acquired through step acquisitions.

The valuation basis for the subsidiary's net assets was established in the first acquisition when control was obtained. Any differences between transaction prices and the underlying subsidiary book values are adjustments to Additional Paid In Capital.

Entities can have both upstream and down stream transactions. How would these transfers affect the consolidation process?

Upstream transactions affect the computation of the NCI in Subsidiary's Income.

What is the primary reason we defer financial statement recognition of gross profits on intra entity sales for goods that remain within the consolidated entity at year-end?

When intra-entity sales remain in ending inventory, ownership of the goods has not changed.

After choosing to repurchase bonds from their subsidiary, what would the consolidated balance sheet total for bonds payable be?

account would be 0 because the account would be eliminated

A parent buys 32% of a subsidiary in one year and then buys an additional 40% in the next year. In a step acquisition of this type, the original 32% acquisition should be:

adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.

What must be removed from income before calculating a NCIs income in subsidiary?

deferred gross profit from upstream inventory sales

When a parent uses the initial value method throughout the year to account for investment in a subsidiary, which of the following statements is true before making adjustments on the consolidated worksheet?

dividends equals consolidated dividends

In preparing consolidated statements of cash flows, the presence of NCI will require an adjutment for what:

inclusion of dividends paid to outsiders

A basic premise of the acquisition method is that the: ultimate objective of consolidated financial statements is to serve as a report to the stockholders of the parent company. subsidiary's book value and the purchase price paid by the parent are viewed as separate elements that can be accounted for individually within the consolidation process. subsidiary's individual accounts cannot be divided along ownership lines. values utilized for consolidation reflect the parent's payment attributed to each subsidiary asset and liability. controlled company must always be consolidated in phases depending on the parent's level of ownership.

subsidiary's individual accounts cannot be divided along ownership lines.

If the parent company reacquires the bonds of its subsidiaries, who should the loss on reacquisiion be attributed to?

to the parent company because they are the controlling party in the combination

When a parent uses the equity method throughout the year to account for investment in a subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?

total assets equals consolidated total assets

In what case do the deferral of profits affect the NCI?

upstream inventory sales