Ch 3

The Consolidation Entry *C is needed to:

- simulate the equity method in adjusting the parent's beginning retained earnings - adjust the parent's beginning retained earnings to a full-accrual basis.

How does a parent company account for contingent consideration at the date of the acquisition of a subsidiary company?

- a cash payment contingency based on future performance is recorded as a liability for its acquisition - date fair value - a stock-based contingency is recorded as an additional paid-in capital for its acquisition date fair value

Which of the following parts of an enterprise represent possible reporting units?

- a component of an operating segment at a level below that operating segment - an entire enterprise - the operating segments of an enterprise

A parent agreed to pay an additional cash amount to the former owners of its acquired subsidiary if certain performance metrics were achieved in the first year subsequent to acquisition. The amount paid to former owners exceeds the fair value originally recorded by the parent. In accounting for the cash payment to former owners, the parent records:

- a loss on revaluation of the contingent performance obligation - a credit to cash - a reduction of the performance obligation

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

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

When a firm reports a goodwill impairment loss, additional disclosures are required to describe:

- how the firm determined the fair value of the reporting unit - the facts and circumstances leading to the impairment

Depending on the investment accounting method (equity, initial value, partial equity) chosen, which of the following accounts will vary on the parent's financial records?

- income from subsidiary - retained earnings - the investment account

Why is goodwill tested at the reporting unit level rather than the combined entity level?

- synergies represented by goodwill exist within the distinct operating lines represented by reporting units - a goodwill impairment in one reporting unit may be offset by an increase in goodwill in another unit thus preventing detection of the impairment

The amount of a reporting unit's goodwill impairment loss is computed as the excess of a reporting unit's:

carrying amount of goodwill over its implied value

Rather than the term "reporting units", IFRS uses the terminology _______ ________ units to describe the business components that form the basis for goodwill impairment testing

cash - generating

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

no effect

As part of the consolidation statement preparation process for a parent and subsidiary, the subsidiary's Assets, Liability, Revenue, and Expense balances are added to the _______________ after appropriate adjustments.

parent

Consolidated income statements report goodwill impairment losses at

a component of operating income

Which best describes the income recognition basis reflected by the equity method?

accrual basis

Consolidation Entry I

brings the "Equity in Subsidiary Earnings" account to a zero balance

Subsidiary dividends attributable to its parents are excluded from _____ totals because they represent an intra-entity transfer with no financial effect outside the reporting entity

consolidated

When a depreciable asset acquired in a business combination has an acquisition-date book value in excess of its fair value, the excess will be allocated over time as a ______ consolidated depreciation expense

credit

When the parent uses the equity method, Consolidation Entry D

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

Consolidation Entry *C relates to:

income effects from previous periods

Why does the FASB allow a firm the option to assess qualitative factors to determine whether further testing is required for detecting goodwill impairment?

the determination of fair values for a reporting unit's assets and liabilities is a costly periodic exercise

When the parent has applied the partial equity method for multiple accounting periods, Consolidation Entry *C will include a debit to the parent's RE when:

there was an acquisition-date fair value adjustment that increased the amounts of limited life assets

True or false: Consolidation Entry E is identical for worksheets regardless of whether the parent uses the initial value method or equity method.

true

In measuring a goodwill impairment loss for a reporting unit, goodwill's implied value is compared to its ______ ________

carrying value