Advanced Accounting: Consolidations Test 1

On whose books should goodwill be recorded as a separate asset (that has arisen from an equity investment that is not a merger)? A. On both the books of Investor and investee. B. On the books of the investee ("S"). C. This is not recorded on anyone's books. D. On the books of the investor ("P").

C

Under current GAAP, goodwill arising from a business combination is A. adjusted annually to fair value. B. charged to Retained Earnings after the acquisition is completed. C. always amortized. D. tested for impairment.

D

A newly acquired subsidiary had pre-existing goodwill on its books. The parent's company consolidated balance sheet will A. not show any value for the subsidiary's pre-existing goodwill. B. always show the pre-existing goodwill of the subsidiary at it's book value. C. not show any value for the pre-existing goodwill unless all other assets of the subsidiary are stated at their full fair value. D. treat the goodwill similarly to other intangible assets of the acquired company.

A

Following the accounting concept of a business combination, a business combination occurs when a company acquires an equity interest in another entity and has A. control over the entity, irrespective of the percentage owned. B. significant influence over the entity, irrespective of the percentage owned. C. more than 50% ownership in the entity. D. at least 20% ownership in the entity.

A

From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements? A. In substance the companies are one entity, but in form they are separate. B. In substance and in form the companies are separate entities. C. In substance the companies are separate, but in form the companies are one entity. D. In substance and in form the companies are one entity.

A

In reference to the determination of goodwill impairment according to U.S. GAAP, which of the following statements is correct? A. If the reporting unit's fair value exceeds its carrying value, goodwill is unimpaired. B. Firms must first compare carrying value (book value) at the firm level C. All of the answers are correct. D. The goodwill impairment test is a three-step process.

A

In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers? A. Only sales revenue and cost of goods sold. B. All revenues, expenses, gains, and losses, but not receivables and payables. C. Receivables and payables only. D. All revenues, expenses, gains, losses, receivables and payables.

A

On 1/1/2014, Panny Company acquired a 11% interest in Sanny Corporation for $60,000 when Sanny"s stockholders' equity consisted of $350,000 capital stock and $90,000 retained earnings. Book values of Sanny's identifiable net assets equaled their fair values on this date. Sanny's net income and dividends were as follows: Year/Income/Dividends 2014/$8,000/$5,000 2015/$10,000/$5,000 2016/$15,000/$5,000 Assume that Panny used the cost method for its investment in Sanny. What is the balance in the Investment in Sunflower account at 12/31/2015? A. $60,000 B. $80,000 C. $61,980 D. $60,880

A

On January 1, Paul Inc. paid $600,000 for 20,000 shares of Saul's common stock, which represents 15% ownership. Saul declared and paid a dividend of $2 per share during the year and reported net income of $520,000. The balance of Paul's "Investment in Saul" account at the end of the year should be: A. $600,000. B. $638,000. C. $678,000. D. $560,000.

A

Polly Corporation exchanges shares of it's $1 par value common stock with a fair market value of $20 for all of the outstanding common stock of Solly, Inc. and Solly is then dissolved. Polly paid the following costs and expenses related to the business combination: 1. Costs of special shareholders' meeting to vote on the merger 2. Registering and issuing the securities 3. Accounting and legal fees 4. Salaries of Polly's employees assigned to the implementation of the merger 5. Cost of closing duplicate facilities In this business combination, A. the salaries of Polly's employees assigned to the merger are treated as expenses. B. all of the costs except those of registering and issuing the securities are included in the purchase price of Solly. C. only the accounting and legal fees are included in the purchase price of Solly. D. the costs of registering and issuing the securities are included as part of the purchase price paid for Solly.

A

Poppy Corporation acquired a 100% interest in Soppy Company for $1,200,000 when Soppy had no liabilities. The book values and fair values of Soppy's assets were: Type/book value/fair value Current assets/$350,000/$400,000 Equipment/150,000/210,000 Land and Buildings/570,000/590,000 Immediately following the acquisition, land and buildings will be included on the consolidated balance sheet at A. $590,000 B. $570,000 C. $210,000 D. $400,000

A

Poppy Corporation paid $150,000 for a 30% interest in Soppy Corporation on 1/1/2015, but was not able to exercise significant influence over Soppy. During 2015, Poppy reported income of $140,000, excluding its income from Soppy. Poppy also paid dividends of $40,000. Soppy reported net income of $25,000 during 2015 and paid dividends of $12,000. Poppy should report net income for 2015 of: A. $143,600 B. $147,500 C. $150,000 D. $125,000

A

In the consolidated income statement of Paggy Corporation and its 80% owned subsidiary Saggy, Inc., the noncontrolling interest share was reported at $40,000. Assume the book value and the fair value of Saggy's net assets were equal at the acquisition date. What amount of net income did Saggy have for the year? A. $300,000 B. $200,000 C. $32,000 D. $8,000

B

On 4/1/14, Patty Inc. acquired 100% of the stock of Satty Company. On this date, Patty had Retained Earnings of $100,000 and Satty had Retained Earnings of $50,000. On 12/31/14, Patty had Retained Earnings of $120,000 and Satty had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the 12/31/14 consolidated balance sheet was A. $170,000 B. $120,000 C. $130,000 D. $180,000

B

Polly Corporation exchanges shares of it's $1 par value common stock with a fair market value of $20 for all of the outstanding common stock of Solly, Inc. and Solly is then dissolved. Polly paid the following costs and expenses related to the business combination: 1. Costs of special shareholders' meeting to vote on the merger 2. Registering and issuing the securities 3. Accounting and legal fees 4. Salaries of Polly's employees assigned to the implementation of the merger 5. Cost of closing duplicate facilities In this business combination, A. only the costs of closing duplicate facilities would be treated as expenses. B. the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Solly. C. all of the items listed except the cost of the special shareholders' meeting are included in the purchase price. D. all of the items listed are treated as expenses.

B

Pom Corporation bought 90% of Som Company's common stock at its book value of $400,000 on 1/1/14. During 2014, Som reported net income of $130,000 and paid dividends of $40,000. At what amount will Investment in Som be on Pom's 12/31/14 records? A. $530,000 B. $481,000 C. $400,000 D. $490,000

B

Pully Company owns 12% of Sully Inc. In the most recent year, Sully had net earnings of $25,000 and paid dividends of $8,000. Pully's accountant mistakenly assumed Pully had significant influence over Sully and used the equity method instead of the cost method. What is the impact on the investment account and net earnings, respectively? A. By using the equity method, the accountant has understated the investment account and understated net earnings. B. By using the equity method, the accountant has overstated the investment account and overstated net earnings. C. By using the equity method, the accountant has overstated the investment account and understated the net earnings. D. By using the equity method, the accountant has understated the investment account and overstated net earnings.

B

Pum Inc. acquired 70% of the outstanding stock of Sum Company in a business combination. The book value of Sum's net assets were equal to the fair value except for land, whose net book value and fair value are $800,000 and $900,000 respectively. At what amount is the land reported on the consolidated balance sheet? A. $630,000 B. $900,000 C. $640,000 D. $800,000

B

With respect to goodwill, an impairment A. is a one-step proecess considering the entire firm. B. is a two-step process which first compares book value to fair value at the business reporting unit level C. occurs when asset values are adjusted to fair value in a purchase. D. will be amortized over the remaining useful life.

B

In a business combination, which of the following will occur? A. None of these answers are correct. B. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. C. All identifiable assets and liabilities are recorded at fair value at the date of acquisition. D. All identifiable assets and liabilities are recorded at book value at the date of acquisition.

C

The following information will be used for questions 7 and 8. On 1/1/2014, Panny Company acquired a 11% interest in Sanny Corporation for $60,000 when Sunflower's stockholders' equity consisted of $350,000 capital stock and $90,000 retained earnings. Book values of Sanny's identifiable net assets equaled their fair values on this date. Sanny's net income and dividends were as follows: Year/Income/Dividends 2013/$8,000/$5,000 2014/$10,000/$5,000 2015/$15,000/$5,000 Assume that Panny used the equity method for its investment in Sanny. What is the balance in the Investment in Sanny account at 12/31/2015? A. $81,800 B. $60,000 C. $60,880 D. $61,980

C

Under the provisions of FASB ASC 805, in a business combination, when the fair value of identifiable net assets acquired exceed the investment cost, which of the following statements is correct? A. The difference is allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain. B. The difference is allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit. C. A gain from a bargain purchase is recognized for the amount that the fair value of the identifiable net assets acquired exceeds the acquisition price. D. The difference is allocated first to reduce proportionately (according to market value) non-current assets, then to non-monetary currect assets, and any negative remainder is classified as a deferred credit.

C

A business merger differs from a business consolidation because A. a consolidation dissolves all but one of the prior entitites, but a merger dissolves all of the prior entitites. B. a consolidation is created when two entities join, but a merger is created when more than two entities join. C. a merger is created when two entities join, but a consolidation is created when more than two entities join. D. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entitites and forms a new corporation.

D

Dilbert Company acquired Silbert Corporation in a business combination and Silbert went out of existence. Silbert Corp. had developed a patent listed as an asset on Silbert's books at the patent office filing cost. In recording the combination A. the patent's market value increases goodwill. B. Silbert's prior expenses to develop the patent are recorded as an asset by Dilbert at purchase. C. fair value is not assigned to the patent because the research and development costs have been expensed by Silbert. D. the patent is recorded as an asset at fair value.

D

On 1/1/2014, Poll Corporation purchased 80% of Soll Corporation's outstanding shares for $125,000 when the fair value of Soll's net assets were equal to book values. The separate balance sheets of Poll and Soll Corporations at year-end 2014 are summarized as follows: Type/Poll/Soll Assets/$590,000/$180,000 Liabilities/70,000/30,000 Capital Stock/360,000/90,000 Retained Earnings/160,000/60,000 If a consolidated balance sheet was prepared immediately after the business combination, the noncontrolling interest would be A. $15,000 B. $30,000 C. $18,000 D. $31,250

D

Pell Inc. paid $140,000 for a 70% interest in Sell Company on 1/1/14, when Sell had Capital Stock of $50,000 and Retained Earnings of $100,000. Fair values of identifiable net assets were the same as recorded book values. During 2014, Sell had income of $40,000, declared dividends of $15,000 and paid $10,000 in dividends. On 12/31/14, the consolidated financial statements will show: A. investment in Sell account of $170,000. B. investment in Sell account of $165,000. C. consolidated goodwill of $40,000. D. consolidated goodwill of $50,000.

D

Pigh Corporation accounts for its 40% investment in Sigh Company using the equity method. On the date of the original investment, fair values were equal to book values except for a patent, which cost Pigh an additional $40,000. The patent had an estimated life of 10 years. Sigh has a steady income of $20,000 per year and consistently pays out 45% of its net income as dividends to its shareholders. Which one of the following statements is correct? A. The net change in the investment account for each full year will be a debit of $800. B. The net change in the investment account for each full year will be a debit of $4,400. C. The net change in the investment account for each full year will be a credit of $400. D. The net change in the investment account for each full year will be a debit of $400.

D

Puffer Company paid $1,500,000 for the net assets of Suffer Corporation and Suffer was then dissolved. Suffer had no liabilities. The fair values of Suffer's assets were $2,750,000. Suffer's only non-current assets were land and buildings with book values of $100,000 and $520,000, respectively and fair values of $180,000 and $730,000 respectively. At what value will the land be recorded by Puffer? A. $100,000 B. $730,000 C. $2,750,000 D. $180,000

D

Punky Corporation uses the equity method of accounting for its investment in Skunky Company. Which one of the following events would not affect the Investment in Skunky as represented on Punky's balance sheet? A. Investee dividend payments. B. Investee losses. C. All the stated answers would affect the Investment in Swan as represented on Pond's balance sheet. D. An increase in the investee's share price from last period.

D

Setty Company is a 25% owned equity investee of Petty Inc. During the current year, Petty receives $10,000 in dividends from Setty. How does the $10,000 dividend effect Petty's financial position or results of operations? A. Decreases income. B. Increases assets. C. Increases income. D. Decreases investment.

D