advanced accounting exam 1 ch 1-5

Goodwill represents the excess of the implied value of an acquired company over the: - aggregate fair values of identifiable assets less liabilities assumed. - aggregate fair values of tangible assets less liabilities assumed. - aggregate fair values of intangible assets less liabilities assumed. - book value of an acquired company.

Aggregate fair values of identifiable assets less liabilities assumed

A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition? - cash - issuing debt - issuing stock - all of these

All of these

The entry to amortize the amount of difference between implied and book value allocated to an unspecified intangible is recorded: - on the subsidiary's books. - on the parent's books. - on the consolidated statements workpaper. - on the parent's books and on the consolidated statements workpaper.

On the consolidated statements workpaper

Which of the following situations best describes a business combination to be accounted for as a statutory merger? - Both companies in a combination combine to operate as separate but related, legal entities - Only one of the combining companies survives and the other loses its separate identity - Two companies combine to form a new third company, and the original two companies are dissolved - One company transfers assets to another company it has created

Only one of the combining companies survives and the other loses its separate identity

Many of FASB's recent pronouncements indicate a shift away from historical cost accounting toward: - an elevated status for the Statements of Financial Accounting Concepts. - convergence of standards. - fair value accounting. - representationally faithful reporting.

fair value accounting

On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016.What amount of goodwill will be reported? - ($20,000) - ($25,000) - $25,000 - $0

$0

On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016.What is the amount of total assets? - $921,000 - $1,185,000 - $1,525,000 - $1,195,000

$1,195,000

On January 1, 2016, Poole Company purchased 75% of the common stock of Swimmer Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016.What is the amount of total assets? - $1,626,667. - $1,566,667 - $1,980,000. - $2,006,667.

$1,566,667

Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net income of $600,000 and paid dividends totaling $225,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Sleepy's identifiable net assets at the date of the business combination was $112,500. The noncontrolling interest in consolidated net income of Sleepy for Year 3 was: - $146,250. - $33,750. - $67,500. - $180,000.

$146,250

On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method. What will be the balance in the Investment account as of Dec 31, 2017? - $150,000 - $157,500 - $154,500 - $153,000

$153,000

Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2016. Sands reported net income in 2016 of $45,000 and in 2017 of $60,000 earned evenly throughout the respective years. Prime received $12,000 dividends from Sands in 2016 and $18,000 in 2017. Prime uses the equity method to record its investment. The balance of Prime's Investment in Sands account at December 31, 2017 is: - $105,000. - $138,600. - $159,000. - $165,000.

$159,000

Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: If the business combination is treated as an acquisition and Sato Company's net assets have a fair value of $343,200, Posch Company's balance sheet immediately after the combination will include goodwill of: - $15,300. - $19,200. - $16,800. - $28,200.

$16,800

On January 1, 2017, Panda Company purchased 25% of Skill Company's common stock; no goodwill resulted from the acquisition. Panda Company appropriately carries the investment using the equity method of accounting and the balance in Panda's investment account was $190,000 on December 31, 2017. Skill reported net income of $120,000 for the year ended December 31, 2017 and paid dividends on its common stock totaling $48,000 during 2017. How much did Panda pay for its 25% interest in Skill? - $172,000 - $202,000 - $208,000 - $232,000

$172,000

On January 1, 2016, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2016, consolidated balance sheet, goodwill would be reported at: - $152,000. - $177,143. - $80,000. - $0.

$177,143

On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016.What is the amount of consolidated retained earnings? - $204,000 - $209,250 - $260,250 - $279,000

$204,000

On January 1, 2016, Poole Company purchased 75% of the common stock of Swimmer Company. Separate balance sheet data for the companies at the combination date are given below: Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016.What amount of goodwill will be reported? - $26,667. - $20,000. - $42,000. - $86,667.

$26,667

Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2016. Suburbia reported net income in 2016 of $90,000 and in 2017 of $120,000 earned evenly throughout the respective years. Prime received $24,000 dividends from Suburbia in 2016 and $36,000 in 2017. Prime uses the equity method to record its investment. The balance of Prime's Investment in Suburbia account at December 31, 2017 is: - $210,000 - $285,000 - $297,000 - $315,000

$297,000

Park Company acquired a 90% interest in Southwestern Company on December 31, 2016, for $320,000. During 2017 Southwestern had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Southwestern Company account at the end of 2017 of: - $335,000 - $333,500 - $313,700 - $320,000

$320,000

North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: If the business combination is treated as an acquisition and Prairie Company's net assets have a fair value of $686,400, North Company's balance sheet immediately after the combination will include goodwill of: - $30,600. - $38,400. - $33,600. - $56,400.

$33,600

On January 1, 2016, Prima Corporation acquired 80 percent of Sunder Corporation's voting common stock. Sunders's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition. At what amount will Sunder's buildings and equipment will be reported in the consolidated statements? - $350,000 - $340,000 - $280,000 - $300,000

$350,000

Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2016, for $380,000. During 2017 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000. Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2017 of: - $400,000. - $394,000. - $373,000. - $380,000.

$380,000

On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common stock of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values of Shaw's assets and liabilities on February 5 were as follows: What is the amount of goodwill resulting from the business combination? - $-0-. - $475,000. - $85,000. - $390,000.

$390,000

Pinta Company acquired an 80% interest in Strummer Company on January 1, 2016, for $270,000 cash when Strummer Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strummer Company made $30,000 in 2016 and paid no dividends. Pinta Company's separate income in 2016 was $375,000. Controlling interest in consolidated net income for 2016 is: - $405,000. - $399,000. - $396,000. - $375,000.

$396,000

Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2016. Sands reported net income in 2016 of $45,000 and in 2017 of $60,000 earned evenly throughout the respective years. Prime received $12,000 dividends from Sands in 2016 and $18,000 in 2017. Prime uses the equity method to record its investment. Prime should record investment income from Sands during 2017 of: - $18,000. - $60,000. - $48,000. - $33,600.

$48,000

Simple Company, a 70%-owned subsidiary of Punter Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Simple's identifiable net assets at the date of the business combination was $45,000. The noncontrolling interest in net income of Simple for Year 3 was: - $58,500. - $13,500. - $27,000. - $72,000.

$58,500

On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method. What amount of investment income will be reported by Puma for the year 2017? - $7,500 - $6,000 - $4,500 - $25,000

$6,000

Price Company acquired 75 percent of the common stock of Shandie Corporation on December 31, 2016. On the date of acquisition, Price held land with a book value of $150,000 and a fair value of $300,000; Shandie held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination? - $650,000 - $500,000 - $550,000 - $375,000

$650,000

Primer Company acquired an 80% interest in SealCoat Company on January 1, 2016, for $450,000 cash when SealCoat Company had common stock of $250,000 and retained earnings of $250,000. All excess was attributable to plant assets with a 10-year life. SealCoat Company made $50,000 in 2016 and paid no dividends. Primer Company's separate income in 2016 was $625,000. The controlling interest in consolidated net income for 2016 is: - $675,000. - $665,000. - $660,000. - $625,000.

$660,000

On November 30, 2016, Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2016, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2016, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2016, consolidated balance sheet of Piani Incorporated, and its wholly owned subsidiary, Surge Company? - $0. - $800,000. - $1,200,000. - $2,000,000.

$800,000

Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2016. Suburbia reported net income in 2016 of $90,000 and in 2017 of $120,000 earned evenly throughout the respective years. Prime received $24,000 dividends from Suburbia in 2016 and $36,000 in 2017. Prime uses the equity method to record its investment. Prime should record investment income from Suburbia during 2017 of: - $36,000 - $120,000 - $84,000 - $48,000

$84,000

P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company's assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as: - $130,000. - $90,000. - $40,000. - $0.

$90,000

Pina Corp. owns 60% of Simon Corp.'s outstanding common stock. On May 1, 2016, Pina advanced Simon $90,000 in cash, which was still outstanding at December 31, 2016. What portion of this advance should be eliminated in the preparation of the December 31, 2016 consolidated balance sheet? - $90,000 - $54,000 - $36,000 - $0

$90,000

Porpoise Corporation acquired Sims Company through an exchange of common shares. All of Sims' assets and liabilities were immediately transferred to Porpoise. Porpoise Company's common stock was trading at $20 per share at the time of exchange. The following selected information is also available: What number of shares was issued at the time of the exchange? - 5,000 - 17,500 - 12,500 - 10,000

12,500

When the net amount of the fair values of identifiable assets less liabilities exceeds the total cost of the acquired company, the acquisition is sometimes referred to as - a loss - a bargain - goodwill - acquisition income

A bargain

If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be: - allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain. - recognized as ordinary gain or loss. - allocated to reduce long-lived assets. - accounted for as goodwill.

Accounted for as goodwill

Under the economic entity concept, consolidated financial statements are intended primarily for the benefit of the: - stockholders of the parent company. - creditors of the parent company. - minority stockholders. - all of these

All of these

Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase price of the acquired company, the excess should be: - accounted for as goodwill. - allocated to reduce current and long-lived assets. - allocated to reduce current assets and classify any remainder as an extraordinary gain. - allocated to reduce any previously recorded goodwill on the seller's books and classify any remainder as an ordinary gain.

Allocated to reduce any previously recorded goodwill on the seller's books and classify any remainder as an ordinary gain

North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: If the business combination is treated as an acquisition and the fair value of Prairie Company's current assets is $270,000, its plant and equipment is $726,000, and its liabilities are $168,000, North Company's financial statements immediately after the combination will include: - Negative goodwill of $108,000. - Plant and equipment of $2,133,000. - Plant and equipment of $2,343,000. - An ordinary gain of $108,000.

An ordinary gain of $108,000

P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were: How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company? - The noncurrent assets should be recorded at $ 135,000. - The $45,000 difference should be credited to retained earnings. - The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000. - An ordinary gain of $45,000 should be recorded.

An ordinary gain of $45,000 should be recorded

Majority-owned subsidiaries should be excluded from the consolidated statements when: - control does not rest with the majority owner. - the subsidiary operates under governmentally imposed uncertainty. - a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls. - any of these circumstances exist.

Any of these circumstances exist

Which of the following is a limitation of consolidated financial statements? - Consolidated statements provide no benefit for the stockholders and creditors of the parent company. - Consolidated statements of highly diversified companies cannot be compared with industry standards. - Consolidated statements are beneficial only when the consolidated companies operate within the same industry. - Consolidated statements are beneficial only when the consolidated companies operate in different industries.

Consolidated statements of highly diversified companies cannot be compared with industry standards.

According to the economic unit concept, the primary purpose of consolidated financial statements is to provide information that is relevant to: - majority stockholders - minority stockholders - creditors - both majority and minority stockholders

Both majority and minority stockholders

A(n) _____ occurs when the operations of two or more companies are brought under common control: - tender offer - vertical combination - operating synergy - business combination

Business Combination

Advantages of acquiring a controlling interest in the voting stock of another company instead of purchasing assets or all of the voting stock include all of the following except - relatively simple - relatively smaller investment - bypasses accounting standards - provides protection of the parent's assets

Bypass accounting standards

Once a reporting unit is determined to have a fair value below its carrying value, the goodwill impairment loss is computed by comparing the: - fair value of the reporting unit and the fair value of the identifiable net assets. - carrying value of the goodwill to its implied fair value. - fair value of the reporting unit to its carrying amount (goodwill included). - carrying value of the reporting unit to the fair value of the identifiable net assets.

Carrying value of the goodwill to its implied fair value

When the value implied by the purchase price of a subsidiary is in excess of the fair value of identifiable net assets, the workpaper entry to allocate the difference between implied and book value includes a: - debit to Difference Between Implied and Book Value. - credit to Excess of Implied over Fair Value. - credit to Difference Between Implied and Book Value. - debit to Difference Between Implied and Book Value and credit to Excess of Implied over Fair Value.

Credit to Difference Between Implied and Book Value.

Pall, Inc, owns 40% of the outstanding stock of Sibil Company. During 2017, Pall received a $4,000 cash dividend from Sibil. What effect did this dividend have on Pall's 2017 financial statements? - Increased total assets. - Decreased total assets. - Increased income. - Decreased investment account.

Decreased investment account

In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are: - expensed as incurred. - deducted from other contributed capital. - included in the investment cost. - deducted from the investment cost.

Deducted from other contributed capital

SFAS 141R requires that the acquirer disclose each of the following for each material business combination EXCEPT the: - name and a description of the acquiree acquired. - percentage of voting equity instruments acquired. - fair value of the consideration transferred. - each of the above is a required disclosure

Each of the above is a required disclosure

When the acquisition price of an acquired firm is less than the fair value of the identifiable net assets, all of the following are recorded at fair value EXCEPT: - Assumed liabilities. - Current assets. - Long-lived assets. - Each of these is recorded at fair value.

Each of these is recorded at fair value

The view that consolidated financial statements represent those of a single economic entity with several classes of stockholder interest is consistent with the: - Parent Company Concept - Current Practice Concept - Historical Cost Company Concept - Economic Unit Concept

Economic Unit Concept

The view that the non-controlling interest in income reflects the non-controlling stockholders' allocated share of consolidated income is consistent with the: - Economic Unit Concept - Parent Company Concept - Current Practice Concept - Historical Cost Company Concept

Economic Unit Concept

In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is: - included with parent company income from other sources to constitute consolidated net income. - assigned as a component of the noncontrolling interest. - allocated proportionately to consolidated net income and the noncontrolling interest. - eliminated.

Eliminated

On the consolidated balance sheet, consolidated stockholders' equity is: - equal to the sum of the parent and subsidiary stockholders' equity. - greater than the parent's stockholders' equity. - less than the parent's stockholders' equity. - equal to the parent's stockholders' equity.

Equal to the parent's stockholders' equity

Under the acquisition method, indirect costs relating to acquisitions should be: - included in the investment cost. - expensed as incurred. - deducted from other contributed capital. - none of these.

Expensed as incurred

Under SFAS 141R, what value of the assets and liabilities is reflected in the financial statements on the acquisition date of a business combination? - Carrying value - Fair value - Book value - Average value

Fair Value

When following the economic unit concept in the preparation of consolidated financial statements, the basis of valuing the non-controlling interest in net assets is the: - book values of subsidiary assets and liabilities - Fair values of subsidiary assets and liabilities - General price level adjusted values of subsidiary assets and liabilities - Fair values of parent company assets and liabilities

Fair values of subsidiary assets and liabilities

A business combination in which the boards of directors of the potential combining companies negotiate mutually exclusive agreeable terms is a(n): - agreeable combination - friendly combination - hostile combination - unfriendly combination

Friendly Combination

When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as: - excess of implied over fair value. - a deferred credit. - difference between implied and fair value. - goodwill.

Goodwill

The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called: - poison pill - pac-man defense - greenmail - white knight

Greenmail

The main evidence of control for purposes of consolidated financial statements involves: - possessing majority ownership - having decision-making ability that is not shared with others. - being the sole shareholder - having the parent company and the subsidiary participating in the same industry.

Having decision-making ability that is not shared with others

Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company's: - recorded net income. - recorded net income plus the subsidiary's recorded net income. - recorded net income plus the its share of the subsidiary's recorded net income. - income from independent operations plus subsidiary's income resulting from transactions with outside parties.

Income from independent operations plus subsidiary's income resulting from transactions with outside parties.

P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properly accounted for as an acquisition. The fair value of S Company's net assets on that date was $220,000. P Company also agreed to issue an additional 2,000 shares of common stock with a fair value of $50,000 to the former stockholders of S Company as an earnings contingency. Assuming that the contingency is expected to be met, the $50,000 fair value of the additional shares to be issued should be treated as a(n): - decrease in noncurrent liabilities of S Company that were assumed by P Company. - decrease in consolidated retained earnings. - increase in consolidated goodwill. - decrease in consolidated other contributed capital.

Increase in consolidated goodwill

The third period of business combinations started after World War II and is called: - horizontal integration - merger mania - operating integration - vertical integration

Merger Mania

The acquiring firm should _____ in order to determine the potential impact on a firm's earnings, realistically. - perform due diligence - discover all liabilities - interview all managers - round all numbers up

Perform due diligence

Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: If the business combination is treated as an acquisition and the fair value of Sato Company's current assets is $135,000, its plant and equipment is $363,000, and its liabilities are $84,000, Posch Company's financial statements immediately after the combination will include: - Negative goodwill of $54,000. - Plant and equipment of $1,226,000. - Plant and equipment of $1,172,000. - An extraordinary gain of $54,000.

Plant and equipment of $1,226,000

In a business combination accounted for as an acquisition, how should the excess of fair value of net assets acquired over the consideration paid be treated? - Amortized as a credit to income over a period not to exceed forty years. - Amortized as a charge to expense over a period not to exceed forty years. - Amortized directly to retained earnings over a period not to exceed forty years. - Recorded as an ordinary gain.

Recorded as an ordinary gain

A business combination is accounted for properly as an acquisition. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred? - Security issue cost, yes; overhead allocated merger, yes - Security issue cost, yes; overhead allocated merger, no - Security issue cost, no; overhead allocated merger, yes - Security issue cost, no; overhead allocated merger, no

Security issue cost, no; overhead allocated merger, yes

Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following EXCEPT: - the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation. - the existence of unrecorded goodwill. - liabilities may be overvalued. - stockholders' equity may be undervalued.

Stockholders' equity may be undervalued

The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the: - bonus - goodwill - implied offering price - takeover premium

Takeover premium

In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures EXCEPT: - a description of the facts and circumstances leading to the impairment. - the amount of goodwill by reporting segment. - the method of determining the fair value of the reporting unit. - the amounts of any adjustments made to impairment estimates from earlier periods, if significant.

The amount of goodwill by reporting segment

The fair value of assets and liabilities of the acquired entity is to be reflected in the financial statements of the combined entity. When the acquisition takes place over a period of time rather than all at once, at what time is the fair value of the assets and liabilities of the acquired entity determined under SFAS 141R? - the date the interest in the acquiree was acquired. - the date the acquirer obtains control of the acquiree - the date of acquisition of the largest portion of the interest in the acquiree. - the date of the financial statements.

The date the acquirer obtains control of the acquiree

One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is: - an undervaluation of the subsidiary's assets. - the existence of unrecorded goodwill. - an overvaluation of the subsidiary's liabilities. - the existence of unrecorded contingent liabilities.

The existence of unrecorded contingent liabilities

Under the cost method, the investment account is reduced when: - there is a liquidating dividend. - the subsidiary declares a cash dividend. - the subsidiary incurs a net loss. - none of these.

There is a liquidating dividend

The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is: - to provide information relevant to the controlling stockholders - to represent the view that the affiliated companies are a separate, identifiable economic entity - to emphasis control of the whole by a single management - to include only a portion of the subsidiary's assets, liabilities, revenues, expenses, gains and losses

To provide information relevant to the controlling stockholders

Pine, Inc. owns 40% of Supra Corporation. During the year, Supra had net earnings of $200,000 and paid dividends of $50,000. Masters used the cost method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively? - understate, overstate, overstate. - overstate, understate, understate - overstate, overstate, overstate - understate, understate, understate

Understate, understate, understate

The Difference between Implied and Book Value account is: - an asset or liability account reflected on the consolidated balance sheet - used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values - the excess implied value assigned to goodwill - the unamortized excess that cannot be assigned to any related balance sheet accounts

Used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values

A merger between a supplier and a customer is a(n): - friendly combination - horizontal combination - unfriendly combination - vertical combination

Vertical combination

Eliminating entries are made to cancel the effects of intercompany transactions and are made on the: - books of the parent company. - books of the subsidiary company. - workpaper only. - books of both the parent company and the subsidiary.

Workpaper only