Chapter 3 Quiz

Under the partial equity method, the parent recognizes income when

It is earned by the subsidiary.

When consolidating parent and subsidiary financial statements, which of the following statements is true?

The value of any goodwill should be tested annually for impairment in value.

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Initial value, equity, or partial equity.

According to GAAP regarding amortization of goodwill, which of the following statements is true?

Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.

Under the equity method of accounting for an investment:

Income reported by the subsidiary increases the investment account.

Private companies, with respect to goodwill:

May treat goodwill as a definite lived intangible asset with a 10-year useful life.

Under the initial value method, the parent recognizes income when

NOT It is earned by the subsidiary. The related expense has been incurred.

How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life?

No amortization, but annually reviewed for impairment and adjusted accordingly.

Which of the following is not a factor to be considered when determining the useful life of an intangible asset?

The fair value of the asset.

All of the following are acceptable methods to account for a majority-owned investment in subsidiary except

The fair-value method.