Acct 2333 Final
Vapor Corporation has a fan products operating segment. With respect to the following, which is Vapor not required to report for this segment? Amortization expense. Depreciation expense. Interest income. Research and development expense. Interest expense.
Research and development expense.
All of the following are examples of variable interests except: Participation rights. Guarantees of debt. Asset purchase options. Stock options. Lease residual value guarantees.
Stock options.
35) At the date of an acquisition which is not a bargain purchase, the acquisition method Consolidates the subsidiary's assets at book value and the liabilities at fair value. Consolidates all subsidiary assets and liabilities at fair value. Consolidates the subsidiary's assets at fair value and the liabilities at book value. Consolidates current assets and liabilities at book value, and long-term assets and liabilities at fair value. Consolidates all subsidiary assets and liabilities at book value.
Consolidates all subsidiary assets and liabilities at fair value.
Using the acquisition method for a business combination, goodwill is generally calculated as the: Zero, it is no longer allowed under federal law. Cost of the investment less the subsidiary's fair value at the beginning of the year. Cost of the investment less the subsidiary's book value at the beginning of the year. Cost of the investment less the subsidiary's fair value at acquisition date. Cost of the investment less the subsidiary's book value at the acquisition date.
Cost of the investment less the subsidiary's fair value at acquisition date.
U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except Unrecognized foreign currency firm commitments. Recognized foreign currency denominated assets and liabilities. Deferred foreign currency gains and losses. Net investment in foreign operations. Forecasted foreign currency denominated transactions.
Deferred foreign currency gains and losses.
Which of the following statements is true regarding the reporting of revenues in an interim report? Revenues should be recognized in interim periods in the same way as they are on an annual basis. The percentage-of-completion method of reporting long-term construction projects is not an acceptable method for interim reporting. Projected losses on long-term contracts should be deferred to the annual report. Revenues should be recognized on the income tax basis for interim reporting. Revenues should be recognized on the cash basis of accounting for interim reporting.
Revenues should be recognized in interim periods in the same way as they are on an annual basis.
In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method, how should stock issuance costs and direct combination costs be treated? Both reduce additional paid-in capital. Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital. Stock issuance costs and direct combination costs are expensed as incurred. Both are treated as part of the acquisition consideration transferred. Direct combination costs are ignored, and the stock issuance costs result in a reduction to additional paid-in capital.
Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital.
Which of the following statements is true concerning an intra-entity transfer of a depreciable asset? Net income attributable to the noncontrolling interest is affected only when the transfer is upstream. Net income attributable to the noncontrolling interest is never affected by a gain on the transfer. Net income attributable to the noncontrolling interest is increased by an upstream gain in the year of transfer. Net income attributable to the noncontrolling interest is always affected by a gain on the transfer. Net income attributable to the noncontrolling interest is affected by a downstream gain only.
Net income attributable to the noncontrolling interest is affected only when the transfer is upstream.
Which of the following characteristics is not indicative of an enterprise qualifying as a primary beneficiary with a controlling financial interest in a variable interest entity? No ability to make decisions about the entity's activities. The power to direct the most significant economic performance activities. The right to receive potentially significant benefits of the entity. The power through voting or similar rights to direct activities, which significantly impact economic performance. The obligation to absorb potentially significant losses of the entity.
No ability to make decisions about the entity's activities.
When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? Parent company dividends equal consolidated dividends. Parent company net income equals consolidated net income. Goodwill is recorded on the parent's books. Parent company retained earnings equals consolidated retained earnings. Parent company total assets equals consolidated total assets.
Parent company dividends equal consolidated dividends.
Which tests must a company use to determine which operating segments require separate disclosure? Profit or loss test and asset test. Revenue test, profit or loss test, and asset test. Revenue test and profit or loss test. Revenue test, asset test, and liability test. Revenue test and asset test.
Revenue test, profit or loss test, and asset test.
Kane Inc. owns 30% of Woodhouse Co. and applies the equity method. During the current year, Kane bought inventory costing $71,500 and then sold it to Woodhouse for $130,000. At year-end, only $30,000 of merchandise was still being held by Woodhouse. What amount of intra-entity gross profit must be deferred by Kane? $5,600. $13,500. $9,000. $17,550. $4,050.
$4,050
Kaye Company acquired 100% of Fiore Company on January 1, 2021. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2021 and paid dividends of $100. Assume the partial equity method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations? $380 $300 $400 $280 $480
$400
Daniels Inc. acquired 85% of the outstanding common stock of Noyce Corp.in 2021. Noyce currently owes Daniels $400,000 for inventory acquired during 2022. In preparing consolidated financial statements for 2022, what amount of Noyce's liability should be eliminated? $340,000. $0. $400,000. $60,000. $300,000.
$400,000.
Macklin Co. owned 70% of Holland Corp. During 2021, Macklin sold to Holland land with a book value of $51,000. The selling price was $75,000. For purposes of the December 31, 2021 consolidated financial statements, at what amount should the land be reported? $67,800. $7,200. $75,000. $24,000. $51,000.
$51,000.
Dunne Inc. bought 65% of the outstanding common stock of Hardy Inc. in an acquisition that resulted in the recognition of goodwill. Hardy owned a piece of land that cost $375,000 but was worth $700,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition? $455,000. $245,000. $700,000. $325,000. $375,000.
$700,000.
On January 4, 2021, Snow Co. purchased 40,000 shares (40%) of the common stock of Walker Corp., paying $900,000. There was no goodwill or other cost allocation associated with the investment. Snow has significant influence over Walker. During 2021, Walker reported income of $240,000 and paid dividends of $75,000. On January 2, 2022, Snow sold 5,000 shares for $125,000. What was the balance in the investment account after the shares had been sold? $950,250. $761,250. $871,500. $897,250. $845,250.
$845,250.
Loeffler Company owns 35% of the common stock of Tetter Co. and uses the equity method to account for the investment. During 2021, Tetter reported income of $260,000 and paid dividends of $90,000. There is no amortization associated with the investment. During 2021, how much income should Loeffler recognize related to this investment? $59,500. $122,500. $90,000. $31,500. $91,000.
$91,000.
On January 1, 2021, Bangle Company purchased 30% of the voting common stock of Sleat Corp. for $1,000,000. Any excess of cost over book value was assigned to goodwill. During 2021, Sleat paid dividends of $24,000 and reported a net loss of $140,000. What is the balance in the investment account on December 31, 2021? $956,400. $836,000. $950,800. $990,100. $958,000.
$950,800.
A forward contract may be used for which of the following? 1) A fair value hedge of an asset. 2) A cash flow hedge of an asset. 3) A fair value hedge of a liability. 4) A cash flow hedge of a liability. 1 and 2 1 and 3 1, 2, 3, and 4 1, 3, and 4 2 and 4
1, 2, 3, and 4
Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries, paying more than the carrying value of the bonds. According to the most practical view of this intra-entity transaction, to whom should the loss be attributed? The loss should be deferred until it can be determined to whom the attribution can be made. To Safire because the bonds were issued by Safire. To Regency because Regency is the controlling party in the business combination. The loss should be allocated between Safire and Regency based on the purchase price and the original face value of the debt. The loss should be amortized over the life of the bonds and need not be attributed to either party.
To Regency because Regency is the controlling party in the business combination.
Which of the following approaches is used in the United States in accounting for foreign currency transactions? One-transaction perspective; accrue foreign exchange gains and losses. Two-transaction perspective; defer foreign exchange gains and losses. Two-transaction perspective; accrue foreign exchange gains and losses. One-transaction perspective; defer foreign exchange gains and losses. Three-transaction perspective; defer foreign exchange gains and losses.
Two-transaction perspective; accrue foreign exchange gains and losses.
In comparing U.S. GAAP and International Financial Reporting Standards (IFRS) with regard to a basis for measurement of a noncontrolling interest, which of the following is true? U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. U.S. GAAP and IFRS both apportion goodwill to the parent only. U.S. GAAP and IFRS both require acquisition-date fair value measurement. U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement.
U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.
During January 2020, Nelson, Inc. acquired 30% of the outstanding common stock of Fuel Co. for $1,600,000. This investment gave Nelson the ability to exercise significant influence over Fuel. Fuel's assets on that date were recorded at $7,200,000 with liabilities of $3,400,000. Any excess of cost over book value of Nelson's investment was attributed to unrecorded patents having a remaining useful life of ten years. In 2020, Fuel reported net income of $650,000. For 2021, Fuel reported net income of $800,000. Dividends of $250,000 were paid in each of these two years. What was the reported balance of Nelson's Investment in Fuel Co. at December 31, 2021? $1,054,300. $1,943,000. $1,793,000. $1,977,000. $1,885,000.
$1,793,000.
Baker Company owns 15% of the common stock of Charlie Corporation and used the fair-value method to account for this investment. Charlie reported net income of $120,000 for 2021 and paid dividends of $70,000 on October 1, 2021. How much income should Baker recognize on this investment in 2021? $50,000. $28,500. $18,000. $7,500. $10,500.
$10,500.
Kaye Company acquired 100% of Fiore Company on January 1, 2021. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2021 and paid dividends of $100. Assume the initial value method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations? $380 $300 $400 $100 $210
$100
When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date? $100,000. $40,000. $125,000. $50,000. $75,000.
$125,000.
Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2021: To issue 400 shares of common stock ($10 par) with a fair value of $45 per share. To assume Brown's liabilities which have a book value of $1,600 and a fair value of $1,500. On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be $20,000. $16,500. $18,000. $18,500. $19,500.
$19,500.
On January 1, 2021, Lee Company paid $1,870,000 for 80,000 shares of Thomas Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was necessary. Significant influence over Thomas was achieved by this acquisition. Thomas distributed a dividend of $2.00 per share during 2021 and reported net income of $720,000. What was the balance in the Investment in Thomas Co. account found in the financial records of Lee as of December 31, 2021? $2,034,000. $2,354,000. $2,114,000. $2,158,000. $2,194,000.
$2,034,000.
Borgin Inc. owns 30% of the outstanding voting common stock of Burkes Co. and has the ability to significantly influence the investee's operations and decision-making. On January 1, 2021, the balance in the Investment in Burkes Co. account was $402,000. Amortization associated with the purchase of this investment is $8,000 per year. During 2021, Burkes earned income of $108,000 and paid cash dividends of $36,000. Previously in 2020, Burkes had sold inventory costing $28,800 to Borgin for $48, What amount of equity income would Borgin have recognized in 2021 from its ownership interest in Burkes? $21,748. $22,672. $19,792. $24,400. $27,640.
$22,672.
Kaye Company acquired 100% of Fiore Company on January 1, 2021. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2021 and paid dividends of $100. Assume the equity method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations? $380 $300 $400 $280 $480
$380
To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at initiation date requires which of the following? 1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability 2. No entry related to forward contract (zero fair value) 1. No entry related to the firm commitment (zero value) 2. No entry related to forward contract (zero fair value) 1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability 2. Recognize option as an asset (purchase price is fair value) 1. None. No journal entry is required. 1. Recognize the transaction (sale or purchase). 2. Recognize the option as a liability.
1. Recognize the transaction (sale or purchase) and foreign currency denominated asset or liability 2. No entry related to forward contract (zero fair value)
Which of the following statements is false concerning variable interest entities (VIEs)? VIEs have little need for voting stock. Sometimes VIEs do not have independent management. A VIE cannot take the legal form of a partnership or corporation. Most VIEs are established for valid business purposes. VIEs may be formed as a source of low-cost financing.
A VIE cannot take the legal form of a partnership or corporation.
According to International Financial Reporting Standards (IFRS), all of the following are part of minimum components of interim financial reporting except: A condensed statement of financial position. A condensed statement of changes in equity. A condensed statement of net income and comprehensive income. A condensed statement of cash flows. A condensed statement of accumulated pension liabilities.
A condensed statement of accumulated pension liabilities.
Buckette Co. owned 60% of Shuvelle Corp. and 40% of Tayle Corp., and Shuvelle owned 35% of Tayle. What is this pattern of ownership called? A connecting affiliation. An affiliated group. Pyramid ownership. Mutual ownership. An indirect affiliation.
A connecting affiliation.
How would consolidated earnings per share be calculated if the subsidiary has no convertible securities or warrants? Average of parent's earnings per share and subsidiary's earnings per share. Parent's earnings per share plus subsidiary's earnings per share. Consolidated income divided by total number of shares outstanding for the parent and subsidiary. Parent's net income divided by parent's number of shares outstanding. Consolidated net income divided by parent's number of shares outstanding.
Consolidated net income divided by parent's number of shares outstanding.
The accounting problems encountered in consolidated intra-entity debt transactions when the debt is acquired by an affiliate from an outside party include all of the following except: Changes in the investment, debt, interest revenue, and interest expense accounts occur constantly because of the amortization process. Both the investment and debt accounts have to be eliminated now and for each future consolidated financial statement despite containing differing balances. The gain or loss on the retirement of the debt must be recognized by the business combination in the year the debt is acquired, even though this balance does not appear on the financial records of either company. Subsequent interest revenue/expense must be removed although these balances fail to agree in amount. A gain or loss must be recognized by both parent and subsidiary companies.
A gain or loss must be recognized by both parent and subsidiary companies.
Parent sold land to its subsidiary resulting in a gain in 2019, the year of transfer. The subsidiary sold the land to an unrelated third party for a gain in 2022. Which of the following statements is true? Only the parent company will recognize a gain in 2022. A gain will be recognized in the consolidated income statement in 2019. The subsidiary will recognize a gain in 2019. A gain will be recognized in the consolidated income statement in 2022. No gain will be recognized in the 2022 consolidated income statement.
A gain will be recognized in the consolidated income statement in 2022.
Which of the following statements is true regarding an intra-entity transfer of land? A gain is always recognized but a loss is deferred in a consolidated income statement. A loss is always recognized but a gain is deferred in a consolidated income statement. Recognition of a gain or loss is deferred by adjusting stockholders' equity through comprehensive income. A loss and a gain are deferred until the land is sold to an outside party. A loss and a gain are always recognized in a consolidated income statement.
A loss and a gain are deferred until the land is sold to an outside party.
If new bonds are issued from a parent to its subsidiary, which of the following statements is false? Interest revenue needs to be eliminated on the consolidated income statement. Any premium or discount on bonds payable is exactly offset by a premium or discount on bond investment. A net gain or loss on the bond transaction will be reported. There will be $0 net gain or loss on the bond transaction. Interest expense needs to be eliminated on the consolidated income statement.
A net gain or loss on the bond transaction will be reported.
Which of the following examples accurately describes a difference in the types of business combinations? Both a statutory merger and a statutory consolidation can only be effected through an asset acquisition but only a statutory consolidation requires dissolution of the acquired company. A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity. A statutory merger can only be effected through an asset acquisition while a statutory consolidation can only be effected through a capital stock acquisition. A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution. A statutory merger can only be effected through a capital stock acquisition while a statutory consolidation can only be effected through an asset acquisition.
A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity.
Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in The general journals of both companies. Victoria's general journal. A worksheet. Victoria's secret consolidation journal. Lisa's general journal.
A worksheet.
Evanston Co. owned 60% of Montgomery Corp. Montgomery owned 75% of Noir Inc., and Noir owned 15% of Montgomery. This pattern of ownership would be called... Direct control. Indirect control. Mutual ownership. An affiliated group. A connecting affiliation.
Mutual ownership.
Which of the following statements is true for a consolidated statement of cash flows? All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity. Parent's dividends and subsidiary's dividends are deducted as a financing activity. Neither parent's nor subsidiary's dividends are deducted as a financing activity. Only parent's dividends are deducted as a financing activity. Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as a financing activity.
Acquired in-process research and development is considered as A research and development expense at the date of acquisition. An indefinite-lived asset subject to amortization. A definite-lived asset subject to amortization. An indefinite-lived asset subject to testing for impairment. A definite-lived asset subject to testing for impairment.
An indefinite-lived asset subject to testing for impairment.
Which of the following is not true for an operating segment according to U.S. GAAP? The segment recognizes revenues and incurs expenses. The segment is regularly reviewed by a chief decision maker to make resource allocations. The segment is regularly reviewed by a chief decision maker to assess performance decisions. Discrete financial information generated by the internal accounting system is available. An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.
An organizational unit cannot be an operating segment if all of its operating transactions are only with other segments of the organization.
Which of the following statements is true concerning the acquisition of existing debt of a consolidated affiliate in the year of the debt acquisition? Interest expense recognized from carrying debt instruments is recognized on a consolidated income statement. Recognition of any gain or loss is deferred until the debt is extinguished for purposes of reporting such debt on consolidated financial statements. Consolidated retained earnings is adjusted to take into account the difference between the purchase price and carrying value of the debt. Any gain or loss is recognized in the year of acquisition on a consolidated income statement. Interest revenue generated from the debt of an affiliate is recognized on a consolidated income statement.
Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
When indirect control is present, which of the following statements is true? Recognition of income for an indirectly owned subsidiary is ignored. Consolidated financial statements are required for only one subsidiary. Only dividend income is recognized for an indirectly owned subsidiary. At least one company within the consolidated entity holds a parent and a subsidiary relationship. The parent company owns a percent of subsidiary and subsidiary owns a percent of the parent.
At least one company within the consolidated entity holds a parent and a subsidiary relationship.
How do intra-entity transfers of inventory affect the preparation of a consolidated statement of cash flows? Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required. They must be added in calculating cash flows from investing activities. They must be deducted in calculating cash flows from operating activities. They must be deducted in calculating cash flows from investing activities. They must be added in calculating cash flows from operating activities.
Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required.
In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest? Projections of residual income. Fair value based on stock trades of the acquired company. Consideration transferred by the parent company that implies a total subsidiary value. Subsidiary cash flows discounted to present value. Book value of subsidiary net assets.
Book value of subsidiary net assets.
A statutory merger is a(n) Legal proposal to acquire outstanding shares of the target's stock. Acquisition of a competitor. Business combination in which only one of the two companies continues to exist as a legal corporation. Acquisition of a supplier or a customer. Business combination in which both companies continue to exist.
Business combination in which only one of the two companies continues to exist as a legal corporation.
Which of the following statements is false regarding the assignment of a gain or loss when an affiliate's debt instrument is acquired on the open market? Parent Company net income is not affected by a loss on the debt transaction. Subsidiary net income is not affected by a gain on the debt transaction. Consolidated net income is not affected by a gain or loss on the debt transaction. Subsidiary net income is not affected by a loss on the debt transaction. Parent Company net income is not affected by a gain on the debt transaction.
Consolidated net income is not affected by a gain or loss on the debt transaction.
Where do dividends paid to the noncontrolling interest of a subsidiary appear on a consolidated statement of cash flows? Supplemental schedule of noncash investing and financing activities. Cash flows from operating activities. They do not appear in the consolidated statement of cash flows. Cash flows from investing activities. Cash flows from financing activities.
Cash flows from financing activities.
Which is a true statement regarding the fundamental requirement of accounting for derivatives? Derivatives are reported on the balance sheet only as an asset. Changes in derivative fair value are included in comprehensive income. Derivatives are reported on the balance sheet only as a liability. Changes in derivative cost basis are recorded in the asset value. Changes in derivative cost basis are recorded in the liability value.
Changes in derivative fair value are included in comprehensive income.
Consolidated net income using the equity method for an acquisition combination is computed as follows Combined revenues less combined expenses less equity in subsidiary's earnings less amortization of fair-value allocations in excess of book value. Parent's reported net income plus subsidiary dividends. Parent company's revenues from its own operations plus subsidiary retained earnings. Parent's revenues less expenses for its own operations plus the equity from subsidiary's earnings less subsidiary dividends. None of these answer choices are correct.
Combined revenues less combined expenses less equity in subsidiary's earnings less amortization of fair-value allocations in excess of book value.
The following items are required to be disclosed for each operating segment except: Revenues from transactions with other operating segments. Factors used to allocate company-wide pension expense. Depreciation, depletion, and amortization expense. Revenues from external customers. Interest revenue and interest expense.
Factors used to allocate company-wide pension expense.
Which of the following is not a potential loss or return of a variable interest entity? If the variable interest entity cannot repay liabilities, honoring a debt guarantee will produce a loss. Entitles holder to residual profits. If leased asset declines below the residual value, honoring the guarantee will produce a loss. Entitles holder to benefit from increases in asset fair value. Entitles holder to receive shares of common stock.
Entitles holder to receive shares of common stock.
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? Retained Earnings. Equipment. Goodwill. Common Stock. Equity in Subsidiary Earnings.
Equity in Subsidiary Earnings.
A variable interest entity can take all of the following forms except a(n): Corporation. Trust. Estate. Partnership. Joint venture.
Estate.
According to GAAP, which of the following is true with respect to the pooling of interest method of accounting for business combinations? GAAP requires it to be used instead of the acquisition method for business combinations for which $50 billion or more in consideration is transferred. GAAP allowed its use prior to 2002. It was the only method used prior to 2002. It, or the acquisition method, may be used at the acquirer's discretion. It must be used for all new acquisitions.
GAAP allowed its use prior to 2002.
On January 1, 2021, Halpert Inc. acquired 30% of Schrute Corp. Halpert used the equity method to account for the investment. On January 1, 2022, Halpert sold two-thirds of its investment in Schrute. It no longer had the ability to exercise significant influence over the operations of Schrute. How should Halpert account for this change? Halpert should use the fair-value method for 2022 and future years, but should not make a retrospective adjustment to the investment account. Halpert has the option of using either the equity method or the fair-value method for 2021 and future years. Halpert should continue to use the equity method to maintain consistency in its financial statements. Halpert should report the effect of the change from the equity to the fair-value method as a retrospective change in accounting principle. Halpert should restate the prior years' financial statements and change the balance in the investment account as if the fair-value method had been used since 2021.
Halpert should use the fair-value method for 2022 and future years, but should not make a retrospective adjustment to the investment account.
Which of the following statements is true concerning hedge accounting? Hedges of foreign currency firm commitments are entered into for speculative purposes. Hedges of foreign currency firm commitments are used for future sales or purchases. Hedges of foreign currency firm commitments are used for current sales or purchases. Hedges of foreign currency firm commitments are used for future sales only. Hedges of foreign currency firm commitments are used for future purchases only.
Hedges of foreign currency firm commitments are used for future sales or purchases.
With respect to identifiable intangible assets other than goodwill, which of the following is true? If the average fair value of the asset is less than the average carrying amount of the asset with respect to, and determined for, the preceding three-year period, the asset is considered impaired and the entity may recognize a loss. An identifiable intangible asset with an indefinite useful life must be assessed for impairment once every three years. If the value of the identified asset meets a de minimis exception, the entity may elect to treat it as goodwill. A quantitative evaluation of value is required each year regardless of circumstances. If a qualitative assessment of the asset performed by an entity indicates impairment is likely, a quantitative assessment must be performed to determine whether there has been a loss in fair value.
If a qualitative assessment of the asset performed by an entity indicates impairment is likely, a quantitative assessment must be performed to determine whether there has been a loss in fair value.
Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss. If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.
If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.
An investor should always use the equity method to account for an investment if: It does not have the ability to exercise significant influence over the operating policies of the investee. It has a controlling interest (more than 50%) of an investee's stock. It has the ability to exercise significant influence over the operating policies of the investee. The investment was made primarily to earn a return on excess cash. It owns 30% of an investee's stock.
It has the ability to exercise significant influence over the operating policies of the investee.
When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? 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. If majority control is still maintained, consolidated financial statements are still required. A gain or loss calculation must be prepared if control is lost. 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. 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.
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.
What is the primary difference between: (i) accounting for a business combination when the subsidiary is dissolved; and (ii) accounting for a business combination when the subsidiary retains its incorporation? If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company. If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition. If the subsidiary is dissolved, it will not be operated as a separate division. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values. If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company.
Which of the following statements is true? In determining reportable segments, three tests are applied and only one must be met. In determining reportable segments, three tests are applied and all three must be met. In determining reportable segments, two tests are applied and both must be met. In determining reportable segments, two tests are applied and only one must be met. In determining reportable segments, at least 80% of the revenues from external customers must be reported.
In determining reportable segments, three tests are applied and only one must be met.
How is goodwill amortized? It is not amortized for tax purposes, but is amortized over a 5-year life for reporting purposes. It is not amortized for reporting purposes or for tax purposes. It is not amortized for tax purposes, but is amortized over a 15-year life for reporting purposes. It is not amortized for reporting purposes, but is amortized over a 5-year life for tax purposes. It is not amortized for reporting purposes, but is amortized over a 15-year life for tax purposes.
It is not amortized for reporting purposes, but is amortized over a 15-year life for tax purposes.
In a step acquisition, which of the following statements is false? Obtaining control through a step acquisition is a significant measurement event. The acquisition method views a step acquisition essentially the same as a single step acquisition. Pre-acquisition earnings are not included in the consolidated income statement. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year. Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? No goodwill can be recognized. Income from subsidiary is not recognized until there is an entire year of consolidated operations. Income from subsidiary is recognized for the entire year. Income from subsidiary is recognized from date of acquisition to year-end. Excess cost over acquisition value is recognized at the beginning of the fiscal year.
Income from subsidiary is recognized from date of acquisition to year-end.
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? Investment in Subsidiary. Equipment. Goodwill. Common Stock. Additional Paid-In Capital.
Investment in Subsidiary.
On January 1, 2019, Dermot Company purchased 15% of the voting common stock of Horne Corp. On January 1, 2021, Dermot purchased 28% of Horne's voting common stock. If Dermot achieves significant influence with this new investment, how must Dermot account for the change to the equity method? It must restate the financial statements for 2020 as if the equity method had been used then. It must restate the financial statements for 2020 and 2019 as if the equity method had been used for those two years. It must use the equity method for 2021 but should make no changes in its financial statements for 2020 and 2019. It should record a prior period adjustment at the beginning of 2021 but should not restate the financial statements for 2020 and 2019. It should prepare consolidated financial statements for 2021.
It must use the equity method for 2021 but should make no changes in its financial statements for 2020 and 2019.
For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: Goodwill, or a gain from bargain purchase. Identifiable assets acquired, at fair value. Intangible assets acquired, at fair value. Liabilities assumed, at book value. Non-controlling interest, at fair value.
Liabilities assumed, at book value.
An upstream sale of inventory is a sale: Made by the investee to the investor. In which the goods are physically transported by boat from a subsidiary to its parent. Between subsidiaries owned by a common parent. Made by the investor to the investee. With the transfer of goods scheduled by contract to occur on a specified future date.
Made by the investee to the investor.
Town Co. appropriately uses the equity method to account for its investment in Country Corp. As of the end of 2021, Country's common stock had suffered a significant decline in fair value, which is expected to recover over the next several months. How should Town account for the decline in value? Town should decrease the balance in the investment account to the current value and recognize an unrealized loss on the balance sheet. Town should decrease the balance in the investment account to the current value and recognize a loss on the income statement. Town should switch to the fair-value method. Town should not record its share of Country's 2021 earnings until the decline in the fair value of the stock has been recovered. No accounting because the decline in fair value is temporary.
No accounting because the decline in fair value is temporary.
If a subsidiary issue a stock dividend, which of the following statements is true? Additional paid-in capital on the parent's books will decrease. Investment in subsidiary on the parent's books will increase. No adjustment is necessary. Investment in subsidiary on the parent's books will decrease. Additional paid-in capital on the parent's books will increase.
No adjustment is necessary.
What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method? Proceeds from the sale of long-term investments would be added to investing activities. Parent's dividends would be subtracted as a financing activity. Loss on sale of equipment would be added to net income. Gain on sale of land would be deducted from net income. Noncontrolling interest in net income of subsidiary would be added to net income.
Noncontrolling interest in net income of subsidiary would be added to net income.
Which of the following conditions will allow two companies to file a consolidated income tax return? One company holds 83 percent of the other company's voting stock. One company owns less than 50 percent of the other company's voting stock but has the ability to significantly influence the other company. One company holds 75 percent of the other company's voting stock. One company holds 50 percent of the other company's voting stock. None of the above.
One company holds 83 percent of the other company's voting stock.
When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? Parent company dividends equal consolidated dividends. Parent company net income equals consolidated net income. Goodwill is recorded on the parent's books. Parent company retained earnings equals consolidated retained earnings. Parent company total assets equals consolidated total assets.
Parent company dividends equal consolidated dividends.
In reporting consolidated earnings per share when there is a wholly owned subsidiary, which of the following statements is true? Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value is less than book value. Parent company earnings per share equals consolidated earnings per share when the equity method is used. Preferred dividends are not deducted from net income for consolidated earnings per share. Parent company earnings per share is equal to consolidated earnings per share when the initial value method is used. Parent company earnings per share is equal to consolidated earnings per share when the partial equity method is used and acquisition-date fair value exceeds book value.
Parent company earnings per share equals consolidated earnings per share when the equity method is used.
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 of the subsidiary with respect to the presentation of consolidated financial statement information? Pre-acquisition earnings are added to the beginning consolidated stockholders' equity. Pre-acquisition earnings are deducted from consolidated retained earnings. Pre-acquisition earnings are excluded from the consolidated income statement. Pre-acquisition earnings are added to consolidated revenues and expenses. Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity.
Pre-acquisition earnings are excluded from the consolidated income statement.
In a tax-free business combination, Any goodwill created by the combination may be amortized in calculating taxable income. Any goodwill created by the combination must be deducted in total in calculating taxable income. The subsidiary's assets and liabilities are assigned an income tax basis of zero dollars, so that they will have no future income tax consequences. The income tax basis for acquired assets and liabilities is adjusted to current fair value. The subsidiary's cost basis for assets are retained for income tax calculations.
The subsidiary's cost basis for assets are retained for income tax calculations.
Riley Corp. owned 90% of Brady Inc., while Brady owned 10% of the outstanding common shares of Riley. No goodwill or other allocations were recognized in connection with either of these acquisitions. Riley reported net income of $255,000 for 2021 whereas Brady recognized $87,000 during the same period. No investment income was included within either of these income totals. How would the 10% investment in Riley owned by Brady be presented in the consolidated balance sheet? The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet. Riley would treat the shares owned by Brady as if they had been repurchased on the open market, and a treasury stock account would be set up on Riley's books recording the shares at their fair value on the date of combination. The 10% investment would be eliminated and no amount would be shown in the consolidated balance sheet. The 10% investment would be included as part of Additional Paid-In Capital because it is less than 20% and therefore indicates no significant influence is present. The 10% investment would be reclassified in Brady's balance sheet as Treasury Stock before the consolidation process begins.
The 10% investment would be eliminated and the same dollar amount would appear as treasury stock in the consolidated balance sheet.
Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest? The application of a safe harbor discount rate. Valuation models based on subsidiary discounted cash flows. Fair value based on market trades. Valuation models based on subsidiary residual income projections. Comparison with comparable investments.
The application of a safe harbor discount rate.
Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock? The parent's percent ownership in subsidiary will increase. The parent recognizes a larger percent of subsidiary income. Noncontrolling interest in subsidiary's net income will decrease. A step acquisition resulting in control may result in a parent recognizing a gain on revaluation. The book value of the subsidiary will increase.
The book value of the subsidiary will increase.
With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting, which of the following should the acquirer consider when determining fair value? The book value of identifiable assets transferred to the acquirer as part of the business combination less any liabilities assumed. The consideration transferred by the acquirer and the fair value of assets received less liabilities assumed. Only assets received by the acquirer. The par value of stock transferred by the acquirer, and the book value of identifiable assets transferred by the entity acquired. Only consideration transferred by the acquirer.
The consideration transferred by the acquirer and the fair value of assets received less liabilities assumed.
Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax now sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true? The difference between selling price and carrying value is recorded as an unrealized gain or loss. The difference between selling price and acquisition value is recorded as a realized gain or loss. The difference between selling price and carrying value is recorded as an adjustment to retained earnings. The difference between selling price and acquisition value is recorded as an unrealized gain or loss. The difference between selling price and carrying value is recorded as a realized gain or loss.
The difference between selling price and carrying value is recorded as a realized gain or loss.
On January 1, 2021, Riley Corp. acquired some of the outstanding bonds of one of its subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them. How should you account for the difference between the carrying value and the purchase price in the consolidated financial statements for 2021? The difference is treated as a gain from the extinguishment of the debt. The difference is added to the carrying value of the debt. The difference does not influence the consolidated financial statements. The difference is deducted from the carrying value of the debt. The difference is treated as a loss from the extinguishment of the debt.
The difference is treated as a gain from the extinguishment of the debt.
Which one of the following characteristics of preferred stock would make the stock a dilutive security for purposes of calculating earnings per share? The preferred stock is noncumulative. The preferred stock is callable. The preferred stock is participating. The preferred stock is convertible. The preferred stock is cumulative.
The preferred stock is convertible.
A spot rate may be defined as The price today at which a foreign currency can be purchased or sold in the future. The price a foreign currency can be purchased or sold today. The Euro value of a foreign currency. The forecasted future value of a foreign currency. The U.S. dollar value of a foreign currency.
The price a foreign currency can be purchased or sold today.
The forward rate may be defined as The U.S. dollar value of a foreign currency. The Euro value of a foreign currency. The price today at which a foreign currency can be purchased or sold in the future. The forecasted future value of a foreign currency. The price a foreign currency can be purchased or sold today.
The price today at which a foreign currency can be purchased or sold in the future.
Which of the following statements is true regarding the acquisition method of accounting for a business combination? The acquired subsidiary must be smaller in size than the acquiring parent. The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company. The combination must involve the exchange of equity securities only. The transaction may be considered to be the uniting of the ownership interests of the companies involved. The transaction establishes an acquisition fair value basis for the company being acquired.
The transaction establishes an acquisition fair value basis for the company being acquired.
When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss? The foreign currency appreciated in value relative to the U.S. dollar. The transaction is denominated in U.S. dollars. The option strike price to sell foreign currency is less than the spot rate of the currency. The foreign currency depreciated in value relative to the U.S. dollar. The option strike price to buy foreign currency is less than the spot rate of the currency.
The transaction is denominated in U.S. dollars.
Which of the following statements is true regarding mutual ownership between a parent and its subsidiary? Only the subsidiary's shares held by the parent should be eliminated in consolidation. The treasury stock approach is required to eliminate subsidiary shares held by the parent company. The treasury stock approach is required to reflect parent shares held by the subsidiary. The shares of the parent held by a subsidiary should be treated as outstanding stock on the consolidated balance sheet. The parent company does not need to file consolidated financial statements if there is mutual ownership.
The treasury stock approach is required to reflect parent shares held by the subsidiary.
All of the following statements regarding the sale of subsidiary shares are true except which of the following? The use of specific LIFO assumption is acceptable. The use of specific identification based on serial number is acceptable. The parent company must determine whether consolidation is still appropriate for the remaining shares owned. The use of the FIFO assumption is acceptable. The use of the averaging assumption is acceptable.
The use of specific LIFO assumption is acceptable.
Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows? Cash flows from investing activities. They do not appear in the consolidated statement of cash flows. Cash flows from financing activities. Supplemental schedule of noncash investing and financing activities. Cash flows from operating activities.
They do not appear in the consolidated statement of cash flows
Where do dividends paid by a subsidiary to the parent company appear in a consolidated statement of cash flows? Supplemental schedule of noncash investing and financing activities. Cash flows from operating activities. They do not appear in the consolidated statement of cash flows. Cash flows from investing activities. Cash flows from financing activities.
They do not appear in the consolidated statement of cash flows.
On October 6, 2021, Ronan Corp. sold land to Bane Co., its wholly owned subsidiary. The land cost $72,400 and was sold to Bane for $96,000. For consolidated financial statement reporting purposes, when must the gain on the sale of the land be recognized? As Bane uses the land. Proportionately over a designated period of years. When Bane Co. begins using the land productively. When Bane Co. sells the land to a third party. No gain may be recognized.
When Bane Co. sells the land to a third party.
During 2020, Odyssey Co. sold inventory to its wholly-owned subsidiary, Civic Co. The inventory cost $40,000 and was sold to Lord for $58,000. For consolidation reporting purposes, when is the $18,000 intra-entity gross profit recognized? When Civic receives the goods. When goods are transferred to a third party by Civic. No gain can be recognized since the transfer was between related parties. When Civic pays Odyssey for the goods. When Odyssey sold the goods to Civic.
When goods are transferred to a third party by Civic.
