ACCT4110 Exam1

Question # 00003633 Posted By: neil2103 Updated on: 11/16/2013 10:46 PM Due on: 11/22/2013
Subject Accounting Topic Accounting Tutorials:
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Question 1 3 / 3 points

A business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company into a single entity is defined as:

a) Stock acquisition

b) Leveraged buyout

c) Statutory Merger

d) Reverse statutory rollup

Question 2 3 / 3 points

In which of the following situations do accounting standards not require that the financial statements of the parent and subsidiary be consolidated:

a) A corporation creates a new 100 percent owned subsidiary

b) A corporation purchases 90 percent of the voting stock of another company

c) A corporation has both control and majority ownership of an unincorporated company

d) A corporation owns less-than a controlling interest in an unincorporated company

Question 3 3 / 3 points

Which of the following situations best describes a business combination to be accounted for as a statutory merger?

a) Both companies in a combination continue to operate as separate, but related, legal entities.

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

c) Two companies combine to form a new third company, and the original two companies are dissolved.

d) One company transfers assets to another company it has created.

Question 4 3 / 3 points

A statutory consolidation is a type of business combination in which:

a) one of the combining companies survives and the other loses its separate identity.

b) one company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities.

c) two publicly traded companies agree to share a board of directors.

d) each of the combining companies is dissolved and the net assets of both companies are transferred to a newly created corporation.

Question 5 3 / 3 points

Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000.

Based on the preceding information, under the acquisition method, what amount relating to the business combination would be expensed?

a) $72,000

b) $19,000

c) $53,000

d) $63,000

Question 6 3 / 3 points

Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000.

Based on the preceding information, under the acquisition method:

a) $72,000 of stock issue costs are treated as goodwill.

b) $19,000 of stock issue costs are treated as a reduction in the issue price.

c) $19,000 of stock issue costs are expensed.

d) $72,000 of stock issue costs are expensed.

Question 7 3 / 3 points

Burrough Corporation paid $80,000 to acquire all of Helyar Company's net assets. Helyar reported assets with a book value of $60,000 and fair value of $98,000 and liabilities with a book value and fair value of $23,000 on the date of combination. Burrough also paid $3,000 to a search firm for finder's fees related to the acquisition. What amount will be recorded as goodwill by Burrough Corporation while recording its investment in Helyar?

a) $0

b) $5,000

c) $8,000

d) $13,000

Question 8 3 / 3 points

Which of the following observations is (are) consistent with the acquisition method of accounting for business combinations?

I. Expenses related to the business combination are expensed.

II. Stock issue costs are treated as a reduction in the issue price.

III. All merger and stock issue costs are expensed.

IV. No goodwill is ever recorded.

a) III

b) IV

c) I and II

d) I, II, and IV

Question 9 3 / 3 points

Which of the following observations refers to the term differential?

a) Excess of consideration exchanged over fair value of net identifiable assets.

b) Excess of fair value over book value of net identifiable assets.

c) Excess of consideration exchanged over book value of net identifiable assets.

d) Excess of fair value over historical cost of net identifiable assets.

Question 10 3 / 3 points

Which of the following observations concerning "goodwill" is NOT correct?

a) Once written down, it may be written up for recoveries.

b) It must be tested for impairment at least annually.

c) Goodwill impairment losses are recognized in income from continuing operations or income before extraordinary gains and losses.

d) It must be reported as a separate line item in the balance sheet.

Question 11 3 / 3 points

If Push Company owned 51 percent of the outstanding common stock of Shove Company, which reporting method would be appropriate?

a) Cost method

b) Consolidation

c) Equity method

d) Merger method

Question 12 3 / 3 points

Usually, an investment of 20 to 50 percent in another company's voting stock is reported under the:

a) cost method

b) equity method

c) full consolidation method

d) fair value method

Question 13 3 / 3 points

From an investor's point of view, a liquidating dividend from an investee is:

a) a dividend declared by the investee in excess of its earnings in the current year

b) a dividend declared by the investee in excess of its earnings since acquisition by the investor

c) any dividend declared by the investee since acquisition

d) a dividend declared by the investee in excess of the investee's retained earnings

Question 14 3 / 3 points

Under the equity method of accounting for a stock investment, the investment initially should be recorded at:

a) cost

b) cost minus any differential

c) proportionate share of the fair value of the investee company's net assets

d) proportionate share of the book value of the investee company's net assets

Question 15 3 / 3 points

What portion of the subsidiary stockholders' equity account balances should be eliminated in preparing the consolidated balance sheet?

a) Common stock

b) Additional paid-in capital

c) Retained Earnings

d) All of the balances are eliminated

Question 16 3 / 3 points

The consolidation process consists of all the following except:

a) combining the financial statements of two or more legally separate companies

b) eliminating intercompany transactions and holdings

c) closing the individual subsidiary's revenue and expense accounts into the parent's retained earnings

d) combining the accounts of separate companies, creating a single set of financial statements

Question 17 3 / 3 points

In which of the following cases would consolidation be inappropriate?

a) The subsidiary is in bankruptcy.

b) Subsidiary's operations are dissimilar from those of the parent.

c) The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor.

d) Subsidiary is foreign.

Question 18 3 / 3 points

On January 1, 20X8, Zeta Company acquired 85 percent of Theta Company's common stock for $100,000 cash. The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Theta at that date. What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest?

a) None

b) 15 percent

c) 100 percent

d) Cannot be determined

Question 19 3 / 3 points

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.

Based on the preceding information, what amount will be assigned to the noncontrolling interest on January 3, 20X9, in the consolidated balance sheet?

a) $86,000

b) $44,000

c) $68,800

d) $50,000

Question 20 0 / 3 points

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.

Based on the preceding information, what is the total stockholders' equity in the consolidated balance sheet as of January 3, 20X9?

a) $1,580,000

b) $1,064,000

c) $1,150,000

d) $1,236,000

Question 21 3 / 3 points

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.

Based on the preceding information, what will be the amount of net income reported by Frazer Corporation in 20X9?

a) $44,000

b) $55,000

c) $66,000

d) $36,000

Question 22 3 / 3 points

On January 3, 20X9, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X9, are as follows:

Based on the preceding information, what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31, 20X9, consolidated balance sheet?

a) $90,000

b) $54,000

c) $36,000

d) $0

Question 23 3 / 3 points

On January 3, 20X9, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X9, are as follows:

Based on the preceding information, what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31, 20X9?

a) $120,000

b) $180,000

c) $156,000

d) $264,000

Question 24 3 / 3 points

Under ASC 805, consolidation follows largely which theory approach?

a) Proprietary

b) Parent company

c) Entity

d) Variable

Question 25 3 / 3 points

On January 1, 20X9, Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. Garfield's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition.

Based on the preceding information, what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice?

a) $350,000

b) $340,000

c) $280,000

d) $300,000

Question 26 3 / 3 points

On January 1, 20X9, Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000. The fair value of the noncontrolling interest at that time is determined to be $50,000. It reports net assets with a book value of $200,000 and fair value of $230,000. Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time, excluding its investment in California. What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice?

a) $50,000

b) $30,000

c) $40,000

d) $20,000

Question 27 3 / 3 points

On July 1, 20X9, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows:

Based on the preceding information, the differential reflected in a consolidation worksheet to prepare a consolidated balance sheet immediately after the business combination is:

a) $0.

b) $25,000.

c) $70,000.

d) $45,000.

Question 28 3 / 3 points

On July 1, 20X9, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows:

Based on the preceding information, what amount should be allocated to goodwill in the consolidated balance sheet, prepared after this business combination?

a) $0

b) $25,000

c) $70,000

d) $45,000

Question 29 3 / 3 points

Enya Corporation acquired 100 percent of Celtic Corporation's common stock on January 1, 20X9.Summarized balance sheet information for the two companies immediately after the combination is provided:

Based on the preceding information, the amount of differential associated with the acquisition is:

a) $0.

b) $58,000.

c) $22,000.

d) $36,000.

Question 30 3 / 3 points

Enya Corporation acquired 100 percent of Celtic Corporation's common stock on January 1, 20X9.Summarized balance sheet information for the two companies immediately after the combination is provided:

Based on the information provided, the consolidated balance sheet of Enya and Celtic will reflect goodwill in the amount of:

a) $0.

b) $58,000.

c) $22,000.

d) $36,000.

Question 31 3 / 3 points

Tanner Company, a subsidiary acquired for cash, owned equipment with a fair value higher than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in:

a) goodwill.

b) retained earnings.

c) deferred charges.

d) equipment.

Question 32 0 / 3 points

When a parent company uses the equity method to account for investments, the controlling interest in consolidated net income includes all of the following except:

a) The parent's income from its own operations.

b) The parent company's share of income from consolidated subsidiaries.

c) The non-controlling interest's share of income from consolidated subsidiaries.

d) Differential adjustments.

Question 33 3 / 3 points

Company X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31, 20X8.The fair value of the net assets of Company X at the date of acquisition was $300,000. This is an example of a(n):

a) positive differential.

b) bargain purchase.

c) extraordinary loss.

d) revaluation adjustment.

Question 34 3 / 3 points

Which of the following observations is NOT consistent with the use of push-down accounting?

a) The revaluation capital account is part of the subsidiary's stockholders' equity.

b) No differential arises in the consolidation process.

c) Revaluation Capital account is eliminated in preparing consolidated statements.

d) Eliminating entries related to the differential are needed in the worksheets.

Question 35 3 / 3 points

Which of the following is true? When companies employ push-down accounting:

a) the subsidiary revalues assets and liabilities to their fair values as of the acquisition date.

b) a special account called Revaluation Capital will appear in the consolidated balance sheet.

c) all consolidation elimination entries are made on the books of the subsidiary rather than in consolidated worksheets.

d) the subsidiary is not substantially wholly owned by the parent.

Question 36 15 / 15 points

On January 1, 20X8, Alaska Corporation acquired Mercantile Corporation's net assets by paying $160,000 cash. Balance sheet data for the two companies and fair value information for Mercantile Corporation immediately before the business combination are given below:

Required:

Prepare the journal entry to record the acquisition of Mercantile Corporation.


Question 37 10 / 10 points

In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet.

Required:

a. What is a non-controlling interest?

b. Why must it be reported in the financial statements as an element of equity rather than a liability?


Question 38 20 / 20 points

Parent Company acquired 90% of Son Inc. on January 31, 20X2 in exchange for cash. The book value of Son's individual assets and liabilities approximated their acquisition-date fair values. On the date of acquisition, Son reported the following:

During the year Son Inc. reported $310,000 in net income and declared $15,000 in dividends. Parent Company reported $520,000 in net income and declared $25,000 in dividends. Parent accounts for their investment using the equity method.

Required:

1. What journal entry will Parent make on the date of acquisition to record the investment in Son Inc.?

2. If Parent were to prepare a consolidated balance sheet on the acquisition date (January 31, 20X2), what is the basic elimination entry Parent would use in the consolidation worksheet?

3. What is Parent's balance in "Investment in Son Inc." prior to consolidation on December 31, 20X2?

4. What is the basic elimination entry Parent would use in the consolidation worksheet on December 31, 20X2?

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