Smartbooks Ch. 3 Advanced Accounting

Consolidated income statements report goodwill impairment losses as

No effect.

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

No effect.

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. -An obligation for contingent consideration classified as equity is recorded as a additional paid-in capital for its acquisition-date fair value.

The following facts and circumstances may be useful in judging that a reporting unit's carrying amount exceeds its fair value.

-A deterioration in macroeconomic conditions that affect the firm. -Increases in materials and labor that the firm may be unable to pass along to its customers. -Declining operating cash flows.

How do the consolidation worksheets compare across Exhibit 3.5 (parent uses the equity method) and Exhibit 3.9 (parent uses the initial value method)?

-Consolidation entries S, A, and E are the same across the two exhibits. -No differences in consolidation totals across the two exhibits.

Which of the following are descriptive of goodwill impairment accounting under IFRS?

-Goodwill is considered impaired if the carrying amount of a cash-generating unit exceeds its fair value. -Goodwill recognized in a business combination is allocated across cash-generating units expected to benefit from the business combination. -Goodwill is tested for impairment using a one-step approach.

A parent company, over time, will routinely make which of the following adjustments in applying the equity method to its investment in subsidiary account?

-Income as it is earned and reported by the subsidiary. -Excess acquisition-date fair over book value amortization. -Dividends from the subsidiary.

A parent company's choice of investment accounting method (equity method, initial value method, or partial equity method) will affect which of the following balances on the parent's books?

-Retained earnings -Income from the subsidiary -Investment in subsidiary

Depending on the investment accounting method (equity, initial value, partial equity) chosen, which of the following accounts will vary on the parent's financial records. Multiple select question.

-The investment account. -Income from the subsidiary. -Retained earnings.

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. -Unrealized gains on intra-entity transactions are deferred from income.

Which of the following represent procedures required in preparing consolidated financial statements for a parent company and its subsidiary?

-excess acquisition-date fair over book values for limited-life subsidiary assets must be amortized over time. -intra-entity receivable and payables are eliminated. subsidiary assets and liabilities are adjusted to reflect -acquisition-date fair values net of post-acquisition amortization.

As compared to acquisition-date accounting for business combinations, subsequent to an acquisition the parent company must additionally report consolidated

-expenses. -revenues. -net income.

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

-the equity method. -the partial equity method. -the initial value method.

When a firm reports a goodwill impairment loss, additional disclosures are required to describe

-the facts and circumstances leading to the impairment. -how the firm determined the fair value of the reporting unit.

Possible methods for determining the fair value of a reporting unit for goodwill impairment testing include

-the use of market prices. -prices of comparable businesses. -present value techniques.

Which of the following best describes the income recognition basis reflected by the equity method?

Accrual basis

Why does the 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.

Are the acquisition-date fair values of subsidiary intangible assets amortized to expense across time on consolidated financial statements?

Yes, but only for intangible assets with definite useful lives.

In the quantitative test for goodwill impairment, if an individual reporting unit's fair value exceeds its carrying amount, goodwill is not considered and no further procedures are needed.

impaired

Because goodwill has an indefinite life, rather than amortization the FASB utilizes an approach to assessing the appropriateness of reported values for goodwill.

impairment

When the acquisition-date fair value of subsidiary long-term debt exceeds its carrying amount, in periods subsequent to the acquisition, consolidation worksheet entries are needed to long-term debt.

increase

The acquisition-date fair values assigned to an acquired subsidiary's intangible assets should be amortized over their useful lives unless such life is considered

indefinite or unknown

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

indefinite or unlimited

n 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 or probability

When a particular asset acquired in a business combination has an acquisition-date fair value in excess of its acquisition-date book value, the asset's carrying amount from the subsidiary's financial records

must be increased in preparing consolidated financial statements.

When a particular asset acquired in a business combination has an acquisition-date book value in excess of its fair value, the asset's carrying amount from the subsidiary's financial records

must be reduced in preparing consolidated financial statements.

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

no effect

As part of the consolidation statement preparation process for a parent and subsidiary, the subsidiary's asset, liability, revenue, and expense balances are added to the company balances after appropriate adjustments.

parent

Consolidation Entry S credits the Investment in Subsidiary account in order to

remove the beginning of the year book value component of the investment account.

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

Contingent stock issued in connection with a business combination is typically recorded by the parent as a component of .

stockholders', shareholders', or owners' equity

The values assigned to intangible assets with indefinite useful lives are

subject to periodic impairment testing.

Subsequent to acquisition, consolidated depreciation expense is based upon

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

Subsequent to the acquisition, consolidated depreciation expense is based upon

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

True or false: Conducting goodwill impairment tests at the reporting unit level (rather than the combined entity level) helps capture goodwill impairment losses that may otherwise be offset by an increase in goodwill in another reporting unit.

true

Consolidation entries S and A are part of a sequence of worksheet adjustments that bring the Investment in Subsidiary account to a balance.

zero

In conjunction with combining a subsidiary's assets and liabilities with those of the parent company, the investment in subsidiary account is brought to a balance as part of the consolidation process.

zero

Regardless of whether the parent accounts for its subsidiary investment using the initial value or the equity method, consolidation worksheet entries bring the investment account to a balance.

zero

In the quantitative goodwill impairment test, for each reporting unit Multiple choice question.

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

In 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.

Rather than the term "reporting units," IFRS uses the terminology - units to describe the business components that form the basis for goodwill impairment testing.

cash generating

When a parent includes equity method earnings with its own earnings, the parent's net income equals consolidated net income. As a result, the equity method is often referred to as a single-line

consolidation

When the acquisition-date fair value of subsidiary long-term debt exceeds its carrying amount, in periods subsequent to the acquisition, worksheet entries are needed to interest expense.

decrease or reduce

Periodic amortization expense should be recognized for the acquisition-date fair values of acquired subsidiary intangible assets with useful lives.

definite, finite, or limited