ACCT 425 Test 1
On January 1, Puckett Company paid $1.30 million for 52,000 shares of Harrison's voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $3 per share during the year and reported net income of $561,000. What is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31?
$1,368,400.
On June 1, Cline Co. paid $1,137,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn's assets and liabilities on June 1 follow: Cash $ 226,000 Accounts receivable 281,000 Capitalized software costs 418,000 Goodwill 161,000 Liabilities (213,000 ) Net assets $ 873,000 On June 1, Renn's accounts receivable had a fair value of $216,000. Additionally, Renn's in-process research and development was estimated to have a fair value of $281,000. All other items were stated at their fair values. On Cline's June 1 consolidated balance sheet, how much is reported for goodwill?
$209,000.
In its research regarding the treatment of goodwill impairment for private companies, FASB found that: A. The two-step impairment test provides limited decisionuseful information B. Users of private company financial statements consider goodwill impairment losses extensively in their financial statement analysis C. The complexity in performing the goodwill impairment test is justified D. The benefits of the two-step impairment test exceed its cost
A.
What two things are compared in Step 1 of the goodwill impairment test? A. The fair value of the reporting unit to the book value of the reporting unit including goodwill B. The implied fair value of the goodwill to the book value of the goodwill C. The fair value of total intangible assets to the book value of total intangible assets D. The fair value of total assets to the fair value of total liabilities
A.
An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as
An intangible asset under the contractual-legal criterion.
What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?
Capitalize as an asset.
Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?
Changes in the fair value of the investor's ownership shares of the investee.
S Journal Entry The removal of S beginning stockholder's equity balances
Common Stock S APIC S RE(12/31/2019) S Investment in S
What was the motivation for FASB's revision of the goodwill impairment test? A. Congressional mandate B. FASB's simplification initiative C. Concern over the cost and complexity of the current standard D. Both B and C
D.
Which of the following are important changes for public companies under the new goodwill impairment standard? A. Step 2 is eliminated B. Companies are no longer required to make a costly measurement of the fair value of individual assets and liabilities C. Impairment loss is calculated as the excess of a company's book value over its fair value D. All of the above
D.
Which of the following is true? A. A simultaneous equation is required to determine the tax effects from tax deductible goodwill impairments B. Under the updated standard, reporting units with zero or negative book values are not required to perform the qualitative assessment C. The update does not consider goodwill amortization for public companies, but FASB will address it in Phase 2 D. All of the above are true
D.
A Journal Entry Adjusts S balances from BV to acquisition date FV incl goodwill
Equipment (dr or cr; og values less sum years amz) Building (dr or cr; same as above) Customer Contracts Goodwill (calculated in allocation table - excess) Investment in S
I Journal Entry Removes S income recog by P during the year
Equity in Sub Earnings (S NI 2019 - 1 YR amz) Investment in S
When does gain recognition accompany a business combination?
When a bargain purchase occurs.
Which of the following does not represent a primary motivation for business combinations?
Larger firms are less likely to fail.
Hawkins Company has owned 10 percent of Larker, Inc., for the past several years. This ownership did not allow Hawkins to have significant influence over Larker. Recently, Hawkins acquired an additional 30 percent of Larker and now will use the equity method. How will the investor report change?
No change is recorded; the equity method is used from the date of the new acquisition.
FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:
Recognized as an ordinary gain from a bargain purchase.
The alternative treatment of goodwill gives private companies the option of straight-line amortization of goodwill over how many years? A. 8 B. 10 C. 15 D. 40
10
The update for the goodwill impairment test is effective for public companies that are SEC filers in fiscal years beginning after December 15, ____? A. 2019 B. 2020 C. 2021 D. 2022
2019
What is the primary concern of the three members of FASB who dissented from the issuance of the new standard? A. The updated standard will be more complicated B. The updated standard will be more costly to implement C. The one-step model could result in misidentification of an impairment of goodwill D. The calculation for goodwill impairment will always be smaller under the updated standard
C.
What is a statutory merger?
A business combination in which only one company continues to exist as a legal entity.
When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as
A deduction from the investment account.
E Journal Entry Recog CY excess amz exp relating to adj of S assets to acquisition date FV
Amortization Expense (1 yr) Depreciation Expense (1 yr) Building(ex//) (values calculates in allocation table) Equipment(ex//) (same as above)
Which of the following is false regarding the option to first assess qualitative factors related to goodwill impairment before assessing quantitative factors? A. The option is sometimes known as Step 0 B. The option was available under the old standard, but not under the new standard C. If the company determines that it is more likely than not that the fair value of a reporting unit is less than its book value, then it will proceed with the quantitative test D. In practice, the majority of companies do not apply the option because of its cost and because of greater confidence in the quantitative test
B.
In Step 1, goodwill is considered impaired if: A. The environment in which the company operates has become more competitive B. General economic conditions have deteriorated since the previous year C. The book value of the reporting unit including goodwill is greater than the fair value of the reporting unit D. None of the above
C.
On December 31, 2016, Akron, Inc. purchased 5 Percent of Zip Company's common shares on the open market in exchange for $17,400. On December 31, 2017, Akron, Inc., acquires an additional 25 percent of Zip Company's outstanding common stock for $93,250. During the next two years, the following information is available for Zip Company: Income Dividends Declared Common Stock Fair Value (12/31) 2016 $326,000 2017 $79,000 $7,100 373,000 2018 96,000 15,300 481,000 At December 31, 2017, Zip reports a net book value of $299,000. Akron attributed any excess of its 30 percent share of Zip's fair over book value to its share of Zip's franchise agreements. The franchise agreements had a remaining life of 10 years at December 31, 2017. Assume Akron applies the equity method to its Investment in Zip account: What amount of equity income should Akron report for 2018? On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account? Assume Akron uses fair-value accounting for its Investment in Zip account: What amount of income from its investment in Zip should Akron report for 2018? On Akron's December 31, 2018, balance sheet, what amount is reported for the Investment in Zip account?
Equity income $26,580 Inv Zip $133,890 Reported inc $36,990 Inv Zip $144,300
Which of the following is the best theoretical justification for consolidated financial statements?
In form the companies are separate; in substance they are one entity.
D Journal Entry Removes intra-entity transfer of cash for DIV to P from S
Investment in S Dividends (Div S paid during year)
Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2017, for $193,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2018, Milani purchased an additional 30 percent of Seida for $675,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,010,000 in total. Seida's January 1, 2018 book value equaled $1,860,000, although land was undervalued by $138,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an 8-year remaining life. During 2018, Seida reported income of $262,000 and declared and paid dividends of $118,000. Prepare the 2018 journal entries for Milani related to its investment in Seida.
Investment in Seida 675,000 cash 675,000 Investment in Seida 104,800 Equity Inc inv in S 104,800 Euity inc inv S 9,600 Investment in S 9,600 Div rec 47,200 inv in S 47,200 Cash 47,200 Div rec 47,200
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?
The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners' equity is recognized.
Which of the following does not indicate an investor company's ability to significantly influence an investee?
The investor owns 30 percent of the investee but another owner holds the remaining 70 percent.
