Question 1

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings.At the end of four years, the Investment in Billings account on Avery's books is $198,984.What items constitute this balance?

Accepted Answer

Since the equity method has been applied by Avery, the $198,984 is composed of four items:
(a.) The acquisition value of consideration transferred by the parent;
(b.) The annual accruals made by Avery to recognize income as it is earned by the subsidiary;
(c.) The reductions that are created by the subsidiary's payment of dividends;
(d.) The periodic amortization recognized by Avery in connection with the excess fair value allocations identified with its acquisition.

Question 2

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2017, what amount representing Glen would be reflected in consolidated net income for the year ended December 31, 2017?

Accepted Answer

A)   $20,000 under the initial 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)   $45,500 regardless of the internal accounting method used. E

Question 3

What will Beatty record as its Investment in Gataux on January 1, 2017?

Accepted Answer

A)   $500,000.
B)   $503,461.
C)   $506,345.
D)   $532,000.
E)   $546,500. C

Question 4

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping is the easiest for the parent to use?

Accepted Answer

The answer of For an acquisition when the subsidiary retains...

Question 5

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:

Accepted Answer

A)   Goodwill recognized in consolidation may be amortized uniformly and only tested if the amortization method originally chosen is changed.
B)   Goodwill recognized in consolidation must only be impairment tested prior to disposal of the consolidated unit to eliminate the impairment of goodwill from the gain or loss on the sale of that specific entity.
C)   Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by quantitative assessment of the possible impairment of the fair value of the unit relative to the book value, and then a qualitative assessment as to why the impairment, if any, occurred for disclosure.
D)   Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for disclosure.
E)   Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

Question 6

Compute the December 31, 2020, consolidated revenues.

Accepted Answer

A)   $1,400,000.
B)   $ 800,000.
C)   $ 500,000.
D)   $1,590,375.
E)   $1,390,375.

Question 7

What will Harrison record as its Investment in Rhine on January 1, 2017?

Accepted Answer

A)   $400,000.
B)   $403,142.
C)   $406,000.
D)   $409,142.
E)   $416,500.

Question 8

Compute the December 31, 2020, consolidated equipment.

Accepted Answer

A)   $800,000.
B)   $808,000.
C)   $840,000.
D)   $760,000.
E)   $848,000.

Question 9

Using the acquisition method, how will Beatty record the stock contingency?

Accepted Answer

A)   Credit Contingent Performance Obligation, $20,000.
B)   Debit Additional Paid-In Capital, $20,000.
C)   Credit Additional Paid-In Capital, $2,884.
D)   Debit Contingent Performance Obligation, $2,884.
E)   No entry.

Question 10

How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

Accepted Answer

A)   $170,000.
B)   $354,000.
C)   $164,000.
D)   $ 6,000.
E)   $174,000.

Question 11

Compute the amount of Hurley's equipment that would be reported in a December 31, 2018, consolidated balance sheet.

Accepted Answer

A)   $ 0.
B)   $1,000.
C)   $1,250.
D)   $1,125.
E)   $1,200.

Question 12

If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2019, assuming the book value of the building at that date is still $200,000?

Accepted Answer

A)   $200,000.
B)   $285,000.
C)   $260,000.
D)   $268,000.
E)   $300,000.

Question 13

Which of the following is not a factor to be considered when determining the useful life of an intangible asset?

Accepted Answer

A)   Legal, regulatory or contractual provisions.
B)   The effects of obsolescence.
C)   The expected use of the asset by the organization.
D)   The fair value of the asset.
E)   The level of maintenance expenditures that will be required to obtain expected future benefits.

Question 14

Racer Corp.acquired all of the common stock of Tangiers Co.in 2016.Tangiers maintained its incorporation.Which of Racer's account balances would vary between the equity method and the initial value method?

Accepted Answer

A)   Goodwill, Investment in Tangiers Co., and Retained Earnings.
B)   Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C)   Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D)   Common Stock, Goodwill, and Investment in Tangiers Co.
E)   Expenses, Goodwill, and Investment in Tangiers Co.

Question 15

How much goodwill impairment should Pritchett report for 2018?

Accepted Answer

The answer of How much goodwill impairment should Pritchett report...

Question 16

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.

Question 17

For recognized intangible assets that are considered to possess indefinite lives, what is the accounting treatment for purposes of income recognition?

Accepted Answer

The answer of For recognized intangible assets that are considered...

Question 18

In Cale's accounting records, what amount would appear on December 31, 2017 for equity in subsidiary earnings?

Accepted Answer

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

Question 19

If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2018?

Accepted Answer

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

Question 20

Assume the initial value method is used.In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?

Accepted Answer

A)   Entry A.
B)   Entry B.
C)   Entry C.
D)   Entry D.
E)   Entry E.

Exam 3: Consolidations - Subsequent to the Date of Acquisition