Question 1

According to current accounting principles,for the purposes of testing impairment,goodwill resulting from the acquisition process must be identified

Accepted Answer

A) as an expense on the income statement. 
B) on the books of the parent company. 
C) on the basis of present value. 
D) with an operating or reporting unit.

Question 2

Related entity transactions can most often be discovered by auditors while performing which of the following procedures?

Accepted Answer

A) confirming transactions with related parties. 
B) examining unusual transactions and inquiry. 
C) reviewing random canceled checks for endorsement. 
D) evaluating reconciliations and related approvals.

Question 3

Which of the following will management of the acquiring company typically engage to determine,for reporting purposes,the value of assets and liabilities of the target company?

Accepted Answer

A) Appraiser. 
B) Actuary. 
C) Transfer Agent. 
D) Underwriter.

Question 4

For internal control purposes,the audit team may consider whether dividends declared and paid have been approved by which of the following?

Accepted Answer

A) executive management. 
B) the transfer agent. 
C) the shareholders. 
D) the board of directors.

Question 5

The excess of the purchase price paid for a company over the fair market value of identifiable intangible and tangible assets acquired is goodwill.

Accepted Answer

A) True 
 B)False

Question 6

When an auditor is uncomfortable with the work of a valuation expert pertaining to the fair value of the assets and liabilities acquired in an acquisition,another third-party specialist may be utilized to further test the evidence.

Accepted Answer

A) True 
 B)False

Question 7

The acquisition of an entity or division may be performed through which of the following forms of consideration?

Accepted Answer

A) Cash but not stock. 
B) Stock with no other contingent performance. 
C) Contingent performance with no further adjustment after the initial agreement. 
D) Cash,stock and/or contingencies.

Question 8

In an acquisition,the definition of a reporting unit usually does not involve which of the following?

Accepted Answer

A) separate accounting. 
B) synergies of the combination. 
C) being easily separable from the company 
D) being managed as a separate segment.

Question 9

Now that the accounting for business combinations has been refined by the FASB,accountants need not consider further changes.

Accepted Answer

A) True 
 B)False

Question 10

Financial statement disclosure of significant customers is necessary due to the inherent risks involved.

Accepted Answer

A) True 
 B)False

Question 11

How is the valuation and testing of goodwill for impairment best facilitated by a company?

Accepted Answer

A) Through physical inspection of the goodwill. 
B) By the CPA firm hired to perform the audit of financial statements. 
C) With the use of a formal budgeting process. 
D) Through the development of new products and services.

Question 12

The initial offer to purchase another entity may change due to terms that cover post-audit valuation changes.

Accepted Answer

A) True 
 B)False

Question 13

Transactions between companies and related entities must be eliminated in consolidation or fully disclosed in the financial statements.

Accepted Answer

A) True 
 B)False

Question 14

If an operating unit is sold,the goodwill related to that unit may remain on the books of the reporting entity until replaced by another acquisition.

Accepted Answer

A) True 
 B)False

Question 15

Goodwill impairment is a measurement problem that should be addressed when?

Accepted Answer

A) upon significant adverse change in the business environment. 
B) every other year on a scheduled and consistent basis. 
C) initially,in accordance with SFAS No.146. 
D) in conjunction with the recording of restructuring liabilities.

Question 16

In mergers and acquisitions,the term used for the acquired segment to which the goodwill from the acquisition is assigned is called the

Accepted Answer

A) sub-unit. 
B) merger-unit. 
C) reporting-unit. 
D) segment-unit.

Question 17

An audit firm will test the pension obligation of a client by performing which of the following procedures?

Accepted Answer

A) calculating the actuarial assumptions and providing a journal entry. 
B) evaluating the actuary's independence and competent and sufficiency of the evidence.. 
C) asking the client to adjust the long-term discount rate to smooth expenses. 
D) taking a sample of employees,tracing estimated lives to death certificates.

Question 18

If the operating unit relating to goodwill is not the reporting unit,estimates using cash flow may be necessary to derive the fair market value of the unit.

Accepted Answer

A) True 
 B)False

Question 19

The impairment of goodwill should be addressed immediately if there is a significant adverse change in the business environment.

Accepted Answer

A) True 
 B)False

Question 20

The auditor will examine proceeds and trace them to recorded amounts of the par value of common stock to determine that

Accepted Answer

A) shares exist and have valid stock certificates. 
B) proceeds have been properly distributed between common stock and additional paid-in capital. 
C) dividends have been issued in accordance with the stock indenture agreement as approved by the board. 
D) shareholders actually have the rights to shares issued by the company in exchange for subscribed funds.

Exam 14: Audit of Longer-Term Liabilities, equity, acquisitions, and Related-Entity Transactions, long-Term Liabilities, and Equity

According to current accounting principles,for the purposes of testing impairment,goodwill resulting from the acquisition process must be identified

Related entity transactions can most often be discovered by auditors while performing which of the following procedures?

Which of the following will management of the acquiring company typically engage to determine,for reporting purposes,the value of assets and liabilities of the target company?

For internal control purposes,the audit team may consider whether dividends declared and paid have been approved by which of the following?

The excess of the purchase price paid for a company over the fair market value of identifiable intangible and tangible assets acquired is goodwill.

When an auditor is uncomfortable with the work of a valuation expert pertaining to the fair value of the assets and liabilities acquired in an acquisition,another third-party specialist may be utilized to further test the evidence.

The acquisition of an entity or division may be performed through which of the following forms of consideration?

In an acquisition,the definition of a reporting unit usually does not involve which of the following?

Now that the accounting for business combinations has been refined by the FASB,accountants need not consider further changes.

Financial statement disclosure of significant customers is necessary due to the inherent risks involved.

How is the valuation and testing of goodwill for impairment best facilitated by a company?

The initial offer to purchase another entity may change due to terms that cover post-audit valuation changes.

Transactions between companies and related entities must be eliminated in consolidation or fully disclosed in the financial statements.

If an operating unit is sold,the goodwill related to that unit may remain on the books of the reporting entity until replaced by another acquisition.

Goodwill impairment is a measurement problem that should be addressed when?

In mergers and acquisitions,the term used for the acquired segment to which the goodwill from the acquisition is assigned is called the

An audit firm will test the pension obligation of a client by performing which of the following procedures?

If the operating unit relating to goodwill is not the reporting unit,estimates using cash flow may be necessary to derive the fair market value of the unit.

The impairment of goodwill should be addressed immediately if there is a significant adverse change in the business environment.

The auditor will examine proceeds and trace them to recorded amounts of the par value of common stock to determine that