Question 1

Which of the following statements regarding the consolidation process is FALSE?

Accepted Answer

A) Where the parent entity and the subsidiary have different ends of reporting periods, adjustments must be made to the subsidiary's statements before the preparation of the consolidated financial statements. 
B) Because IFRS 3 Business Combinations requires that, under the acquisition method, the identifiable assets and liabilities of the acquirer are to be reported at fair value, fair value adjustments are prepared as part of the consolidation process. 
C) Where the parent entity holds shares in the subsidiary, pre-acquisition adjustments are not part of the consolidation process. 
D) The consolidation process requires the addition of the financial statements of the parent and its subsidiaries. 
A) Where the parent entity and the subsidiary have different ends of reporting periods, adjustments must be made to the subsidiary's statements before the preparation of the consolidated financial statements. 
B) Because IFRS 3 Business Combinations requires that, under the acquisition method, the identifiable assets and liabilities of the acquirer are to be reported at fair value, fair value adjustments are prepared as part of the consolidation process. 
C) Where the parent entity holds shares in the subsidiary, pre-acquisition adjustments are not part of the consolidation process. 
D) The consolidation process requires the addition of the financial statements of the parent and its subsidiaries.

Question 2

Ursula Ltd. has a subsidiary that has an intangible capital asset. It has not been recorded on the subsidiary's books, but at the date of acquisition, the asset had a fair value of $350,000 and an indefinite economic life. How should Ursula show the asset on its consolidated statement of financial position?

Accepted Answer

A) $350,000 less accumulated amortization (calculated over 10 years)and any impairment losses. 
B) $350,000 less accumulated amortization (calculated over 40 years)and any impairment losses. 
C) The company should not show the asset on the consolidated financial statement as the subsidiary does not do so. 
D) $350,000 less any impairment losses. 
A) $350,000 less accumulated amortization (calculated over 10 years)and any impairment losses. 
B) $350,000 less accumulated amortization (calculated over 40 years)and any impairment losses. 
C) The company should not show the asset on the consolidated financial statement as the subsidiary does not do so. 
D) $350,000 less any impairment losses.

Question 3

Carson Company purchased 100% of the outstanding common shares of Towson Company on December 31, 2011 for $170,000. At that date, Towson had $100,000 of outstanding common stock and retained earnings of $30,000. It was agreed that the net assets were fairly valued except that the fair value of the capital assets exceeded their net book value by $20,000 and the carrying value of the inventory exceeded its fair value by $10,000. The capital assets had a remaining useful life of eight years as of the acquisition date and have no salvage value. Inventory turns over four times a year. Both companies pay tax at the rate of 30%. It is now 2014 and Carson has been very pleased with how profitable its investment in Towson has been. On Carson's consolidated financial statements at December 31, 2014, what balance should be reported for goodwill?

Accepted Answer

A) $30,000. 
B) $33,000. 
C) $19,000. 
D) $40,000. 
A) $30,000. 
B) $33,000. 
C) $19,000. 
D) $40,000.

Question 4

Since taxes are paid by the individual companies, the CCA claim for the acquiree is based on the amount recorded in the records of the ____________.

Accepted Answer

A) acquirer. 
B) acquiree and acquirer. 
C) acquiree. 
D) consolidated entity. 
A) acquirer. 
B) acquiree and acquirer. 
C) acquiree. 
D) consolidated entity.

Question 5

Which of the following statements regarding consolidated financial statements at the date of acquisition is FALSE?

Accepted Answer

A) Fair value adjustments are used to recognize the identifiable assets and liabilities of the subsidiary at fair values and goodwill measured as a residual amount. 
B) The pre-acquisition adjustments eliminate the pre-acquisition equity of the subsidiary and the investment account recorded by the parent. 
C) When the subsidiary has recorded goodwill at acquisition date, adjustments must be made in the acquisition analysis to determine the amount of goodwill to be adjusted in the consolidation process. 
D) When the subsidiary has recorded a dividend payable at acquisition date, this must be excluded when calculating the consideration received. 
A) Fair value adjustments are used to recognize the identifiable assets and liabilities of the subsidiary at fair values and goodwill measured as a residual amount. 
B) The pre-acquisition adjustments eliminate the pre-acquisition equity of the subsidiary and the investment account recorded by the parent. 
C) When the subsidiary has recorded goodwill at acquisition date, adjustments must be made in the acquisition analysis to determine the amount of goodwill to be adjusted in the consolidation process. 
D) When the subsidiary has recorded a dividend payable at acquisition date, this must be excluded when calculating the consideration received.

Question 6

The goodwill impairment test does not involve ________.

Accepted Answer

A) elimination of all goodwill as a consequence. 
B) estimation and judgment on the part of management. 
C) an opportunity for a "big bath." 
D) an allocation of goodwill to reporting units. 
A) elimination of all goodwill as a consequence. 
B) estimation and judgment on the part of management. 
C) an opportunity for a "big bath." 
D) an allocation of goodwill to reporting units.

Question 7

The consolidation process will involve replacing the investment account that is recorded in the books of the acquirer with the specific net assets acquired from the acquiree.

Accepted Answer

A) True 
 B)False

Question 8

The fair value adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

Accepted Answer

A) True 
 B)False

Question 9

Regarding the Acquisition Analysis, describe pre-acquisition adjustments and what they aim to accomplish.

Accepted Answer

The pre-acquisition adjustments are requ

Question 10

Nuworth Co. acquired Wellam Co. in a business combination at December 31, 2012. Wellam has a capital asset that it has been amortizing at a rate of $20,000 per year. At the time of the acquisition, the asset had a book value of $140,000 and a fair value of $154,000. The asset has a remaining life of 7 years. With respect to this asset, how much amortization expense should Nuworth report on its December 31, 2013 consolidated financial statements?

Accepted Answer

A) $ 2,000 
B) $ 5,400 
C) $20,000 
D) $22,000 
A) $ 2,000 
B) $ 5,400 
C) $20,000 
D) $22,000

Question 11

Fair value adjustments (FVAs)are used to recognize the identifiable assets and liabilities of the subsidiary at fair values and goodwill measured as a residual amount. What happens to the fair value adjustments subsequent to the acquisition date?

Accepted Answer

The FVAs are written off through compreh

Question 12

The pre-acquisition adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

Accepted Answer

A) True 
 B)False

Question 13

If a consolidation is done at the day of acquisition, only the ______________ need be adjusted since all of the subsidiaries equity will be pre-acquisition and therefore eliminated.

Accepted Answer

A) statement of financial position 
B) income statement 
C) cash flow statement 
D) statement of changes in equity. 
A) statement of financial position 
B) income statement 
C) cash flow statement 
D) statement of changes in equity.

Question 14

The first step in the consolidation process, regardless of which year is being reported, is to undertake the eliminations.

Accepted Answer

A) True 
 B)False

Question 15

Goodwill recorded by the subsidiary at the acquisition date is?

Accepted Answer

A) Added to the goodwill recognized by the parent at the acquisition date. 
B) Deducted from the net fair value of the identifiable assets and liabilities of the subsidiary in the performing the acquisition analysis. 
C) Is amortized over 25 years. 
D) An impairment loss is recognized by the subsidiary for the entire amount. 
A) Added to the goodwill recognized by the parent at the acquisition date. 
B) Deducted from the net fair value of the identifiable assets and liabilities of the subsidiary in the performing the acquisition analysis. 
C) Is amortized over 25 years. 
D) An impairment loss is recognized by the subsidiary for the entire amount.

Question 16

At the date of acquisition, the assets and liabilities of the subsidiary are carried forward into the consolidated statement of financial position at fair value.

Accepted Answer

A) True 
 B)False

Question 17

Fair value increments on depreciable assets should be amortized in accordance with the subsidiary's depreciation policies.

Accepted Answer

A) True 
 B)False

Question 18

When performing the fair value adjustment process, which of the following is true?

Accepted Answer

A) The deferred income tax is reversed on the same basis as the fair value adjustment is written off 
B) The deferred income tax recognized during the acquisition analysis always remains the same. 
C) The fair value adjustments are initially recorded on the statement of financial position and are never written off 
D) The fair value adjustments are initially recorded on the statement of financial position and are always written off through comprehensive income over a period of 5 years. 
A) The deferred income tax is reversed on the same basis as the fair value adjustment is written off 
B) The deferred income tax recognized during the acquisition analysis always remains the same. 
C) The fair value adjustments are initially recorded on the statement of financial position and are never written off 
D) The fair value adjustments are initially recorded on the statement of financial position and are always written off through comprehensive income over a period of 5 years.

Question 19

Kizmit Ltd. acquired Nuance Ltd. in a business combination. One of the main reasons for the acquisition is that Kizmit wanted access to Nuance's extensive customer list. The list is not recorded on Nuance's books and has an estimated value of $100,000 and an estimated life of 7 years. On Kizmit's consolidated statement of financial position, what value should be shown for Nuance's customer list?

Accepted Answer

A) $0, since it was not recorded on Nuance's books. 
B) $100,000 less any accumulated amortization (calculated over 7 years)and any impairment losses. 
C) $100,000 less any impairment losses. 
D) $100,000 less any accumulated amortization (calculated over 5 years)and any impairment losses. 
A) $0, since it was not recorded on Nuance's books. 
B) $100,000 less any accumulated amortization (calculated over 7 years)and any impairment losses. 
C) $100,000 less any impairment losses. 
D) $100,000 less any accumulated amortization (calculated over 5 years)and any impairment losses.

Question 20

On January 1, 2013 ABC Company, a public company, acquired 100% of XYZ Ltd. The book value approximated fair value at the time of XYZ's assets and liabilities with the exception of their bond payable which had a fair value $10,000 less than its recorded book value and a remaining life of 20 years. Which of the following statements is false?

Accepted Answer

A) It is not required to use the effective interest rate method, so it may amortize the fair value adjustment on a straight-line basis. 
B) The bond payable must be reflected at the amortized cost using the effective interest rate method. 
C) Over the remaining life of the debt of 20 years, the interest expense will need to be adjusted annually using the effective interest rate method. 
D) None of the above is false. 
A) It is not required to use the effective interest rate method, so it may amortize the fair value adjustment on a straight-line basis. 
B) The bond payable must be reflected at the amortized cost using the effective interest rate method. 
C) Over the remaining life of the debt of 20 years, the interest expense will need to be adjusted annually using the effective interest rate method. 
D) None of the above is false.

Which of the following statements regarding the consolidation process is FALSE?

Since taxes are paid by the individual companies, the CCA claim for the acquiree is based on the amount recorded in the records of the ____________.

Which of the following statements regarding consolidated financial statements at the date of acquisition is FALSE?

The goodwill impairment test does not involve ________.

The consolidation process will involve replacing the investment account that is recorded in the books of the acquirer with the specific net assets acquired from the acquiree.

The fair value adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

Regarding the Acquisition Analysis, describe pre-acquisition adjustments and what they aim to accomplish.

Fair value adjustments (FVAs)are used to recognize the identifiable assets and liabilities of the subsidiary at fair values and goodwill measured as a residual amount. What happens to the fair value adjustments subsequent to the acquisition date?

The pre-acquisition adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

If a consolidation is done at the day of acquisition, only the ______________ need be adjusted since all of the subsidiaries equity will be pre-acquisition and therefore eliminated.

The first step in the consolidation process, regardless of which year is being reported, is to undertake the eliminations.

Goodwill recorded by the subsidiary at the acquisition date is?

At the date of acquisition, the assets and liabilities of the subsidiary are carried forward into the consolidated statement of financial position at fair value.

Fair value increments on depreciable assets should be amortized in accordance with the subsidiary's depreciation policies.

When performing the fair value adjustment process, which of the following is true?

Accounting for Investments

Business Combinations

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Currency

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters

Exam 3: Consolidation: Wholly Owned Subsidiaries

Which of the following statements regarding the consolidation process is FALSE?

Since taxes are paid by the individual companies, the CCA claim for the acquiree is based on the amount recorded in the records of the ____________.

Which of the following statements regarding consolidated financial statements at the date of acquisition is FALSE?

The goodwill impairment test does not involve ________.

The consolidation process will involve replacing the investment account that is recorded in the books of the acquirer with the specific net assets acquired from the acquiree.

The fair value adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

Regarding the Acquisition Analysis, describe pre-acquisition adjustments and what they aim to accomplish.

Fair value adjustments (FVAs)are used to recognize the identifiable assets and liabilities of the subsidiary at fair values and goodwill measured as a residual amount. What happens to the fair value adjustments subsequent to the acquisition date?

The pre-acquisition adjustments are required to eliminate the carrying amount of the parent's investment in the subsidiary and the parent's portion of pre-acquisition equity.

If a consolidation is done at the day of acquisition, only the ______________ need be adjusted since all of the subsidiaries equity will be pre-acquisition and therefore eliminated.

The first step in the consolidation process, regardless of which year is being reported, is to undertake the eliminations.

Goodwill recorded by the subsidiary at the acquisition date is?

At the date of acquisition, the assets and liabilities of the subsidiary are carried forward into the consolidated statement of financial position at fair value.

Fair value increments on depreciable assets should be amortized in accordance with the subsidiary's depreciation policies.

When performing the fair value adjustment process, which of the following is true?

Accounting for Investments

Business Combinations

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Currency

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters