Question 1

Under the equity method of accounting for an investment,

Accepted Answer

A)  The investment account remains at initial value. 
B)  Dividends received are recorded as revenue. 
C)  Goodwill is amortized over 20 years. 
D)  Income reported by the subsidiary increases the investment account. 
E)  Dividends received increase the investment account. 
A)  The investment account remains at initial value. 
B)  Dividends received are recorded as revenue. 
C)  Goodwill is amortized over 20 years. 
D)  Income reported by the subsidiary increases the investment account. 
E)  Dividends received increase the investment account.

Question 2

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:
 
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. for

Accepted Answer

A)  $124,400. 
B)  $126,000. 
C)  $127,000. 
D)  $76,400. 
E)  $0. 
A)  $124,400. 
B)  $126,000. 
C)  $127,000. 
D)  $76,400. 
E)  $0.

Question 3

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?

Accepted Answer

A)  All net assets are revalued to fair value and must be amortized over their useful lives. 
B)  Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives. 
C)  All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives. 
D)  Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives. 
E)  Only assets that have excess fair value over book value must be amortized over their useful lives. 
A)  All net assets are revalued to fair value and must be amortized over their useful lives. 
B)  Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives. 
C)  All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives. 
D)  Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives. 
E)  Only assets that have excess fair value over book value must be amortized over their useful lives.

Question 4

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2010. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, and paid dividends of $10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.
If the parent's net income reflected use of the initial value method, what were the consolidated retained earnings on December 31, 2011?

Accepted Answer

The answer of Fesler Inc. acquired all of the outstanding...

Question 5

One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?

Accepted Answer

A)  It is the only method allowed by the SEC. 
B)  It is relatively easy to apply. 
C)  It is the only internal reporting method allowed by generally accepted accounting principles. 
D)  Operating results on the parent's financial records reflect consolidated totals. 
E)  When the equity method is used, no worksheet entries are required in the consolidation process. 
A)  It is the only method allowed by the SEC. 
B)  It is relatively easy to apply. 
C)  It is the only internal reporting method allowed by generally accepted accounting principles. 
D)  Operating results on the parent's financial records reflect consolidated totals. 
E)  When the equity method is used, no worksheet entries are required in the consolidation process.

Question 6

Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
 
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
Compute the amount of Hurley's land that would be reported in a December 31, 2011, consolidated balance sheet.

Accepted Answer

A)  $900. 
B)  $1,300. 
C)  $400. 
D)  $1,450. 
E)  $2,200. 
A)  $900. 
B)  $1,300. 
C)  $400. 
D)  $1,450. 
E)  $2,200.

Question 7

Fesler Inc. acquired all of the outstanding common stock of Pickett Company on January 1, 2010. Annual amortization of $22,000 resulted from this transaction. On the date of the acquisition, Fesler reported retained earnings of $520,000 while Pickett reported a $240,000 balance for retained earnings. Fesler reported net income of $100,000 in 2010 and $68,000 in 2011, and paid dividends of $25,000 in dividends each year. Pickett reported net income of $24,000 in 2010 and $36,000 in 2011, and paid dividends of $10,000 in dividends each year.
Assume that Fesler's reported net income includes Equity in Subsidiary Income.
If the parent's net income reflected use of the partial equity method, what were the consolidated retained earnings on December 31, 2011?

Accepted Answer

The answer of Fesler Inc. acquired all of the outstanding...

Question 8

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
 
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
Compute the December 31, 2013, consolidated total expenses.

Accepted Answer

A)  $620,000. 
B)  $280,000. 
C)  $900,000. 
D)  $909,625. 
E)  $299,625. 
A)  $620,000. 
B)  $280,000. 
C)  $900,000. 
D)  $909,625. 
E)  $299,625.

Question 9

According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?

Accepted Answer

A)  Goodwill recognized in consolidation must be amortized over 20 years. 
B)  Goodwill recognized in consolidation must be expensed in the period of acquisition. 
C)  Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. 
D)  Goodwill recognized in consolidation can never be written off. 
E)  Goodwill recognized in consolidation must be amortized over 40 years. 
A)  Goodwill recognized in consolidation must be amortized over 20 years. 
B)  Goodwill recognized in consolidation must be expensed in the period of acquisition. 
C)  Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. 
D)  Goodwill recognized in consolidation can never be written off. 
E)  Goodwill recognized in consolidation must be amortized over 40 years.

Question 10

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?

Accepted Answer

A)  A above 
B)  B above 
C)  C above 
D)  D above 
E)  E above 
A)  A above 
B)  B above 
C)  C above 
D)  D above 
E)  E above

Question 11

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
 
If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented in a December 31, 2010 consolidated balance sheet?

Accepted Answer

A)  $40,000. 
B)  $50,000. 
C)  $0. 
D)  $10,000. 
E)  $90,000. 
A)  $40,000. 
B)  $50,000. 
C)  $0. 
D)  $10,000. 
E)  $90,000.

Question 12

Under the partial equity method of accounting for an investment,

Accepted Answer

A)  The investment account remains at initial value. 
B)  Dividends received are recorded as revenue. 
C)  The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account. 
D)  Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account. 
E)  Dividends received increase the investment account. 
A)  The investment account remains at initial value. 
B)  Dividends received are recorded as revenue. 
C)  The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account. 
D)  Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account. 
E)  Dividends received increase the investment account.

Question 13

Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.
On the consolidated financial statements for 2010, what amount should have been shown for consolidated dividends?

Accepted Answer

A)  $900,000. 
B)  $1,020,000. 
C)  $876,000. 
D)  $996,000. 
E)  $948,000. 
A)  $900,000. 
B)  $1,020,000. 
C)  $876,000. 
D)  $996,000. 
E)  $948,000.

Question 14

On January 1, 2010, Jumper Co. acquired all of the common stock of Cable Corp. for $540,000. Annual amortization associated with the purchase amounted to $1,800. During 2010, Cable earned net income of $54,000 and paid dividends of $24,000. Cable's net income and dividends for 2011 were $86,000 and $24,000, respectively.
Required:
Assuming that Jumper decided to use the partial equity method, prepare a schedule to show the balance in the investment account at the end of 2011.

Accepted Answer

The answer of On January 1, 2010, Jumper Co. acquired...

Question 15

Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100.
Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?

Accepted Answer

A)  $400 increase. 
B)  $300 increase. 
C)  $380 increase. 
D)  $280 increase. 
E)  $480 increase. 
A)  $400 increase. 
B)  $300 increase. 
C)  $380 increase. 
D)  $280 increase. 
E)  $480 increase.

Question 16

Utah Inc. acquired all of the outstanding common stock of Trimmer Corp. on January 1, 2009. At that date, Trimmer owned only three assets and had no liabilities:
  
If Utah paid $300,000 in cash for Trimmer, what allocation should have been assigned to the subsidiary's Building account and its Equipment account in a December 31, 2011 consolidation?

Accepted Answer

Since Utah paid more than the

Question 17

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.
When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will record a contingent performance obligation in the amount of:

Accepted Answer

A)  $692.20 
B)  $3,040.00 
C)  $3,461.00 
D)  $12,000.00 
E)  $15,200.00 
A)  $692.20 
B)  $3,040.00 
C)  $3,461.00 
D)  $12,000.00 
E)  $15,200.00

Question 18

Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2011, Goehler has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.
If Goehler applies the initial value method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?

Accepted Answer

A)  $1,080,000. 
B)  $1,104,000. 
C)  $1,100,000. 
D)  $1,468,000. 
E)  $1,475,000. 
A)  $1,080,000. 
B)  $1,104,000. 
C)  $1,100,000. 
D)  $1,468,000. 
E)  $1,475,000.

Question 19

Why is push-down accounting a popular internal reporting technique?

Accepted Answer

Push-down accounting has become popular

Question 20

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:
 
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary earnings?

Accepted Answer

A)  $77,000. 
B)  $79,000. 
C)  $125,000. 
D)  $127,000. 
E)  $81,800. 
A)  $77,000. 
B)  $79,000. 
C)  $125,000. 
D)  $127,000. 
E)  $81,800.

Under the equity method of accounting for an investment,

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?

One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?

According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?

Under the partial equity method of accounting for an investment,

Why is push-down accounting a popular internal reporting technique?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statementsintra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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Exam 3: Consolidationssubsequent to the Date of Acquisition

Under the equity method of accounting for an investment,

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?

One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?

According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?

When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?

Under the partial equity method of accounting for an investment,

Why is push-down accounting a popular internal reporting technique?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statementsintra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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