Advanced 2 Exam - Chapters 3 & 4 CONCEPTS

Which of the following is not an example of an intangible asset?

Broken equipment

Under the initial value method, the parent recognizes income when

Dividends are declared by the investee.

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 used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes, but is not required for the equity method? A)Retained earnings 20 Investment in Fiore 20 B)Investment in Fiore 20 Retained earnings 20 C)Expenses 20 Investment in Fiore 20 D)Expenses 20 Retained earnings 20 E)Retained earnings 20 Additional paid-in capital 20

Entry A. Explanation: Amortization is not recognized using the partial equity method. The journal entry to convert to full-accrual totals would include the amount of amortization.

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 used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method? A)Investment in Fiore 380 Retained earnings 380 B)Retained earnings 380 Investment in Fiore 380 C)Investment in Fiore 280 Retained earnings 280 D)Retained earnings 280 Investment in Fiore 280 E)Additional paid-in capital 280 Retained earnings 280

Entry C. Explanation: Income reported by Fiore ($400) − Dividend Income recorded under the initial value method ($100) − Amortization not recorded under the initial value method ($20) = $280.

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:

Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

According to GAAP regarding amortization of goodwill, which of the following statements is true?

Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.

With respect to identifiable intangible assets other than goodwill, which of the following is true?

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.

10/10points awarded ItemScored eBookReferences Item19 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 an adjustment to additional paid-in capital.

In a step acquisition, which of the following statements is false?

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

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Initial value, equity, or partial equity.

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.

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 might the company have made this decision?

It is a relatively easy method to apply.

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.

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 a realized gain or loss.

The noncontrolling 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?

In the owners' equity section.

When consolidating parent and subsidiary financial statements, which of the following statements is true?

The value of any goodwill should be tested annually for impairment in value.

With respect to the recognition of goodwill in a business combination, which of the following statements is true?

US GAAP standards require goodwill to be allocated to reporting units expected to benefit from the goodwill.

How does the partial equity method differ from the equity method?

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.

Goodwill recognized in a business combination must be allocated across a firm's identified reporting units. For a consolidated entity with multiple reporting units, when is goodwill considered to be impaired?

When any individual reporting unit's carrying amount exceeds its fair value

When should a consolidated entity recognize a goodwill impairment loss?

When the fair value of a reporting unit with goodwill falls below its carrying amount

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

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