Advanced Accounting Chapter 3

consolidated income statements report goodwill impairment losses as

a component of operating income

by recognizing subsidiary income as it is earned, rather than when cash is received through a dividend, the equity method embraces the ___ method of accounting

accrual

when the parent applies the equity method to its investment in subsidiary account, no worksheet entries are required to adjust the parent's retained earnings because the parents has routinely recognized income from the subsidiary on a full-___ basis

accrual

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

accrual basis

which of the following accounts of both the parent and subsidiary are combined for consolidated financial reporting

assets and liabilities, revenues and expenses

consolidation entry a adjusts the subsidiary's assets to their unamortized acquisition-date fair value as of what date

beginning of the current reporting period

consolidation entry i

brings the equity in subsidiary earnings account to a zero balance

regardless of the parent's internal accounting method choice, the initial amount typically recorded in an investment in subsidiary account is the fair value of the ____ ____ by the parent

consideration transferred

consolidation entry s removes the balances from the subsidiary's common stock and additional paid-in capital accounts to ensure that only the parent's balances for these accounts appear in ___ totals

consolidated

subsidiary dividends attributable to its parent are excluded from ___ totals because they represent an intra-entity transfer with no financial effect outside the reporting entity

consolidated

if a subsidiary company has a debt payable to its parent company, the intra-entity payable and receivable is removed as part of the ___ process

consolidation

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

how do the consolidation worksheets compare across Exhibit 3.5 vs. Exhibit 3.9 and Exhibit 3.10

consolidation entries s, a, and e are the same across the three exhibits and no differences in consolidation totals across the three exhibits

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

decrease

under the initial value method, the parent records income when the subsidiary declares a ____

dividend

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

dividends from the subsidiary, excess acquisition-date fair over book value amortization, and income as it is earned and reported by the subsidiary

when the parent uses the equity method, consolidation entry d

eliminates the intra-entity subsidiary dividends attributable to the parent company

consolidation entry a, in the first year subsequent to acquisition, adjusts the subsidiary's asset and liability balances to acquisition-date ___ values

fair

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

income, revenues, and expenses

when the parent applies the equity method on its internal records, what accounts balances are removed on the consolidated worksheet

investment in subsidiary, equity in subsidiary earnings, and the parent's share of subsidiary dividends declared

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

must be increased in preparing consolidated financial statements

in a post-acquisition consolidation worksheet, which rows are not summed across to derive consolidation totals

net income and retained earnings (ending balance)

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

no effect

beyond recording the acquisition price, what periodic adjustments does the parent typically make to the investment account when the initial value method is employed

no periodic adjustments are typically made

as part of the consolidated 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

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

when a parent company owns 100% of its subsidiary, what amounts for common stock and additional paid-in capital are included in consolidated stockholder's equity totals

parent company balances only

in consolidation entry d, the credit to the dividends declared account

reduces the subsidiary's dividends balance

when the parent applies the initial value method for its investment accounting, consolidation entry I is needed to

remove the balance in the parent's dividend income and the subsidiary's dividends declared

consolidation entry s credits and investment in subsidiary account in order to

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

when the parent uses the equity method, consolidation entry i

removes the parent's recorded equity income

neither the initial value method not the partial equity method represent full accrual accounting for the subsidiary's income. therefore, over time the parent's beginning ___ ___ becomes misstated and must be appropriately established

retained earnings

when the parent employs either the initial value or the partial equity method, establishing an appropriate beginning __ __ balance of the parent is crucial to the preparation of consolidated financial statements

retained earnings

depending on the investment accounting method chosen, which of the following accounts will vary on the parent's financial records

retained earnings, the investment account, and the income from the subsidiary

worksheet entries focus on the parent's beginning retained earnings as needed to partially adjust to the full-accrual basis. to complete the adjustment, we combine current year consolidated ___ and ___ to arrive at full-accrual ending retained earnings

revenues and expense

the label s in consolidation worksheet entry s refers to the subsidiary's ___ ___ accounts

stockholders equity

the values assigned to intangible assets with indefinite useful lives are

subject to periodic impairment testing

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

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

why does consolidation entry s remove the subsidiary's stockholders' equity accounts

subsidiary ownership accounts are not relevant, because consolidated statements are prepared for the parent company owners

Subsequent to acquisition, consolidated depreciation is based upon

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

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

the equity method, the partial equity method, and the initial value method

consolidation entry d debits the investment in subsidiary account when

the parent employs the equity method in accounting for its investment and the subsidiary has declared a current period cash dividend

conducting goodwill impairment tests at the reporting unit level helps capture goodwill impairment losses that may otherwise be offset by an increase in goodwill in another reporting unit

true

consolidated totals include the unamortized subsidiary acquisition-date excess of fair love book value allocations

true

consolidation entry I removes the equity in subsidiary earnings which is then replaced by the inclusion of the subsidiary's individual revenue and expense accounts on the consolidated income statement

true

consolidation entry a may include an adjustment to recognize goodwill created by the business combination

true

in the presence of acquisition-date excess fair over book values for subsidiary assets, both consolidation entries a and e are needed to adjust subsidiary to their end-of the-year proper consolidated balances

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

in conjunction with combining a subsidiary's revenues and expenses with those of the parent company, the income from subsidiary account accrued by a parent 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 of the equity method, consolidation worksheet entries bring the investment account to a ___ balance

zero