Question 1

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

Accepted Answer

The parent can choos

Question 2

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 3

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 4

Yules Co.acquired Noel Co.in an acquisition transaction.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

Accepted Answer

The initial balance in the investment ac

Question 5

When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid,what entry would be made for a consolidation worksheet?$\begin{array} { | l | l | } 
\hline \text { A) } & \text { Retained earnings } \
\hline & \text { Investment in subsidiary } \
\hline \text { B) } & \text { Investment in subsidiary } \
\hline & \text { Retained earnings } \
\hline \text { C) } & \text { Investment in subsidiary } \
\hline & \text { Equity in subsidiary's income } \
\hline \text { D) } & \text { Equity in subsidiary's income } \
\hline & \text { Investment in subsidiary } \
\hline \text { E) } & \text { Additional paid-in capital } \
\hline & \text { Retained earnings } \
\hline
\end{array}$

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 6

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2011, for the two companies follow.
$\begin{array} { l r r } 
& { \text { Jans } } &{ \text { Tysk } } \
\text { Revenues } & \$ 1,080,000 & \$ 840,000 \
\text { Expenses } & 480,000 & 600,000 \
\text { Investment income } & \text { Not given } & 0 \
\text { Retained earnings, 1/1/11 } & 840,000 & 600,000 \
\text { Dividends paid } & 132,000 & 70,000
\end{array}$
-If the partial equity method had been applied,what was 2011 consolidated net income?

Accepted Answer

A) $840,000. 
B) $768,400. 
C) $822,000. 
D) $240,000. 
E) $600,000. 
A) $840,000. 
B) $768,400. 
C) $822,000. 
D) $240,000. 
E) $600,000.

Question 7

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:$\begin{array} { | l | r | r | } 
\hline & \text { Book } & \text { Fair } \
\hline & \text { Value } & \text { Value } \
\hline \text { Inventory (FIFO method) } & \$ 40,000 & \$ 50,000 \
\hline \text { Equipment (10-year life) } & 80,000 & 75,000 \
\hline \text { Building (20-year life) } & 200,000 & 300,000 \
\hline
\end{array}$
-If Watkins pays $450,000 in cash for Glen,and Glen earns $50,000 in net income and pays $20,000 in dividends during 2010,what amount would be reflected in consolidated net income for 2010 as a result of the acquisition?

Accepted Answer

A) $20,000 under the initital value method. 
B) $30,000 under the partial equity method. 
C) $50,000 under the partial equity method. 
D) $44,500 under the equity method. 
E) $34,500 regardless of the internal accounting method used. 
A) $20,000 under the initital value method. 
B) $30,000 under the partial equity method. 
C) $50,000 under the partial equity method. 
D) $44,500 under the equity method. 
E) $34,500 regardless of the internal accounting method used.

Question 8

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:
 $\begin{array} { l r r } 
& \begin{array} { r } 
\text { Book } \
\underline{\text { Value }}
\end{array} & \begin{array} { r } 
\text { Fair } \
\underline{\text { Value }}
\end{array} \
\text { Inventory } & \$ 36,000 & \$ 48,000 \
\text { Equipment (5-year life) } & 84,000 & 60,000 \
\text { Building (10-year life) } & 120,000 & 180,000
\end{array}$
-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?
Since Utah paid more than the $288,000 fair value of Trimmer's net assets,all allocations are based on fair value with the excess $12,000 assigned to goodwill.

Accepted Answer

The answer of Utah Inc.acquired all of the outstanding common...

Question 9

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.$\begin{array} { l r r } 
\text { Revenues } & \text { Green } & \text { Vega } \
\text { Cost of goods sold } & \$ 900,000 & \$ 500,000 \
\text { Depreciation expense } & 360,000 & 200,000 \
\text { Other expenses } & 140,000 & 40,000 \
\text { Equity in Vega's income } & 100,000 & 60,000 \
\text { Retained earnings, 1/1/13 } & ? & \
\text { Dividends } & 1,350,000 & 1,200,000 \
\text { Current assets } & 195,000 & 80,000 \
\text { Land } & 300,000 & 1,380,000 \
\text { Building (net) } & 450,000 & 180,000 \
\text { Equipment (net) } & 750,000 & 280,000 \
\text { Liabilities } & 300,000 & 500,000 \
\text { Common stock } & 600,000 & 620,000 \
\text { Additional paid-in capital } & 450,000 & 80,000 \
& 75,000 & 320,000
\end{array}$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 10

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:$\begin{array} { l r r } 
& \text { Book } & \text { Fair } \
& \text { Value } & \text { Value } \
\text { Current assets } & \$ 120,000 & \$ 120,000 \
\text { Land } & 72,000 & 192,000 \
\text { Building (twenty year life) } & 240,000 & 268,000 \
\text { Equipment (ten year life) } & 540,000 & 516,000 \
\text { Current liabilities } & 24,000 & 24,000 \
\text { Long-term liabilities } & 120,000 & 120,000\\text { Common stock } & 228,000 \
\text { Additional paid-in capital } & 384,000 \
\text { Retained earnings } & 216,000
\end{array}$Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
-If Cale Corp.had net income of $444,000 in 2010,exclusive of the investment,what is the amount of consolidated net income?

Accepted Answer

A) $569,000. 
B) $570,000. 
C) $571,000. 
D) $566,400. 
E) $444,000. 
A) $569,000. 
B) $570,000. 
C) $571,000. 
D) $566,400. 
E) $444,000.

Question 11

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;
$\begin{array}{lr}
&\text { Debit }&\text {Credit }\
\text { Cash } & \$ 500 \
\text { Accounts receivable } & 600 \
\text { Inventory } & 800 \
\text { Buildings (net) (5 year life) } & 1,500 \
\text { Equipment (net) (2 year life) } & 1,000 \
\text { Land } & 900\
\text { Accounts Payable } & & \$ 400 \
 \text { Long-term liabilities (due 12/31/13) } & & 1,800 \
 \text { Common stock } & & 1,000 \
\text { Additional paid-in capital } & & 600 \
 \text { Retained earnings } & & 1,500 \
 \text { Total } & \$ 5,300 & \$ 5.300 \
\end{array}$

$\text { Net income and dividends reported by Hurley for } 2010 \text { and } 2011 \text { follow: }$

$\begin{array}{lrr}
&2010&2011\
\text { Net income } & \$ 100 & \$ 120 \
\text { Dividends } & 30 & 40
\end{array}$

The fair value of Hurley's net assets that differ from their book values are listed below

$\begin{array}{ll}
&\text { Fair Value }\
\text { Inventory } & \$ 900 \
\text { Buildings } & 1,200 \
\text { Equipment } & 1,250 \
\text { Land } & 1,300 \
\text { Long-term liabilities } & 1,700
\end{array}$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 long-term liabilities that would be reported in a December 31,2011,consolidated balance sheet.

Accepted Answer

A) $1,700. 
B) $1,800. 
C) $1,650. 
D) $1,750. 
E) $3,500. 
A) $1,700. 
B) $1,800. 
C) $1,650. 
D) $1,750. 
E) $3,500.

Question 12

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:$\begin{array} { l r r } 
& \text { Book } & \text { Fair } \
& \text { Value } & \text { Value } \
\text { Current assets } & \$ 120,000 & \$ 120,000 \
\text { Land } & 72,000 & 192,000 \
\text { Building (twenty year life) } & 240,000 & 268,000 \
\text { Equipment (ten year life) } & 540,000 & 516,000 \
\text { Current liabilities } & 24,000 & 24,000 \
\text { Long-term liabilities } & 120,000 & 120,000\\text { Common stock } & 228,000 \
\text { Additional paid-in capital } & 384,000 \
\text { Retained earnings } & 216,000
\end{array}$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.

Question 13

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;
$\begin{array}{lr}
&\text { Debit }&\text {Credit }\
\text { Cash } & \$ 500 \
\text { Accounts receivable } & 600 \
\text { Inventory } & 800 \
\text { Buildings (net) (5 year life) } & 1,500 \
\text { Equipment (net) (2 year life) } & 1,000 \
\text { Land } & 900\
\text { Accounts Payable } & & \$ 400 \
 \text { Long-term liabilities (due 12/31/13) } & & 1,800 \
 \text { Common stock } & & 1,000 \
\text { Additional paid-in capital } & & 600 \
 \text { Retained earnings } & & 1,500 \
 \text { Total } & \$ 5,300 & \$ 5.300 \
\end{array}$

$\text { Net income and dividends reported by Hurley for } 2010 \text { and } 2011 \text { follow: }$

$\begin{array}{lrr}
&2010&2011\
\text { Net income } & \$ 100 & \$ 120 \
\text { Dividends } & 30 & 40
\end{array}$

The fair value of Hurley's net assets that differ from their book values are listed below

$\begin{array}{ll}
&\text { Fair Value }\
\text { Inventory } & \$ 900 \
\text { Buildings } & 1,200 \
\text { Equipment } & 1,250 \
\text { Land } & 1,300 \
\text { Long-term liabilities } & 1,700
\end{array}$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 14

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 initial value 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) $100 increase. 
E) $210 increase. 
A) $400 increase. 
B) $300 increase. 
C) $380 increase. 
D) $100 increase. 
E) $210 increase.

Question 15

Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
-If push-down accounting is not used,what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?

Accepted Answer

A) $400,000 and $1,600,000. 
B) $500,000 and $1,700,000. 
C) $400,000 and $1,700,000. 
D) $500,000 and $2,000,000. 
E) $500,000 and $1,600,000. 
A) $400,000 and $1,600,000. 
B) $500,000 and $1,700,000. 
C) $400,000 and $1,700,000. 
D) $500,000 and $2,000,000. 
E) $500,000 and $1,600,000.

Question 16

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

Accepted Answer

The partial equity method is a compromis

Question 17

When is a goodwill impairment loss recognized?

Accepted Answer

A) Annually on a systematic and rational basis. 
B) Never. 
C) If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. 
D) If the fair value of a reporting unit falls below its original acquisition price. 
E) Whenever the fair value of the entity declines significantly. 
A) Annually on a systematic and rational basis. 
B) Never. 
C) If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. 
D) If the fair value of a reporting unit falls below its original acquisition price. 
E) Whenever the fair value of the entity declines significantly.

Question 18

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

Accepted Answer

The equity method gi

Question 19

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 equity 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 20

Which one of the following varies between the equity,initial value,and partial equity methods of accounting for an investment?

Accepted Answer

A) the amount of consolidated net income. 
B) total assets on the consolidated balance sheet. 
C) total liabilities on the consolidated balance sheet. 
D) the balance in the investment account on the parent's books. 
E) the amount of consolidated cost of goods sold. 
A) the amount of consolidated net income. 
B) total assets on the consolidated balance sheet. 
C) total liabilities on the consolidated balance sheet. 
D) the balance in the investment account on the parent's books. 
E) the amount of consolidated cost of goods sold.

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

Under the partial equity method of accounting for an investment,

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

Yules Co.acquired Noel Co.in an acquisition transaction.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

When is a goodwill impairment loss recognized?

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

Which one of the following varies between the equity,initial value,and partial equity methods of accounting for an investment?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements - Intra-Entity Asset Transactions

Variable Interest Entities,intra-Entity Debt,consolidated Cash Flo

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operations

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: Consolidations-Subsequent to the Date of Acquisition

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

Under the partial equity method of accounting for an investment,

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

Yules Co.acquired Noel Co.in an acquisition transaction.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

When is a goodwill impairment loss recognized?

For an acquisition when the subsidiary retains its incorporation,which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

Which one of the following varies between the equity,initial value,and partial equity methods of accounting for an investment?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements - Intra-Entity Asset Transactions

Variable Interest Entities,intra-Entity Debt,consolidated Cash Flo

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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