Advanced Accounting Exam #1

Assume the parent and subsidiary company have different fiscal year ends. If the difference in fiscal periods is not in excess of _____ months it usually is acceptable to use the subsidiary's statements for its fiscal year for consolidation purposes A. 3 B. 6 C. 9 D. 12

A. 3

Consolidated work paper entries normally A. Are posted to the general ledger accounts of one or more of the affiliates B. Are posted to the general ledger accounts only when the financial statement approach is used C. Are posted to the general ledger accounts only when the trial balance approach is used D. Are posted to the general ledger accounts of any of the affiliates

D. Are posted to the general ledger accounts of any of the affiliates

On June 1, 2014, Puell Company acquired 100% of the stock of Sorrel Inc. On this date, Puell had retained earnings of 100,000 and Sorell had Retained earnings of 50,000. On December 31, 2014. Puell had Retained earnings of 120,000 and Sorrell had retained earnings of 60,000. The amount of retained earnings that appeared in December 31, 2014 consolidated balance sheet was A. 120,000 B. 130,000 C. 170,000 D. 180,000

A. 120,000

On consolidated work papers, consolidated retained earnings is determined by A. Adding beginning consolidated retained earnings and the controlling interest share of consolidated net income and subtracting parent dividends B. adding end of the period retained earnings of the affiliates C. adjusting beginning parent retained earnings for subsidiary profits and dividends D. Adjusting the parents retained earnings account balance

A. Adding beginning consolidated retained earnings and the controlling interest share of consolidated net income and subtracting parent dividends

In a business combination, which of the following will occur? A. All identifiable assets and liabilities are recorded at fair value at the date of acquisition. B. All identifiable assets and liabilities are recorded at book value at the date of acquisition. C. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. D. None of the above is correct

A. All identifiable assets and liabilities are recorded at fair value at the date of acquisition.

In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers. A. All revenues, expenses, gains, losses, recivables, and payables B. All revenues, expenses, gains, losses but not receivables and payables C. Recivables and payables but not revenues, expenses, gains, and loses D. Only sales revenue and cost of goods sold.

A. All revenues, expenses, gains, losses, recivables, and payables

Which of the following items, originally recorded in the investment in Falcon CO account under the equity method, would not be systematically used to reduce investment income on a periodic basis? A. Amortization expense of goodwill B. depreciation expense o the excess fair value attributed to machinery C. Amortization expense o the excess fair value attributed to lease agreements D. depreciation expense o the excess fair value attributed to building

A. Amortization expense of goodwill

Under the acquisition method of accounting for business combinations, if the cost of the investment is greater than the net fair value acquired then the excess is allocated to identifiable net assets and the remaining is recorded as A. Goodwill B. Bargain purchase C. Gain on investment D. None of the above

A. Goodwill

Which method of accounting will generally be used when company purchases less than 20% of the outstanding stock of another company? A. The fair value method may be used B. The equity method will be used C. The book value method may be used D. None of the above

A. The fair value method may be used

A business merger differs from a business consolidation because A. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms new corporation B. a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities C. a merger is created when two entities join, but a consolidation is created when more than two entities join D. a consolidation is created when two entities join, but a consolidation is created when more than two entities join

A. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms new corporation

Pitch Co. Paid 50,000 in fees to its accountants and lawyers in acquiring slope company. Pitch will treat the 50,00 as A. an expense for the current year B. a prior period adjustment to retained earnings C. additional cost to investment of slope on the consolidated balance sheet D. a reduction in additional paid-in capital

A. an expense for the current year

Under the acquisition method of accounting for business combinations, if the cost of the investment is less than the net fair value acquired then the excess is allocated to identifiable net assets and the remaining is recorded as A. Goodwill B. Bargain purchase C. Gain on investment D. None of the above

B. Bargain purchase

Historically, much of the controversy concerning accounting requirements for business combinations involved the ___________ Method A. Purchase B. Pooling of Interests C. Equity D. Acquisition

B. Pooling of Interests

Which method of accounting will generally be used when company purchases between 20% and 50% of the outstanding stock of another company? A. The fair value method may be used B. The equity method will be used C. The book value method may be used D. None of the above

B. The equity method will be used

Panini Corporation owns 85% of the outstanding voting stock od Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock. On the consolidated financial statements of Panini Corporation and Strathmore, Malone is A. an affiliate B. a Noncontrolling interest C. an equity investee D. a related party

B. a Noncontrolling interest

On consolidated working papers, a subsidiary's net income A. deducted from beginning consolidated retained earnings B.deducted from ending consolidated retained earnings C. Allocated between noncontrolling interest share and the parent's share D. Only an entry in the parent company's General ledger

C. Allocated between noncontrolling interest share and the parent's share

What is the entry to record dividends on the investor's books using the fair value method? A. Credit to cash and debit the investment account B. Debit to cash and credit the investment account C. Debit to cash and credit dividend income D. No entry

C. Debit to cash and credit dividend income

Where is the non-controlling interest account located in the financial statements A. Assets B. Liabilites C. Equity D. Expense

C. Equity

Which of the following accounts are eliminated via a work-paper entry for the consolidated financial statements? A. intercompany payable and receivable accounts B. Investment in subsidiary accounts C. The subsidiary's equity accounts D. All of the above

D. All of the above

Which method must be used if FASB Statement No. 94 prohibits full consolidation of a 70% owned subsidiary? A. The cost method B. The liquidation value C. Market value D. Equity method

D. Equity method

Under the current GAAP, goodwill arising from a business combination is A. Charged to retained earnings after the acquisition is completed B. Amortized over 40 years or its useful life, which ever is longer C. Amortized over 40 years or its useful life, which ever is shorter D. Never Amortized

D. Never Amortized

Net income on consolidation work papers is A. adjusted when the parent uses the cost method B. Adjusted when the parent uses the equity method C. adjusted in all cases D. Not an account balance and not subject to adjustment

D. Not an account balance and not subject to adjustment

What is the difference between the fair value method and the equity method when recording the initial investment A. The initial investment is debited for a larger amount under the fair value method B. The investment account is credited under the fair value method and debited under the equity method C. The investment account is debited under the fair value method and credited under the equity method D. There is no difference

D. There is no difference

Picasso Co. issued 5,00 shares of its $1 par common stock valued at 100,000, to acquire shares of Seurat Company in all-stock transaction. Picasso paid the investment bankers 35,000 and will treat the investment banker fee as A. an expense for the current year B. a prior period adjustment to retained earnings C. additional cost to investment of slope on the consolidated balance sheet D. a reduction in additional paid-in capital

D. a reduction in additional paid-in capital

What is the entry to recognize earnings (net income of the investee company) on the investor books using the fair value method A. Debit the investment account and credit the income account B. Credit the Investment account and debit the income account C. Debit cash and credit the investment account D. there is no entry

D. there is no entry