Exam 7: Tackling the General Ledger

One characteristic of a "perfect" market is zero transaction costs.

The Charlie Corp. buys Dixon Corp., for a total purchase price of $100 million. At the time of the acquisition, Dixon's total identifiable assets had a fair value of $90 million. Their historical cost to Dixon was $80 million. Dixon's identifiable liabilities had a fair value which was the same as their historical cost of $30 million. The goodwill that should be recorded at the time of the purchase is

When inflation is significant, depreciation of assets recorded on a historical cost basis will be larger than it would be in today's dollars.

The GAAP rule for recognizing loss contingencies is:

Which of the following is a disadvantage to using fair value to account for financial assets?

Which method of assigning values represents a measure of the market value from disposing of an asset?

Under GAAP, an asset that would typically be recorded at amortized cost would be

Under IFRS, all assets in the balance sheet are shown at fair value.

In GAAP, the terms "net realizable value" and "fair value" mean the same thing.

Which of the following is an advantage of replacement cost accounting over historical cost accounting?

Which method of assigning values relies the least on estimates?

GAAP allows companies to record their bonds payable at either amortized cost or fair value.

The term "net realizable value" means:

While large public companies are not allowed to amortize goodwill, the GAAP framework for small- and medium-size companies require goodwill to be amortized.

If a company that uses GAAP changes its valuation method for accounting for important assets, it must disclose this change of methods.

For which of the following items are the effects always shown in net income in the period they occur?

The Wang Company started the year with 300 units in inventory, which cost $2 each. During January, it bought 700 units, which cost $3 each. During January, it sold 800 units. The amount the Wang Company should show as the value of the 200 items left in its ending inventory, using the FIFO method, is

Which of the following is a key characteristic of "complete markets"?

The inventory method that assumes a company sells the first items it bought before it sells ones it bought later is called:

Both direct costing and absorption costing are acceptable for GAAP.