Question 1

Which of the following statements is correct?

Accepted Answer

A) The economic unit concept suggests partial elimination of unrealized intercompany profits. 
B) The parent company concept suggests partial elimination of unrealized intercompany profits. 
C) The economic unit concept suggests no elimination of unrealized intercompany profits. 
D) The parent company concept suggests total elimination of unrealized intercompany profits. 
A) The economic unit concept suggests partial elimination of unrealized intercompany profits. 
B) The parent company concept suggests partial elimination of unrealized intercompany profits. 
C) The economic unit concept suggests no elimination of unrealized intercompany profits. 
D) The parent company concept suggests total elimination of unrealized intercompany profits. B

Question 2

The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is:

Accepted Answer

A) to provide information relevant to the controlling stockholders. 
B) to represent the view that the affiliated companies are a separate,identifiable economic entity. 
C) to emphasis control of the whole by a single management. 
D) to include only a portion of the subsidiary's assets,liabilities,revenues,expenses,gains,and losses. 
A) to provide information relevant to the controlling stockholders. 
B) to represent the view that the affiliated companies are a separate,identifiable economic entity. 
C) to emphasis control of the whole by a single management. 
D) to include only a portion of the subsidiary's assets,liabilities,revenues,expenses,gains,and losses. A

Question 3

Estimated goodwill is determined by computing the present value of the:

Accepted Answer

A) average earnings. 
B) excess earnings. 
C) expected future earnings. 
D) normal earnings. 
A) average earnings. 
B) excess earnings. 
C) expected future earnings. 
D) normal earnings. B

Question 4

Which of the following statements would not be a valid or logical reason for entering into a business combination?

Accepted Answer

A) to increase market share. 
B) to avoid becoming a takeover target. 
C) to reduce risk by acquiring established product lines. 
D) the operating costs of the combined entity would be more than the sum of the separate entities. 
A) to increase market share. 
B) to avoid becoming a takeover target. 
C) to reduce risk by acquiring established product lines. 
D) the operating costs of the combined entity would be more than the sum of the separate entities.

Question 5

The view that the noncontrolling interest in income reflects the noncontrolling stockholders' allocated share of consolidated income is consistent with the:

Accepted Answer

A) economic unit concept. 
B) parent company concept. 
C) current practice concept. 
D) historical cost company concept. 
A) economic unit concept. 
B) parent company concept. 
C) current practice concept. 
D) historical cost company concept.

Question 6

Which of the following statements is correct?

Accepted Answer

A) Total elimination is consistent with the parent company concept. 
B) Partial elimination is consistent with the economic unit concept. 
C) Past accounting standards required the total elimination of unrealized intercompany profit in assets acquired from affiliated companies. 
D) none of these. 
A) Total elimination is consistent with the parent company concept. 
B) Partial elimination is consistent with the economic unit concept. 
C) Past accounting standards required the total elimination of unrealized intercompany profit in assets acquired from affiliated companies. 
D) none of these.

Question 7

The parent company concept adjusts subsidiary net asset values for the:

Accepted Answer

A) differences between cost and fair value. 
B) differences between cost and book value. 
C) total fair value implied by the price paid by the parent. 
D) total cost implied by the price paid by the parent. 
A) differences between cost and fair value. 
B) differences between cost and book value. 
C) total fair value implied by the price paid by the parent. 
D) total cost implied by the price paid by the parent.

Question 8

A merger between a supplier and a customer is a(n):

Accepted Answer

A) friendly combination. 
B) horizontal combination. 
C) unfriendly combination. 
D) vertical combination. 
A) friendly combination. 
B) horizontal combination. 
C) unfriendly combination. 
D) vertical combination.

Question 9

According to the economic unit concept,the primary purpose of consolidated financial statements is to provide information that is relevant to:

Accepted Answer

A) majority stockholders. 
B) minority stockholders. 
C) creditors. 
D) both majority and minority stockholders. 
A) majority stockholders. 
B) minority stockholders. 
C) creditors. 
D) both majority and minority stockholders.

Question 10

Park Company acquired an 80% interest in the common stock of Southdale Company for $1,540,000 on July 1,2016.Southdale Company's stockholders' equity on that date consisted of:
   Required:
Compute the total noncontrolling interest to be reported in the consolidated balance sheet assuming the:
(1)parent company concept.
(2)economic unit concept.

Accepted Answer

The answer of Park Company acquired an 80% interest in...

Question 11

A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n):

Accepted Answer

A) agreeable combination. 
B) friendly combination. 
C) hostile combination. 
D) unfriendly combination. 
A) agreeable combination. 
B) friendly combination. 
C) hostile combination. 
D) unfriendly combination.

Question 12

The objectives of FASB 141R (Business Combinations)and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements)are as follows:

Accepted Answer

A) to improve the relevance,comparability,and transparency of financial information related to business combinations. 
B) to eliminate the amortization of Goodwill. 
C) to facilitate the convergence project of the FASB and the International Accounting Standards Board. 
D) to improve the relevance,comparability,and transparency of financial information related to business combinations and to eliminate the amortization of Goodwill. 
A) to improve the relevance,comparability,and transparency of financial information related to business combinations. 
B) to eliminate the amortization of Goodwill. 
C) to facilitate the convergence project of the FASB and the International Accounting Standards Board. 
D) to improve the relevance,comparability,and transparency of financial information related to business combinations and to eliminate the amortization of Goodwill.

Question 13

The first step in estimating goodwill in the excess earnings approach is to:

Accepted Answer

A) determine normal earnings. 
B) identify a normal rate of return for similar firms. 
C) compute excess earnings. 
D) estimate expected future earnings. 
A) determine normal earnings. 
B) identify a normal rate of return for similar firms. 
C) compute excess earnings. 
D) estimate expected future earnings.

Question 14

Under the economic unit concept,noncontrolling interest in net assets is treated as:

Accepted Answer

A) a liability. 
B) an asset. 
C) stockholders' equity. 
D) an expense. 
A) a liability. 
B) an asset. 
C) stockholders' equity. 
D) an expense.

Question 15

Many of FASB's recent pronouncements indicate a shift away from historical cost accounting toward:

Accepted Answer

A) an elevated status for the Statements of Financial Accounting Concepts. 
B) convergence of standards. 
C) fair value accounting. 
D) representationally faithful reporting. 
A) an elevated status for the Statements of Financial Accounting Concepts. 
B) convergence of standards. 
C) fair value accounting. 
D) representationally faithful reporting.

Question 16

Hopkins Company is considering the acquisition of Richfield,Inc.To assess the amount it might be willing to pay,Hopkins makes the following computations and assumptions.
A.Richfield,Inc.has identifiable assets with a total fair value of $6,000,000 and liabilities of $3,700,000.The assets include office equipment with a fair value approximating book value,buildings with a fair value 25% higher than book value,and land with a fair value 50% higher than book value.The remaining lives of the assets are deemed to be approximately equal to those used by Richfield,Inc.
B.Richfield,Inc.'s pretax incomes for the years 2014 through 2016 were $470,000,$570,000,and $370,000,respectively.Hopkins believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future.However,it may need to consider adjustments for the following items included in pretax earnings:
   C.The normal rate of return on net assets for the industry is 15%.
Required:
A.Assume that Hopkins feels that it must earn a 20% return on its investment,and that goodwill is determined by capitalizing excess earnings.Based on these assumptions,calculate a reasonable offering price for Richfield,Inc.Indicate how much of the price consists of goodwill.
B.Assume that Hopkins feels that it must earn a 15% return on its investment,but that average excess earnings are to be capitalized for five years only.Based on these assumptions,calculate a reasonable offering price for Richfield,Inc.Indicate how much of the price consists of goodwill.

Accepted Answer

A.Normal earnings for similar firms = ($

Question 17

A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition?

Accepted Answer

A) Cash 
B) Issuing Debt 
C) Issuing Stock 
D) All of these 
A) Cash 
B) Issuing Debt 
C) Issuing Stock 
D) All of these

Question 18

When following the economic unit concept in the preparation of consolidated financial statements,the basis for valuing the noncontrolling interest in net assets is the:

Accepted Answer

A) book values of subsidiary assets and liabilities. 
B) fair values of subsidiary assets and liabilities. 
C) general price level adjusted values of subsidiary assets and liabilities. 
D) fair values of parent company assets and liabilities. 
A) book values of subsidiary assets and liabilities. 
B) fair values of subsidiary assets and liabilities. 
C) general price level adjusted values of subsidiary assets and liabilities. 
D) fair values of parent company assets and liabilities.

Question 19

When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities,the result is a statutory:

Accepted Answer

A) acquisition. 
B) combination. 
C) consolidation. 
D) merger. 
A) acquisition. 
B) combination. 
C) consolidation. 
D) merger.

Question 20

The difference between normal earnings and expected future earnings is:

Accepted Answer

A) average earnings. 
B) excess earnings. 
C) ordinary earnings. 
D) target earnings. 
A) average earnings. 
B) excess earnings. 
C) ordinary earnings. 
D) target earnings.

Which of the following statements is correct?

The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is:

Estimated goodwill is determined by computing the present value of the:

Which of the following statements would not be a valid or logical reason for entering into a business combination?

The view that the noncontrolling interest in income reflects the noncontrolling stockholders' allocated share of consolidated income is consistent with the:

Which of the following statements is correct?

The parent company concept adjusts subsidiary net asset values for the:

A merger between a supplier and a customer is a(n):

According to the economic unit concept,the primary purpose of consolidated financial statements is to provide information that is relevant to:

A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n):

The objectives of FASB 141R (Business Combinations)and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements)are as follows:

The first step in estimating goodwill in the excess earnings approach is to:

Under the economic unit concept,noncontrolling interest in net assets is treated as:

Many of FASB's recent pronouncements indicate a shift away from historical cost accounting toward:

A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition?

When following the economic unit concept in the preparation of consolidated financial statements,the basis for valuing the noncontrolling interest in net assets is the:

When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities,the result is a statutory:

The difference between normal earnings and expected future earnings is:

Accounting for Business Combinations

Consolidated Financial Statements Date of Acquisition

Consolidated Financial Statements After Acquisition

Allocation and Depreciation of Differences Between Implied and Book Values

Elimination of Unrealized Profit on Intercompany Sales of Inventory

Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment

Changes in Ownership Interest

Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements

Insolvency Liquidation and Reorganization

International Financial Reporting Standards

Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Financial Statements of Foreign Affiliates

Reporting for Segments and for Interim Financial Periods

Partnerships: Formation, operation and Ownership Changes

Partnership Liquidation

Introduction to Fund Accounting

Introduction to Accounting for State and Local Governmental Units

Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, hospitals, and Other Health Care Organizations

Filters

Exam 1: Introduction to Business Combinations and the Conceptual Framework

Which of the following statements is correct?

The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is:

Estimated goodwill is determined by computing the present value of the:

Which of the following statements would not be a valid or logical reason for entering into a business combination?

The view that the noncontrolling interest in income reflects the noncontrolling stockholders' allocated share of consolidated income is consistent with the:

Which of the following statements is correct?

The parent company concept adjusts subsidiary net asset values for the:

A merger between a supplier and a customer is a(n):

According to the economic unit concept,the primary purpose of consolidated financial statements is to provide information that is relevant to:

A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n):

The objectives of FASB 141R (Business Combinations)and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements)are as follows:

The first step in estimating goodwill in the excess earnings approach is to:

Under the economic unit concept,noncontrolling interest in net assets is treated as:

Many of FASB's recent pronouncements indicate a shift away from historical cost accounting toward:

A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition?

When following the economic unit concept in the preparation of consolidated financial statements,the basis for valuing the noncontrolling interest in net assets is the:

When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities,the result is a statutory:

The difference between normal earnings and expected future earnings is:

Accounting for Business Combinations

Consolidated Financial Statements Date of Acquisition

Consolidated Financial Statements After Acquisition

Allocation and Depreciation of Differences Between Implied and Book Values

Elimination of Unrealized Profit on Intercompany Sales of Inventory

Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment

Changes in Ownership Interest

Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements

Insolvency Liquidation and Reorganization

International Financial Reporting Standards

Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Financial Statements of Foreign Affiliates

Reporting for Segments and for Interim Financial Periods

Partnerships: Formation, operation and Ownership Changes

Partnership Liquidation

Introduction to Fund Accounting

Introduction to Accounting for State and Local Governmental Units

Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, hospitals, and Other Health Care Organizations

Filters