Quiz 2: Chapter 3

annually

IFRS and GAAP require an assessment for goodwill impairment at least ____________ and more frequently if impairment is indicated.

dividends declared by parents

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: dividends declared

fair value of william's equipment depreciation book value of maguire's equipment

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: equipment

both

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: expenses

at original value impairment if any

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: goodwill

zero

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: investment in williams company

consolidated revenues - consolidated expenses

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: net income

operating

goodwill impairment losses are reported as ____________ items in the consolidated income statement

reporting unit

goodwill impairment testing is performed at the _____________ ___________ level

probability

in applying a qualitative test as to whether a reporting unit's goodwill is impaired, a firm assesses the ______________ that a reporting unit's fair value is less than its carrying amount

only the parent

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: common stock

both

Maguire company obtains 100% control over Williams company. several years after the takeover, consolidated financial statements are being produced. for each of the following accounts, briefly describe the value that should be included: revenues

reduces the subsidiary's dividends balance

in consolidation entry d, the credit to the dividends declared account

accrual

initial value & partial equity method do not utilize the ___________ method

it is easy to apply it often reflects cash flows from the subsidiary

initial value --> advantages

dividends declared recorded as dividend income

initial value --> income account

remains at acquisition-date value assigned

initial value --> investment account

it will be recorded at the original value unless impairment has occured

one company acquired another in a transaction in which $100,0000 of the acqisition price is assigned to goodwill. several years later, a worksheet is being produced to consolidate these two companies. how should the loss be reported in the financial statements?

it usually gives balance approximating consolidation figures, but it is easier to apply than equity method

partial equity --> advantages

income accrued as earned no other adjustments recognized

partial equity --> income account

adjusted only for accrued income and dividends declared by the acquired company

partial equity --> investment account

entry e

recognizes excess amortization expense for the current period on the allocations from the original adjustments to fair value

entry a

recognizes the unamortized allocations as of the beginning of the current year associated with the original adjustments to fair value

recorded at acquisition-date fair value if contingency is a liability --> adjusted to fair value through time if contingency is a component of equity --> not adjusted

reimers company acquires rollins corporation on Jan 1, 2017. as a part of the agreement, the parent states that an additional $100,000 payment to the former owners of rollins will be made in 2018, if rollins achieves certain income thresholds during the first two years following the acquistion. how should reimers account for this contingency in its 2017 consolidated financial statements?

IFRS

requires goodwill acquired in a business combination to be allocated to cash-generating units at which goodwill is monitored

it will be eliminated

several years ago, jenkins company acquired a controlling interest in lambert company. lambert recently borrowed $100,000 from jenkins. in consolidating the financial records of these two companies, how will this debt be handled?

carrying amount of goodwill over its implied value

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

declares a dividend

under the initial value method of accounting for an investment in a subsidiary company, the parent recognizes income when the subsidiary...

accrual

under the initial value method, the parent records income when its subsidiary declares a dividend. over time, the parent's retained earnings fail to accrue any subsidiary income not distributed as a dividend. Therefore, worksheet entries are required to adjust the parent's beginning retained earnings to a full- ___________ basis

no effect

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

investment account income recognized from the subsidiary parent's retained earnings

what three parent accounts vary because of the investment method applied?

the amortized expense happens because the intangible asset was under or overvalued. the expense will either increase or decrease the amortization expense of the subsidiary

when a parent company uses the equity method to account for investment in a subsidiary, the amortization expense entry recorded during the year is eliminated on a consolidation worksheet as a component of Entry I. What is the necessity of removing this amortization

impairment

when accounting for goodwill subsequent to the acquisition date, GAAP requires a(n) ______________ approach rather than amortization

consolidated

when the parent applies the equity method for its 100% owned subsidiary, its equity in subsidiary earnings account balance equals the effect of the subsidiary's income on the ___________________ net income

remove the balance in the parent's dividend income and the subsidiary's dividends declared

when the parent applies the initial method for its investment accounting, consolidation entry I is needed to..

loss

when the parent pays cash to the former owners of its subsidiary upon achievement of certain performance metrics as a part of its negotiated agreement, any excess of amount paid over the previous valuation of the contingency is recorded as a _____________ from revaluation of the contingent performance obligation

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

when the parents uses the equity method, consolidation entry d..

removes the parent's recorded equity income

when the parents uses the equity method, consolidation entry i

net income retained earnings

which of the following account balances are identical account the parent's records and the consolidated totals when the parent applies the equity method for its investment in subsidiary account?

the parent's share of the subsidiary's reported income

which of the following represent components of subsidiary income recognized when the parent applies the partial equity method?

no

are equity contingencies measured at fair value?

no

are goodwill impairments recoverable?

change must be made to the retained earnings in every subsequent year

because the initial value and partial equity method do not utilize the accrual method, what must be done to account for this?

no periodic adjustments are typically made

beyond recording the acquisition price, what periodic adjustments does the parent typically make to the investment account when the initial value method is employed?

initial value ("cost") method

cash basis accounting easy to apply and gives a good measurement of cash flows generated by the investment

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

consolidation entry D debits the "investment in subsidiary" account when..

brings the "equity in subsidiary earnings" account to a zero balance

consolidation entry I...

remove the beginning of the year book value component of the investment account

consolidation entry s credits the investment in subsidiary account in order to...

yes

does a contingent liability continue to be measured at fair value?

no

does the selection of a particular method to account for an investment affect the totals ultimately reported for the combined companies?

entry d

eliminates the impact of intra-entity dividends

entry i

eliminates the impact of intra-entity subsidiary income accrued by the parent

entry s

eliminates the subsidiary's stockholders' equity accounts as of the beginning of the current year along with the equivalent book value component within the parent's investment account

income accrued as earned amortization and other adjustments are recognized

equity method --> income account

continually adjusted to reflect current owner's equity of acquired company

equity method --> investment account

acquiring company totals give a true representation of consolidation figures

equity method advantages

equity method

full accrual accounting creates a total income figure reflective of the entire combined business entity

GAAP

goodwill acquired in a business combination is allocated to reporting units expected to benefit from the goodwill

IFRS

any excess carrying amount over fair value for a cash-generating unit is first assigned to reduce goodwill. if goodwill is reduced to zero, other assets of the cash-generating unit are reduced pro-rata based on carrying amounts of the assets

investment

_________________ balance will always be eliminated when preparing financial statements

GAAP

a reporting unit's implied goodwill fair value is the excess of the reporting unit's fair value over the fair value of its identifiable net assets. if the goodwill carrying amount is greater than its implied fair value, an impair loss is recongized

partial equity method

accrual accounting without equity adjustments usually gives balances approximating consolidation figures but easier to apply than equity method