Consolidations Chapter 3

In consolidation entry D, the credit to the dividends declared account a. increases the parent's RE b. increases cash c. decreases consolidated RE d. reduces the sub's dividend balance

d

consolidation entries S and A are part of a sequence of worksheet adjustments that bring the investment in subsidiary account to a ____ balance

zero

goodwill recognized in a business combination must be assigned to reporting units of the consolidated entity in order to a. compute periodic amort expense b. report total goodwill on the consolidated BS c. properly subject goodwill to impairment assessment

C

Consolidation Entry S credits the investment in subsidiary account in order to a. remove the beginning of the year book value component of the investment account b. completely eliminate the investment account c. allocate goodwill acquired in the business combination

a

When acquisition date fair value of subsidiary long term debt exceeds its carrying amount, in periods subsequent to the acquisition, consolidation worksheet entries are needed to _____ longterm debt

increase

When the carrying amount of acquisition date subsidiary long term debt exceeds its fair value, a consolidation worksheet entry is required to ____ the amount of interest expense for consolidated financial reporting

increase

Consolidation entry E

increases expenses when excess fair over book value acquisition date allocations are made to depreciable subsidiary assets provides current period amort exp for the acquisition date fair value adjustments

Subsidiary dividends are excluded from consolidated RE because they are attributable to the parent company and not to an ____ party

outside or external

Why does consolidation entry S remove the sub's stockholders' equity accounts?

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

T/F consolidation entry A may include an adjustment to recognize goodwill created by the business combination

true

T/F worksheet consolidation entries are not posted to the books of either the parent or sub

true

When a sub's acquisition date fair values exceed its book values for its limited lived assets, the equity method records over time a. no effect on equity in subsidiary earnings over time b. an increase in equity in subsidiary earnings over time c. a reduction in equity in subsidiary earnings over time

C

Which of the following IS accounts are eliminated for consolidated FS reporting? a. amort exp b. COGS c. Equity in Sub earnings d. Depr exp

C

Consolidation Entry P removes intra-entity payable and receivable balances because the parent and sub companies are viewed as a single _____ for financial reporting purposes

entity

As compared to acquisition date accounting for business combinations, subsequent to an acquisition the parent company must additionally report consolidated.... (select all that apply) a. net income b. revenues c. expenses d. intra-entity transactions

ABC

When the parent applies the equity method on its internal records, what account balances are removed on the consolidated worksheet a. equity in sub earnings b. investment in sub c. the parent's share of sub dividends declared d. the parent's common stock

ABC

Which of the following are characteristics of the equity method of accounting for a parent company's investment in a subsidiary? (select all that apply) a. the parent company accrues income as earned by the sub b. unrealized gains on intra-entity transactions are deferred from income c. the parent recognizes the income effect of amortizing excess subsidiary acquisition date fair over book value d. the parent records subsidiary dividends as increases to the investment account

ABC

When a particular asset acquired in a business combination has an acquisition date fair value in excess of its acquisition date book value, the asset's carrying amount from the sub's financial records a. remains the same in consolidated financial stmts as its current BV b. must be increased in preparing consolidated FS c. must be reduced in preparing consolidated FS

B

Which of the following accounts are simply combined without adj in preparing consolidated FS for the parent and sub a. patented tech b. liabilities c. trademarks d. current assets

BD

Within the consolidated entity, goodwill impairment tests are conducted at the ______ _____ level

reporting unit

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

A parent company's choice of investment accounting method will affect which of the following balances on the parent's books? a. retained earnings b. investment in subsidiary c. income from the subsidiary d. common stock

ABC

Which of the following represent procedures required in preparing consolidated FS for a parent company and its subsidiary? a. intra-entity receivable and payables are eliminated b. sub assets and liabs are adjusted to reflect acquisition date fair values net of post acquisition amortization c. excess acquisition date fair over book values for limited-life sub assets must be amortized over time d. the parent combines the equity in sub earnings balance with the sub company's rev and exp

ABC

A parent owns 100% of the sub's voting stock. How are cash dividends declared by the sub on its voting stock treated in the parent's consolidated financial reports? a. included in consolidated dividend income b. not included having been eliminated in the consolidation process c. as an increase in consolidated RE d. included in consolidated dividends declared

B

Which of the following is a characteristic of the partial equity method for a parent company's investment in a subsidiary company? a. parent recognizes the income effect of amortizing excess subsidiary acquisition date fair over book value b. the parent records subsidiary dividends as an increase in the investment account c. the parent company accrues income as reported by the subsidiary d. unrealized gains on intra-entity transactions are deferred from income

C

Under the initial value method, the parent recognizes income when its subsidiary declares a dividend. Because of the brief time span between dividend declarations and cash payments, the initial value is said to reflect the _____ basis for income recognition

Cash

Values assigned to intangible assets with indefinite useful lives are a. subject to periodic impairment testing b. not subject to impairment testing c. allocated over time to amort expense d. allocated over time to depr exp

a

consolidated income statements report goodwill impairment losses as

a component of operating income

Under the initial value method of accounting for an investment in a subsidiary company, the parent recognizes income when the subsidiary a. declares a dividend b. earns the income c. generates cash flows from its operations d. pays a dividend

a. declares a dividend

When the parent applies the equity method for its 100% owned sub, its equity in sub earnings account balance equals the effect of the sub's income on _____ net income

consolidated

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

When a sub's tangible asset has an excess acquisition date book value over fair value, Consolidation Entry E will show a ______ to depr exp

credit, decrease, reduction

When the acquisition date fair value of sub long term debt exceeds its carrying amount, in periods subsequent to the acquisition, worksheet entries are needed to _____ interest expense

decrease or reduce

Periodic amort exp should be recognized for the acquisition date fair values of acquired subsidiary intangible assets with ____ useful lives

definite, limited, finite

What are the three different internal record keeping methods for accounting for an investment in a sub?

equity method partial equity method initial value method

Consolidation entry A, in the first year subsequent to acquisition, adjusts the sub's assets and liab balances to acquisition date _____ values a. book b. fair c. net realizable

fair

T/F the balances reported in the consolidated FS will differ depending on the parent's selection of an investment accounting method

false

Because goodwill has an indefinite life, rather than amortizing the FASB utilizes an _____ approach to assess the appropriateness of reported values for goodwill

impairment

Goodwill is not amortized on a consolidation worksheet because it is considered a _____ lived asset

indefinite

When the acquisition date fair value of sub long term debt exceeds its carrying amount, the difference serves to reduce interest expense over the life of the debt, similar to amortizing a bond _____

premium

What does consolidation entry P do?

removes the balances from intra-entity receivables and payables

When the parent uses the equity method, consolidation entry I

removes the parent's recorded equity income

Which of the following account balances are identical across the parent's records and consolidated totals when the parent applies the equity method for its investment in sub account

retained earnings net income

Which of the following represent components of sub income recognized with the parent applies the partial equity method a. the parent's share of the sub's reported income b. amort of the acquisition date excess fair over book value c. deferral of unrealized intra entity gains d. dividends declared

A

Why does an increase to the fair value of acquisition date sub debt result in a decrease to interest expense on the consolidated worksheet? a. the parent has essentially borrowed the fair value of the debt, but only will repay the lesser contractual maturity value b. the excess acquisition date FV of the date is considered the same as an unamortized bond discount c. the parent is required to repay the excess acquisition date FV of the debt thus decreasing the effective interest rate

A

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 payment

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

Consolidation worksheets are typically used in the process of preparing consolidated FS required by GAAP. Such worksheets utilize consolidation worksheet_____ to develop FS totals to be reported by the consolidated entity

adjustments or entries

Consolidation Entry E recognizes amort expense related to a. previous pds depr exp b. the sub's acquisition date differences between fair and book values c. current pd amortizations of indefinite lived intangible assets d. parent's separate intangible assets as of the acquisition date

b

what does consolidation entry I do?

brings the equity in sub earnings account to a zero balance

Consolidation Entry S removes the balances from the sub's common stock and APIC accounts to ensure that only the parent's balances for these accounts appear in ____ totals

consolidated

Consolidation Entry D debits the Investment in Sub account when

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

when the parent has applied the equity method in accounting for the earnings of its sub, consolidated RE will equal

the parent's RE balance

T/F in the presence of acquisition date excess fair over book values for sub assets, both consolidated entries A and E are needed to adjust subs assets to their end of the year proper consolidated balances

true

T/F included in the consolidated totals are the unamortized sub acquisition date excess fair over book value allocations

true

T/F Consolidation Entry I removes the equity in sub earnings which is then replaced by the inclusion of the sub's individual revenue and exp accounts on the consolidated IS

true

Which of the following represent components of subsidiary income recognized when the parent applies the partial equity method? a. dividends declared b. the parent's share of the sub's reported income c. deferral of unrealized intra-entity gains d. amortization of the acquisition-date excess fair over book value

B

Subsequent to acquisition, consolidated depreciation expense is based upon a. the book values of the subsidiary's depreciable assets b. the acquisition date fair values of the parent's depreciable assets c. the acquisition date fair values of the subsidiary's depreciable assets

C

Which of the following accounts of both the parent and sub are combined for consolidated financial reporting? a. rev and exp b. common stock c. assets and liabs d. dividends declared

AC

When the parent applies the equity method to its investment in sub account, consolidation entry D eliminates the effect of intra-entity subsidiary ____ as part of the consolidation process

dividends

When the parent uses the equity method, Consolidation Entry D

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

T/F the consolidated entry to record goodwill is not accompanied by another consolidation entry to amortize goodwill

true

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 propcess

zero