Advanced accounting Chapters 3 & 4

How does the partial equity method differ from the equity method? a. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account. b. 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. c. In the total assets reported on the consolidated balance sheet. d. In the treatment of dividends. e. In the total liabilities reported on the consolidated balance sheet.

b

If the total fair value of the acquired firm is more than the collective sum of its identifiable net assets, a bargain purchase occurs. Select one: a. True b. False

b

When a parent company acquires a controlling ownership interest with less than 100 percent of a subsidiary's voting shares, it must account for the noncontrolling shareholders' interest in its consolidated financial statements. Select one: a. True b. False

a

When a company pays a premium price per share to garner sufficient shares to ensure a controlling interest it is called a control premium. Select one: a. True b. False

a

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? a. Additional Paid-In Capital. b. Common Stock. c. Investment in Subsidiary. d. Equipment. e. Goodwill.

c

According to GAAP regarding amortization of goodwill, which of the following statements is true? a. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. b. Goodwill recognized in consolidation must be amortized over 20 years. c. Goodwill recognized in consolidation must be amortized over 40 years. d. Goodwill recognized in consolidation must be expensed in the period of acquisition. e. Goodwill recognized in consolidation can never be written off.

a

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? Select one: a. If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital. b. If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. c. If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. d. If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings. e. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss.

a

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? Select one: a. Consideration transferred by the parent company that implies a total subsidiary value. b. Book value of subsidiary net assets. c. Fair value based on stock trades of the acquired company. d. Subsidiary cash flows discounted to present value. e. Projections of residual income.

b

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false? Select one: a. 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. b. 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. c. If majority control is still maintained, consolidated financial statements are still required. d. 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. e. A gain or loss calculation must be prepared if control is lost.

b

All of the following statements regarding the sale of subsidiary shares are true except which of the following? Select one: a. The use of the averaging assumption is acceptable. b. The use of the FIFO assumption is acceptable. c. The use of specific LIFO assumption is acceptable. d. The use of specific identification based on serial number is acceptable. e. The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

c

For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: Select one: a. Goodwill or a gain from bargain purchase. b. Non-controlling interest, at fair value. c. Liabilities assumed, at book value. d. Identifiable assets acquired, at fair value. e. None of these choices is correct.

c

Under the equity method of accounting for an investment: Select one: a. Dividends received increase the investment account. b. Goodwill is amortized over 20 years. c. Income reported by the subsidiary increases the investment account. d. Dividends received are recorded as revenue. e. The investment account remains at initial value.

c

Under the partial equity method, the parent recognizes income when: a. The related contract is signed by the subsidiary. b. The related expense has been incurred. c. It is earned by the subsidiary. d. Dividends are received from the investee. e. Dividends are declared by the investee.

c

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? Select one: a. Initial value or book value. b. Initial value, equity, or book value. c. Initial value, equity, or partial equity. d. Initial value, lower-of-cost-or-market-value, or partial equity. e. Initial value, lower-of-cost-or-market-value, or equity.

c

Which of the following is not an example of an intangible asset? Select one: a. Customer list. b. Trademark. c. Broken equipment. d. Lease agreement. e. Database.

c

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment? Select one: a. The amount of consolidated cost of goods sold. b. Total assets on the consolidated balance sheet. c. The balance in the investment account on the parent's books. d. The amount of consolidated net income. e. Total liabilities on the consolidated balance sheet.

c

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? a. The difference between selling price and carrying value is recorded as an unrealized gain or loss. b. The difference between selling price and carrying value is recorded as an adjustment to retained earnings. c. The difference between selling price and acquisition value is recorded as an unrealized gain or loss. d. The difference between selling price and acquisition value is recorded as a realized gain or loss. e. The difference between selling price and carrying value is recorded as a realized gain or loss.

e

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? Select one: a. No goodwill can be recognized. b. Income from subsidiary is not recognized until there is an entire year of consolidated operations. c. Excess cost over acquisition value is recognized at the beginning of the fiscal year. d. Income from subsidiary is recognized from date of acquisition to year-end. e. Income from subsidiary is recognized for the entire year.

d

A bargain purchase gain is allocated between both the controlling and noncontrolling interest. Select one: a. True b. False

b