Deck 4: Consolidated Financial Statements Subsequent to Acquisition

Question 1

On consolidated financial statements, where does the subsidiary's accumulated other comprehensive income balance appear?

A) On the consolidated statement of comprehensive income
B) On the consolidated balance sheet, as an equity account
C) On the consolidated balance sheet, as an asset account
D) Doesn't appear on the consolidated financial statements

Answer 1

Doesn't appear on the consolidated financial statements

Question 2

When consolidating the accounts of a parent and subsidiary in subsequent years, eliminating entry (O) recognizes total write-offs of subsidiary revaluations:

A) As of the beginning of the current year.
B) For the current year.
C) As of the end of the current year.
D) As of the date of acquisition.

Answer 2

For the current year.

Question 3

When consolidating the accounts of a parent and subsidiary in subsequent years, eliminating entry (R) recognizes revaluations of the subsidiary's assets and liabilities:

A) As of the beginning of the current year.
B) For the current year.
C) As of the end of the current year.
D) As of the date of acquisition.

Answer 3

As of the beginning of the current year.

Question 4

How does the complete equity method, used to facilitate consolidation in subsequent years, differ from the equity method used for external reporting?

A) The complete equity method adjusts reported income for impairment losses on previously unreported intangible assets, while the equity method used for external reporting does not.
B) The complete equity method deducts unconfirmed profits on upstream sales to the extent of ownership interests, while the equity method used for external reporting deducts all unconfirmed profits on upstream sales.
C) The complete equity method deducts unconfirmed profits on downstream sales to the extent of ownership interests, while the equity method used for external reporting deducts all unconfirmed profits on downstream sales.
D) The complete equity method adjusts for upstream and downstream unconfirmed profits, while the equity method used for external reporting does not make these adjustments.

Question 5

The complete equity method, used to facilitate consolidation in subsequent years, differs from the equity method used for external reporting in all the following ways except:

A) The complete equity method adjusts reported income for goodwill impairment losses, while the equity method used for external reporting does not.
B) The complete equity method does not allow the investment balance to become negative due to reported losses, while the equity method used for external reporting adjusts the investment balance for all losses.
C) The complete equity method adjusts reported income for impairment losses on acquqired identifiable intangible assets, while the equity method used for external reporting does not.
D) The complete equity method adjusts for all downstream unconfirmed profits, while the equity method used for external reporting only adjusts for the investor's share of these profits.

Question 6

If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books, consolidated net income equals

A) The subsidiary's separately reported income.
B) The parent's separately reported income.
C) The parent's separately reported income plus the subsidiary's ending retained earnings balance.
D) The subsidiary's separately reported income, adjusted for revaluation write-offs.

Question 7

If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books:

A) The parent's net income equals consolidated comprehensive income.
B) The subsidiary's comprehensive income equals consolidated comprehensive income.
C) The parent's comprehensive income equals consolidated comprehensive income.
D) The parent's comprehensive income equals consolidated net income.

Question 8

At the date of acquisition, a subsidiary's inventory (FIFO, sold in the year of acquisition) is overvalued by $600, its plant assets (10-year life, straight-line) are overvalued by $4,000, and it has previously unreported intangibles valued at $1,000 (2-year life, straight-line). Goodwill from the acquisition is not impaired. In the second year following acquisition, the subsidiary reports net income of $2,000. Using the complete equity method, in the second year the parent reports equity in the net income of the subsidiary of:

A) $1,100
B) $1,900
C) $1,300
D) $500

Question 9

At the date of acquisition, a subsidiary's inventory (LIFO, still held by the subsidiary) is overvalued by $600, its plant assets (10-year life, straight-line) are overvalued by $4,000, and it has previously unreported intangibles valued at $1,000 (2-year life, straight-line). Goodwill from the acquisition is not impaired. In the third year following acquisition, the subsidiary reports net income of $2,500. Using the complete equity method, in the third year the parent reports equity in the net income of the subsidiary of:

A) $3,500
B) $2,100
C) $2,400
D) $2,900

Question 10

A subsidiary has plant assets with a fair value of $70 million and book value of $60 million at the date of acquisition. The plant assets have a remaining life, as of the date of acquisition, of 20 years, straight-line. You are consolidating the accounts at the end of the third year since acquisition, and the subsidiary still owns the plant assets. The amount by which the plant assets are revalued in eliminating entry (R) is:

A) $9.5 million
B) $10 million
C) $8.5 million
D) $9 million

Question 11

A subsidiary has previously unreported brand names valued at $50 million at the date of acquisition. The brand names have an indefinite life. It is now the end of the second year since acquisition, and you are consolidating the accounts. The subsidiary still owns the brand names. Impairment testing reveals that the brand names were impaired by $5 million in the first year and $7 million in the second year. The amount by which the brand names are recognized in eliminating entry (R) is:

A) $50 million
B) $38 million
C) $45 million
D) None since the brand names have an indefinite life

Question 12

At the date of acquisition, a subsidiary's assets and liabilities are reported at amounts approximating fair value, except it has previously unreported identifiable intangibles of $25 million (5-year life, straight-line), and its plant assets are overvalued by $40 million (10-year life, straight-line). Revaluation write-offs are reported as adjustments to operating expenses. Eliminating entry (O) at the end of the second year following acquisition:

A) Increases operating expenses by $2 million.
B) Reduces operating expenses by $9 million.
C) Increases operating expenses by $18 million.
D) Increases operating expenses by $1 million.

Question 13

A subsidiary still holds all net assets revalued at the date of acquisition. Which working paper eliminating entry below is most likely to be the same whether the consolidation takes place at the date of acquisition or in subsequent years?

A) Write-off eliminating entry (O) adjustment to identifiable intangibles
B) Equity eliminating entry (E) adjustment to retained earnings
C) Equity eliminating entry (E) adjustment to capital stock
D) Revaluation eliminating entry (R) adjustment to plant assets

Question 14

On consolidated financial statements, where does the parent's equity in the net income of the subsidiary account appear?

A) On the consolidated income statement, as an deduction from income
B) On the consolidated income statement, as a revenue
C) On the consolidated balance sheet, as an equity
D) Doesn't appear on the consolidated financial statements

Question 15

Consolidation eliminating entries (C), (E), (R), and (O) fully eliminate the parent's Investment in Subsidiary account at what stage?

A) After eliminating entry (C)
B) After eliminating entries (C) and (E)
C) After eliminating entries (C), (E) and (R)
D) After eliminating entries (C), (E), (R) and (O)

Question 16

A wholly-owned subsidiary reports income of $5 million, other comprehensive income of $100,000, and dividends of $1 million. There are no revaluation write-offs. Eliminating entry (C) reduces Investment in Subsidiary by:

A) $4,100,000.
B) $4,000,000.
C) $5,100,000.
D) $5,000,000.

Question 17

A wholly-owned subsidiary reports income of $2 million and an other comprehensive loss of $100,000. The subsidiary's revalued net assets consist of indefinite life identifiable intangible assets. Impairment testing for the year reveals $250,000 in impairment on these intangibles. The subsidiary did not declare any dividends. Eliminating entry (C) reduces Investment in Subsidiary by:

A) $2,000,000.
B) $1,750,000.
C) $1,650,000.
D) $1,950,000.

Question 18

A wholly-owned subsidiary reports income of $600,000 and an other comprehensive loss of $50,000. The subsidiary's revalued net assets consist of indefinite life identifiable intangible assets, which are not impaired this year. The subsidiary declared dividends of $200,000 during the year. Eliminating entry (C) reduces Investment in Subsidiary by:

A) $450,000
B) $350,000
C) $600,000
D) $400,000

Question 19

Consolidated retained earnings at the end of the year equals:

A) Beginning retained earnings of the parent plus beginning retained earnings of the subsidiary, plus consolidated net income less declared dividends of the parent and the subsidiary.
B) Beginning retained earnings of the parent plus consolidated net income and consolidated other comprehensive income, less declared dividends of the parent and the subsidiary.
C) Beginning retained earnings of the parent plus consolidated net income less declared dividends of the parent.
D) Beginning retained earnings of the parent plus consolidated net income less declared dividends of the parent and the subsidiary.

Question 20

A wholly-owned subsidiary's revalued net assets at the date of acquisition consist of indefinite life identifiable intangible assets valued at $500,000 at the date of acquisition. Impairment of these intangibles as of the beginning of the current year is $50,000, and impairment testing for the current year reveals $200,000 in additional impairment on these intangibles. Consolidation eliminating entry (O) at the end of the current year reduces identifiable intangible assets by:

A) $250,000.
B) $500,000.
C) $200,000.
D) $50,000.

Question 21

A wholly-owned subsidiary's plant assets have a book value of $40 million and a fair value of $35 million at the date of acquisition. The plant assets have a remaining life at the date of acquisition of 10 years, straight-line. It is now three years since the acquisition. Assume an accumulated depreciation account is not used, i.e. all adjustments are made directly to the net plant assets account. Consolidation eliminating entry (R) at the end of the current year has what effect on the net plant assets account?

A) Increase of $4,000,000.
B) Decrease of $4,000,000.
C) Increase of $3,500,000.
D) Decrease of $3,500,000.

Question 22

A parent company acquires a subsidiary on January 1, 2018. The subsidiary's equipment (five-year remaining life, straight-line) is undervalued by $30 million at the date of acquisition. On the consolidation working paper prepared at December 31, 2021 (four years later), by how much does eliminating entry (R) increase the equipment account?

A) $18 million
B) $30 million
C) $6 million
D) $12 million

Question 23

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Eliminating entry (R) debits goodwill in the amount of:

A) $1,000
B) $11,000
C) $10,000
D) $15,000

Question 24

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Eliminating entry (C) credits Investment in Sundisk in the amount of:

A) $800
B) $100
C) $300
D) $200

Question 25

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Eliminating entry (E) credits Investment in Sundisk in the amount of:

A) $ 2,000
B) $25,900
C) $12,000
D) $13,500

Question 26

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Eliminating entry (R):

A) Credits plant assets, net $4,000
B) Debits plant assets, net $5,000
C) Debits intangibles $8,000
D) Debits intangibles $9,000

Question 27

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Eliminating entry (O) debits operating expenses for a total of:

A) $1,200
B) $400
C) $100
D) $700

Question 28

Use the following information to answer bellow Questions:
On January 1, 2018, Pearson Company acquired all of Sundisk Company's voting stock for $20,000 in cash. Sundisk's total shareholders' equity at January 1, 2018 was $5,000. Some of Sundisk's assets and liabilities at the date of acquisition had fair values that were different from reported values, as follows:
$\begin{array}{lrr}&\text { Book Value}&\text { Fair Value }\\\text { Plant assets, net (10 years, straight-line) } & \$ 15,000 & \$ 10,000 \\\text { Identifiable intangibles (indefinite life) } & 0 & 9,000\end{array}$
It is now December 31, 2020 (3 years later). Impairment of recognized identifiable intangibles totals $400 for 2018 and 2019, and there is no impairment in 2020. There is no goodwill impairment as of the beginning of 2020, but goodwill impairment for 2020 is $1,200. Pearson uses the complete equity method to account for its investment. December 31, 2020 trial balances for Pearson and Sundisk follow:
$\begin{array}{|l|r|r|}\hline&\text { Pearson } & \text { Sund isk } \\&\operatorname{Dr}(\mathrm{Cr}) & \operatorname{Dr}(\mathrm{Cr})\\\hline \text { Current assets } & \$ 5,000 & \$ 2,500 \\\hline \text { Plant assets, net } & 28,700 & 22,000 \\\hline \text { Identifiable intangibles } & - & - \\\hline \text { Investment in Sundisk } & 28,400 & - \\\hline \text { Goodwill } & - & - \\\hline\text { Liabilities } & \{20,300\} & \{11,000\} \\\hline \text { Capital stock } & \{15,000\} & \{2,000\} \\\hline \text { Retained earnings, beginning } & \{25,000\} & \{10,000\} \\\hline \text { Sales revenue } & \{25,000\} & \{14,000\} \\\hline \text { Equity in net income of Sundisk } & \{800\} & -\\\hline \text { Cost of goods sold } & 20,000 & 9,000 \\\hline \text { Operating expenses } & 4,000 & 3,500 \\\hline&\$0&\$0\\\hline\end{array}$ The following questions relate to consolidation eliminating entries for 2020.

-Now assume Pearson uses the cost method to account for its investment in Sundisk. You are doing consolidation eliminating entries at December 31, 2020. Before doing eliminating entries (C), (E), (R), (O), in eliminating entry (A) you must increase Pearson's Investment in Sundisk by:

A) $7,000
B) $5,600
C) $7,600
D) $8,000

Question 29

Use the following information to answer bellow Questions:
A parent company acquires a subsidiary on January 1, 2017. The subsidiary's bonds payable (five-year remaining life) are undervalued by $5,000 at the date of acquisition. Straight-line amortize the premium/discount, and directly adjust bonds payable for premium/discount amortization.

-On the consolidation working paper prepared at December 31, 2020 (four years later), eliminating entry (O) includes:

A) A credit to interest expense of $1,000.
B) A credit to bonds payable of $1,000.
C) A debit to bonds payable of $2,000.
D) A credit to bonds payable of $2,000.

Question 30

Use the following information to answer bellow Questions:
A parent company acquires a subsidiary on January 1, 2017. The subsidiary's bonds payable (five-year remaining life) are undervalued by $5,000 at the date of acquisition. Straight-line amortize the premium/discount, and directly adjust bonds payable for premium/discount amortization.

-On the consolidation working paper prepared at December 31, 2018 (two years later), eliminating entry (R) includes:

A) A credit to interest expense of $1,000.
B) A debit to interest expense of $1,000.
C) A debit to bonds payable of $5,000.
D) A credit to bonds payable of $4,000.

Question 31

Use the following information to answer bellow Questions:
A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition:
$$\begin{array} { l c l } & \text { Fair Value - Book Value } & \\\cline { 2 - 3 } \text { Inventories } & \$ ( 200 \} & \text { FIFO, sold in 2019 } \\\text { Identifiable int angibles } & 5,000 & \text { Straight-line, 5 years } \\\text { Long term debt } & 300 & \text { Straight-line, 2 years }\end{array}$$ Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare any dividends during this period and reported no other comprehensive income. The subsidiary reported net income as follows:
$$\begin{array} { l r } \text { Year } & \text { Net Income } \\\hline 2019 & \$ 1,500 \\2020 & 5,000 \\2021 & 2,000\end{array}$$ The parent uses the complete equity method to report its investment on its own books.

-Equity in net income for 2019, reported on the parent's books, is:

A) $1,500
B) $1,050
C) $ 150
D) $ 850

Question 32

Use the following information to answer bellow Questions:
A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition:
$$\begin{array} { l c l } & \text { Fair Value - Book Value } & \\\cline { 2 - 3 } \text { Inventories } & \$ ( 200 \} & \text { FIFO, sold in 2019 } \\\text { Identifiable int angibles } & 5,000 & \text { Straight-line, 5 years } \\\text { Long term debt } & 300 & \text { Straight-line, 2 years }\end{array}$$ Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare any dividends during this period and reported no other comprehensive income. The subsidiary reported net income as follows:
$$\begin{array} { l r } \text { Year } & \text { Net Income } \\\hline 2019 & \$ 1,500 \\2020 & 5,000 \\2021 & 2,000\end{array}$$ The parent uses the complete equity method to report its investment on its own books.

-Equity in net income (loss) for 2020, reported on the parent's books, is:

A) $650
B) $4,150
C) $(350)
D) $1,150

Question 33

Use the following information to answer bellow Questions:
A subsidiary is acquired on January 1, 2019 for $10,000. The subsidiary's book value at the date of acquisition was $2,000. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition:
$$\begin{array} { l c l } & \text { Fair Value - Book Value } & \\\cline { 2 - 3 } \text { Inventories } & \$ ( 200 \} & \text { FIFO, sold in 2019 } \\\text { Identifiable int angibles } & 5,000 & \text { Straight-line, 5 years } \\\text { Long term debt } & 300 & \text { Straight-line, 2 years }\end{array}$$ Goodwill recognized in the acquisition was unimpaired in 2019 but became fully impaired during 2020. The subsidiary did not declare any dividends during this period and reported no other comprehensive income. The subsidiary reported net income as follows:
$$\begin{array} { l r } \text { Year } & \text { Net Income } \\\hline 2019 & \$ 1,500 \\2020 & 5,000 \\2021 & 2,000\end{array}$$ The parent uses the complete equity method to report its investment on its own books.

-Equity in net income for 2021, reported on the parent's books, is:

A) $1,150
B) $1,000
C) $ 850
D) $1,350

Question 34

An acquisition requires revaluation of a subsidiary's date-of-acquisition inventory from a book value of $5 million to fair value of $3 million. The subsidiary uses FIFO and sells the inventory in the first year following acquisition. Which statement is true concerning the consolidation eliminating entries for this revaluation?

A) Each year following acquisition, entry (R) reduces inventory and entry (O) increases cost of goods sold by $2 million.
B) After the first year, entry (R) reduces inventory by $2 million, but entry (O) is not required.
C) No entry (R) is required after the first year, but eliminating entry (O) reduces cost of goods sold by $2 million in the first year.
D) No entries are required in any year.

Question 35

An acquisition requires revaluation of a subsidiary's date-of-acquisition inventory from a book value of $5 million to fair value of $3 million. The subsidiary uses LIFO and inventory purchases exceed sales in every year following acquisition. Which statement is true concerning the consolidation eliminating entries for this revaluation?

A) Each year following acquisition, entry (R) reduces inventory and entry (O) increases cost of goods sold by $2 million.
B) Each year following acquisition, entry (R) reduces inventory by $2 million, but entry (O) is not required.
C) No entry (R) is required after the first year, but eliminating entry (O) reduces cost of goods sold by $2 million in the first year.
D) No entries are required in any year.

Question 36

An acquisition requires revaluation of a subsidiary's date-of-acquisition plant assets from a book value of $40 million to a fair value of $25 million. The plant assets have a 10-year remaining life at the date of acquisition. Which statement is true concerning the eliminating entries for this revaluation?

A) In the second year following acquisition, eliminating entry (O) reduces depreciation expense by $1.5 million.
B) In the third year following acquisition, eliminating entry (R) increases plant assets by $3 million.
C) In the first year following acquisition, the net effect of eliminating entries (R) and (O) is to reduce plant assets by $15 million.
D) In the second year following acquisition, eliminating entry (R) reduces plant assets by $3 million.

Question 37

Which statement is true concerning impairment testing of identifiable intangible assets, following U.S. GAAP?

A) For limited life intangibles, the impairment loss is the difference between the sum of undiscounted expected cash flows and book value.
B) If the sum of undiscounted expected cash flows is less than book value, the impairment loss calculation for limited life intangibles is the same as for indefinite life intangibles.
C) A qualitative test may be used for limited life intangibles but not indefinite life intangibles.
D) A qualitative test may be used for both limited life and indefinite life intangibles.

Question 38

The U.S. GAAP option to use a qualitative assessment for impairment testing applies to:

A) Limited life intangibles only
B) Limited life and indefinite life intangibles and goodwill
C) Indefinite life intangibles and goodwill
D) Goodwill only

Question 39

P Corporation acquires all of S Company's voting stock. At the date of acquisition, the fair value of S Company's long-term debt is $100 greater than its book value. The debt has a 5-year remaining life at the date of acquisition. When consolidating S Company's financial statements for the first year following acquisition, how will eliminating entry (O) affect long-term debt and interest expense?

A) $80 debit to long-term debt, $80 credit to interest expense
B) $20 debit to long-term debt, $20 credit to interest expense
C) $80 credit to long-term debt, $80 debit to interest expense
D) $20 credit to long-term debt, $20 debit to interest expense

Question 40

Mojo Corporation acquires all the voting stock of Ninja Company. Ninja has $1,000,000 in bonds payable, issued at par value, on its books. The bonds have a 5-year remaining life at the date of acquisition, and 4% interest is paid annually. The fair value of the bonds at the date of acquisition is $1,020,000. The premium is straight-line amortized. Which statement is true concerning the consolidation of Mojo with Ninja two years after the acquisition?

A) Consolidated interest expense on the bonds is $44,000
B) Eliminating entry (O) decreases interest expense by $4,000
C) If market interest rates are 4% at the date of consolidation, no entry (O) is needed
D) Eliminating entry (R) increases bonds payable by $20,000

Question 41

A parent company acquires all of a subsidiary's voting stock at the beginning of 2018. At the date of acquisition, the subsidiary's equipment had a book value of $40 million and a fair value of $25 million. The equipment had a 10-year remaining life, straight-line. Consolidation eliminating entry (R), on the consolidation working paper for 2021, reduces the net equipment account by what amount?

A) $10.5 million
B) $15.0 million
C) $ 9.0 million
D) $17.5 million

Question 42

A parent company acquires all of a subsidiary's voting stock at the beginning of 2018. At the date of acquisition, the subsidiary's equipment had a book value of $40 million and a fair value of $15 million. The equipment had a 10-year remaining life, straight-line. Consolidation eliminating entry (O), on the consolidation working paper for 2021, has what effect on consolidated depreciation expense?

A) Debit for $2.5 million
B) Credit for $2.5 million
C) Debit for $10 million
D) Credit for $10 million

Question 43

Which of the following previously unreported intangible assets is most likely to be classified as an indefinite life identifiable intangible asset at the date of acqquisition?

A) Favorable leaseholds
B) Production backlog
C) Customer lists
D) In-process research & development

Question 44

Which statement below is most likely to be false concerning the qualitative assessment for identifiable intangibles impairment?

A) The assessment allows entities to avoid the cost of impairment testing when it is likely that no impairment would be identified through quantitative tests.
B) The assessment results in fewer earnings manipulations regarding impairment recognition.
C) The less time that has passed between the last fair value measurement and the current testing date, the easier it is to make a qualitative assessment of impairment.
D) Companies can use the qualitative assessment to evaluate impairment of acquired in-process research & development.

Question 45

Which statement is true regarding the U.S. GAAP impairment test for limited life intangibles?

A) Even if the fair value of the intangible is less than its book value, it is possible that no impairment loss will be reported.
B) No impairment testing is necessary if it is more likely than not that the intangibles are not impaired.
C) Impairment loss always equals the difference between book and fair value of the intangibles, if book value exceeds fair value.
D) The impairment loss is calculated as the difference between fair value and original cost.

Question 46

Identifiable intangible assets with a fair value of $80 million and a 4-year life were recognized in an acquisition occurring on June 30, 2019. The intangible assets were not impaired in fiscal 2020. It is now June 30, 2021, the end of the parent's fiscal year. Impairment testing reveals that total expected undiscounted future cash inflows for the intangible assets are $42, and total expected discounted future cash inflows are $30. What is the impairment loss for the intangible assets for fiscal 2021, following U.S. GAAP?

A) $50 million
B) $38 million
C) $10 million
D) None

Question 47

Identifiable intangible assets with a fair value of $90 million and a 6-year life were recognized in an acquisition occurring at the beginning of 2018. The intangible assets were not impaired in 2018 or 2019. It is now the end of 2020, three years since acquisition. Impairment testing reveals that total expected undiscounted future cash inflows for the intangible assets are $42, and total expected discounted future cash inflows are $30. What is the impairment loss for the intangible assets for fiscal 2020, following U.S. GAAP?

A) $60 million
B) $3 million
C) $15 million
D) None

Question 48

The major justification for adding a qualitative test to the U.S. GAAP impairment test for intangibles is that it:

A) Enhances the accuracy of the estimated impairment loss
B) Results in more timely recognition of impairment losses
C) Saves money spent estimating fair values
D) Reduces the fee paid to outside auditors

Question 49

The interest rate at which an acquired company issued its long-term bonds payable is higher than the current market rate. The bonds have a four-year remaining life at the date of acquisition. Which statement is true concerning the write-off of revaluation of these bonds in the fourth year after acquisition (eliminating entry O)?

A) Interest expense will increase
B) Bonds payable will increase
C) Interest expense will decrease
D) No eliminating entry (O) is needed

Question 50

A parent acquired all of the stock of a subsidiary. The subsidiary had originally issued long-term debt when the market rate of interest was 3%. The market rate of interest for the debt at the date of acquisition was 5%. How does the change in market interest rate affect the consolidated financial statements?

A) Goodwill is lower.
B) Acquired long-term debt is valued at a higher amount.
C) Future interest expense is lower.
D) There is no effect on consolidated account balances.

Question 51

Which statement is true concerning U.S. GAAP for the qualitative evaluation of goodwill?

A) You don't have to quantitively evaluate goodwill for impairment if it is more likely than not that the reporting unit's book value is less than its fair value.
B) You don't have to quantitatively evaluate goodwill for impairment if it is more likely than not that the reporting unit's fair value is less than its book value.
C) You don't have to quantitatively evaluate goodwill for impairment if the acquired subsidiary is expected to continue operating in the foreseeable future.
D) The qualitative goodwill evaluation is based on general information on the economy, rather than specific information about the reporting unit's performance.

Question 52

Assume a U.S. company decides to quantitatively test its goodwill for impairment. A division's book value exceeds its fair value by $5 million, and its goodwill has a book value of $6 million. The division's goodwill impairment loss is

A) $6 million.
B) $0
C) $1 million.
D) $5 million.

Question 53

Assume a U.S. company decides to quantitatively test its goodwill for impairment. A division's book value exceeds its fair value by $8 million, and its goodwill has a book value of $6 million. The division's goodwill impairment loss is

A) $6 million.
B) $0
C) $2 million.
D) $8 million.

Question 54

A company reports $11.2 million in goodwill and decides to quantitatively test it for impairment at the end of 2020. The following information is collected:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Division 1 } } & { \text { Division 2 } } & { \text { Division 3 } } \\\hline \text { Book value of goodwill } & \$ 7,000,000 & \$ 200,000 & \$ 4,000,000 \\\hline \text { Fair value of division } & 40,000,000 & 6,000,000 & 20,000,000 \\\hline \text { Book value of division } & 45,000,000 & 6,500,000 & 21,000,000 \\\hline\end{array}$$ What is the amount of goodwill impairment loss for 2020, following U.S. GAAP?

A) $ 6,200,000
B) $11,200,000
C) $ 6,500,000
D) $ 6,000,000

Question 55

A U.S. company reports $11,600 in goodwill and decides to quantitatively test it for impairment at the end of the year. The following information is collected:
$$\begin{array} { | l | r | r | r | } \hline & \text { Division 1 } & \text { Division 2 } & { \text { Division 3 } } \\\hline \text { Book value of goodwill } & \$ 5,000 & \$ 400 & \$ 6,200 \\\hline \text { Fair value of division } & 60,000 & 10,000 & 25,000 \\\hline \text { Book value of division } & 62,000 & 9,500 & 24,000 \\\hline\end{array}$$ What is the amount of goodwill impairment loss for the year, following U.S. GAAP?

A) $ 3,500
B) $ 3,400
C) $ 2,000
D) $ 5,000

Question 56

An IFRS company reports $11,600 in goodwill and tests it for impairment at the end of the year. The following information is collected:
$$\begin{array} { | l | r | r | r | r | r | } \hline & { \text { CGU1 } } & { \text { CGU 2 } } & { \text { CGU 3 } } & { \text { CGU 3 } } & { \text { CGU 4 } } \\\hline \text { Book value of g0odwill } & \$ 5,000 & \$ 300 & \$ 100 & \$ 2,200 & \$ 4,000 \\\hline \text { Fair value of division } & 60,000 & 8,000 & 2,000 & 5,000 & 20,000 \\\hline \text { Book value of division } & 62,000 & 8,500 & 1,000 & 2,000 & 22,000 \\\hline\end{array}$$ What is the amount of goodwill impairment loss for the year, following IFRS?

A) $4,500
B) $4,300
C) $5,500
D) $7,300

Question 57

A merger on January 1, 2021 generates goodwill of $50,000,000, which is properly allocated to three divisions of the organization. At the end of 2021, the following information is available:
$$\begin{array} { | l | r | r | r | } \hline & { \text { Division 1 } } & { \text { Division 2 } } & { \text { Division 3 } } \\\hline \text { January 1, 2021 balance of goodwill } & \$ 30,000,000 & \$ 15,000,000 & \$ 5,000,000 \\\hline \text { Fair value of division } & 65,000,000 & 44,000,000 & 15,000,000 \\\hline \text { Book value of division } & 70,000,000 & 43,000,000 & 17,000,000 \\\hline\end{array}$$ Due to a downturn in the economy in 2021, it is more likely than not that goodwill is impaired in all three divisions. What is the amount of goodwill impairment loss for 2021, following U.S. GAAP?

A) $ 8,000,000
B) $ 5,000,000
C) $ 2,000,000
D) $ 7,000,000

Question 58

Following U.S. GAAP, goodwill acquired in a merger must be allocated to business units before it can be tested for impairment. How are these "business units" defined?

A) The choice of business units is at the discretion of management.
B) The business units are defined geographically.
C) The business units are defined by product line.
D) The business units are the reportable units used for segment reporting.

Question 59

Use the following information to answer Questions bellow.
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

-What is 2020 equity in net income of Safestyle, reported on Potash's books?

A) $1,800,000
B) $ 800,000
C) $1,300,000
D) $ 300,000

Question 60

Use the following information to answer Questions bellow.
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

-What is the December 31, 2020 balance for Investment in Safestyle, reported on Potash's books?

A) $50,000,000
B) $52,000,000
C) $54,800,000
D) $53,300,000

Question 61

Use the following information to answer Questions bellow.
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

-On the December 31, 2020 consolidation working paper, eliminating entry (E) credits the Investment in Safestyle account by:

A) $13,000,000
B) $11,000,000
C) $ 8,000,000
D) $ 9,300,000

Question 62

Use the following information to answer Questions bellow.
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

-On the December 31, 2020 consolidation working paper, eliminating entry (R) credits the Investment in Safestyle account by:

A) $40,000,000
B) $39,000,000
C) $38,500,000
D) $39,500,000

Question 63

Use the following information to answer Questions bellow.
Potash Corporation acquired the voting stock of Safestyle Company on January 1, 2019 for $50 million. Safestyle's book value at the time was $10 million, consisting of $2 million of capital stock and $8 million of retained earnings. The $40 million difference between fair and book value was attributed to goodwill. It is now December 31, 2020, the end of the accounting year and two years after the acquisition. Safestyle's January 1, 2020 retained earnings balance is $11 million, and it reports net income of $1.8 million for 2020. Safestyle declares no dividends and has no other comprehensive income. Goodwill from the acquisition was impaired by $1 million in 2019 and $500,000 in 2020. Potash uses the complete equity method to report its investment in Safestyle on its own books.

-On the December 31, 2020 consolidation working paper, eliminating entry (O) debits goodwill impairment loss by:

A) $ 500,000
B) $38,500,000
C) $ 1,500,000
D) $39,000,000

Question 64

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-What is 2020 equity in net income of Sequoia, reported on Park's books?

A) $1,040,000
B) $ 560,000
C) $1,200,000
D) $1,060,000

Question 65

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-What is the December 31, 2020 balance for Investment in Sequoia, reported on Park's books?

A) $26,060,000
B) $25,860,000
C) $25,910,000
D) $26,000,000

Question 66

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-Eliminating entry (E) credits Investment in Sequoia by:

A) $3,600,000
B) $3,000,000
C) $3,300,000
D) $1,500,000

Question 67

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-Eliminating entry (R) debits goodwill in the amount of:

A) $21,100,000
B) $20,900,000
C) $20,100,000
D) $19,100,000

Question 68

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-How does eliminating entry (O) change consolidated cost of goods sold?

A) $500,000 debit
B) $500,000 credit
C) $100,000 credit
D) No effect

Question 69

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-The balance for acquired identifiable intangibles on the December 31, 2020 consolidated balance sheet is:

A) $4,000,000
B) $5,000,000
C) $4,500,000
D) $1,000,000

Question 70

Use the following information to answer bellow Questions:
Park Corporation acquired the voting stock of Sequoia Company on January 1, 2020 for $25 million in cash and stock. At the date of acquisition, Sequoia's book value totaled $3 million, consisting of $1.6 million in capital stock, $1.8 million in retained earnings, and $400,000 in accumulated other comprehensive losses.
Sequoia's reported net assets at the date of acquisition were carried at amounts approximating fair value, except its inventory was overvalued by $500,000 (sold in 2020), its plant assets (10-year life, straight-line) were overvalued by $3,500,000, and its long-term debt (premium amortized over 10 years, straight-line) is undervalued by $100,000. Sequoia also had previously unreported identifiable intangibles (5-year life, straight-line) valued at $5,000,000.
It is now December 31, 2020. Sequoia reports net income of $1,200,000 and other comprehensive income of $50,000 for 2020 and declares and pays dividends of $200,000. None of the revaluations are impaired in 2020. Park uses the complete equity method to account for its investment.

-Park's beginning balance of accumulated other comprehensive income is $175,000, and it reports $250,000 in other comprehensive income for 2020 on its own books. The balance for accumulated other comprehensive income on the December 31, 2020 consolidated balance sheet is:

A) $425,000
B) $ 25,000
C) $475,000
D) $825,000

Question 71

Identifiable intangible assets with a fair value of $100 million and a 5-year life were recognized in an acquisition occurring on June 30, 2019. The intangible assets were not impaired in fiscal 2020. It is now June 30, 2021, the end of the parent's fiscal year. Impairment testing reveals that total expected undiscounted future cash inflows for the intangible assets are $65, and total expected discounted future cash inflows are $35. What is the impairment loss for the intangible assets for fiscal 2021, following IFRS?

A) $25 million
B) $10 million
C) $15 million
D) None

Question 72

Which statement is true regarding a comparison of the U.S. GAAP versus the IFRS impairment test for identifiable intangibles?

A) Impairment loss for limited life intangibles is generally higher for U.S. GAAP than for IFRS.
B) Impairment loss for indefinite life intangibles is generally the same for IFRS and U.S. GAAP.
C) Impairment loss for limited life intangibles is generally the same for IFRS and U.S. GAAP.
D) Impairment loss for indefinite life intangibles is generally higher for IFRS than for U.S. GAAP.

Question 73

A company uses IFRS and chooses to report certain generic intangible assets at fair value. On January 1, 2019, it acquires software for €100,000, with an estimated life of 4 years, straight-line. On December 31, 2019, the intangible has a fair value of €110,000. How is this change in value reported on the 2019 financial statements?

A) Other comprehensive gain, €10,000
B) Other comprehensive gain, €35,000
C) Gain on the income statement, €35,000
D) Not reported

Question 74

A company follows IFRS and chooses to report certain generic intangible assets at fair value. On January 1, 2020, it acquires software for €300,000. Estimated life is 3 years, straight-line. On December 31, 2020, the intangible has a fair value of €330,000. How is this change in value reported on the 2020 financial statements?

A) Other comprehensive gain, €30,000
B) Gain on the income statement, €30,000
C) Other comprehensive gain, €130,000
D) Gain on the income statement, €130,000

Question 75

A company follows IFRS and chooses to report certain intangible assets at fair value. On January 1, 2019, it acquires software for €500,000. Estimated life is 5 years, straight-line. On December 31, 2019, the intangible has a fair value of €440,000. On December 31, 2020, its fair value is €390,000. How is this information reported on the 2020 financial statements?

A) Amortization expense €130,000; other comprehensive loss €50,000
B) Amortization expense €100,000; other comprehensive gain €80,000
C) Amortization expense €88,000; other comprehensive gain €38,000
D) Amortization expense €110,000; other comprehensive gain €60,000

Question 76

Which of the following is not a possible reason why IFRS companies may report more goodwill impairment losses than U.S. GAAP companies?

A) IFRS users interpret the qualitative "more likely than not" question more conservatively than U.S. GAAP companies, and therefore do the quantitative tests more frequently.
B) The recoverable value of goodwill may be lower than its fair value.
C) Cash generating units may be smaller than reporting units.
D) The qualitative evaluation allows U.S. companies to avoid quantitative goodwill impairment testing.

Question 77

An IFRS company reports $25,000 in goodwill and decides to quantitatively test it for impairment at the end of 2020. The following information is collected:
$$\begin{array} { | l | r | r | r | } \hline & { \text { CGU 1 } } & { \text { CGU 2 } } & { \text { CGU 3 } } \\\hline \text { Book value of goodwill } & \$ 2,000 & \$ 9,000 & \$ 14,000 \\\hline \text { Fair value of CGU } & 10,000 & 25,000 & 55,000 \\\hline \text { Book value of CGU } & 8,500 & 30,000 & 75,000 \\\hline\end{array}$$ Which statement is true, following IFRS?

A) Goodwill impairment is $25,000.
B) Identifiable net assets of CGU 3 are written down by $6,000.
C) Goodwill impairment is $27,500.
D) Identifiable net assets of CGU 1 are written up by $2,500.

Question 78

A division's goodwill is not impaired, per IFRS, if:

A) The fair value of the division is less than the book value of the division.
B) The fair value of the division is more than the book value of the division.
C) The fair value of the identifiable net assets of the division is greater than the book value of its identifiable net assets.
D) The fair value of the identifiable net assets of the division is less than the book value of the division.

Question 79

Which of the following is a reason why goodwill impairment losses calculated using IFRS are expected to be higher than U.S. GAAP goodwill impairment losses?

A) Only the parent's goodwill is reported.
B) IFRS reports higher goodwill.
C) IFRS defines goodwill impairment as the difference between the book value and fair value of goodwill.
D) Cash generating units are smaller than reporting segments.

Question 80

Which statement is true concerning IFRS goodwill impairment reporting?

A) IFRS does not allow qualitative evaluation of goodwill impairment.
B) IFRS does not require goodwill impairment recognition.
C) IFRS allows goodwill impairment to be reported in other comprehensive income.
D) IFRS allows goodwill impairment to adjust fair value reserves in equity.