Advance Accounting I MIDTERM

Question 1
8 out of 8 points
The Difference between Implied and Book Value account is:

Answer Selected Answer: Correct Answer:

used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values. used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values.

Question 2
8 out of 8 points
On the consolidated balance sheet, consolidated stockholders' equity is

Answer Selected Answer:

equal to the parent's stockholders' equity.

Correct Answer:
equal to the parent's stockholders' equity.

Question 3
8 out of 8 points
What is the method of presentation required by SFAS 160 of non-controlling interest on a consolidated balance sheet?

Answer Selected Answer:

As a part of stockholders' equity.

Correct Answer:
As a part of stockholders' equity.

Question 4
0 out of 8 points
One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is

Answer Selected Answer:

an overvaluation of the subsidiary's liabilities.

Correct Answer:
none of these.

Question 5
0 out of 8 points
Majority-owned subsidiaries should be excluded from the consolidated statements when

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control does not rest with the majority owner.

Correct Answer:
any of these circumstances exist.

Question 6
8 out of 8 points
Under the partial equity method, the entry to eliminate subsidiary income and dividends includes a debit to

Answer Selected Answer:

Equity in Subsidiary Income.

Correct Answer:
Equity in Subsidiary Income.

Question 7
8 out of 8 points
Under the cost method, the workpaper entry to establish reciprocity

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credits Retained Earnings - P Company.

Correct Answer:
credits Retained Earnings - P Company.

Question 8
8 out of 8 points
P Company purchased 80% of the outstanding common stock of S Company on May 1, 2011, for a cash payment of $1,272,000. S Companys December 31, 2010 balance sheet reported common stock of $800,000 and retained earnings of $540,000. During the calendar year 2011, S Company earned $840,000 evenly throughout the year and declared a dividend of $300,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2011?

Answer Selected Answer:

$208,000

Correct Answer:
$208,000

Question 9
0 out of 8 points
Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent companys

Answer Selected Answer: Correct Answer:

income from independent operations plus subsidiarys income resulting from transactions with outside parties. recorded net income plus the its share of the subsidiarys recorded net income.

Question 10
0 out of 8 points

Under the cost method, the investment account is reduced when

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the subsidiary incurs a net loss.

Correct Answer:
there is a liquidating dividend.

Question 11
8 out of 8 points
The noncontrolling interests share of the selling affiliates profit on intercompany sales is considered to be realized under

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partial elimination.

Correct Answer:
partial elimination.

Question 12
0 out of 8 points
The noncontrolling interest in consolidated income when the selling affiliate is an 80% owned subsidiary is calculated by multiplying the noncontrolling minority ownership percentage by the subsidiarys reported net income

Answer Selected Answer:

plus realized profit in ending inventory less realized profit in beginning inventory.

Correct Answer:
less unrealized profit in ending inventory plus realized profit in beginning inventory.

Question 13
0 out of 8 points
Perez Company acquired an 80% interest in Seaman Company in 2010. In 2011 and 2012, Sutton reported net income of $400,000 and $480,000, respectively. During 2011, Seaman sold $80,000 of merchandise to Perez for a $20,000 profit. Perez sold the merchandise to outsiders during 2012 for $140,000. For consolidation purposes, what is the noncontrolling interests share of Seaman's 2011 and 2012 net income?

Answer Selected Answer:

$90,000 and $96,000.

Correct Answer:
$76,000 and $100,000.

Question 14
8 out of 8 points
Sales from one subsidiary to another are called

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horizontal sales.

Correct Answer:
horizontal sales.

Question 15
0 out of 8 points
Failure to eliminate intercompany sales would result in an overstatement of consolidated

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net income.

Correct Answer:
cost of sales.

Question 16
8 out of 8 points
In January 2008, S Company, an 80% owned subsidiary of P Company, sold equipment to P Company for $1,980,000. S Companys original cost for this equipment was $2,000,000 and had accumulated depreciation of $200,000. P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method. This equipment was sold to a third party on January 1, 2011 for $1,440,000. What amount of gain should P Company record on its books in 2011?

Answer Selected Answer:

$120,000.

Correct Answer:
$120,000.

Question 17
0 out of 8 points
P Company purchased land from its 80% owned subsidiary at a cost of $100,000 greater than it subsidiarys book value. Two years later P sold the land to an outside entity for $50,000 more than its cost. In its current year consolidated income statement P and its subsidiary should report a gain on the sale of land of:

Answer Selected Answer:

$50,000.

Correct Answer:
$150,000.

Question 18
0 out of 8 points
In years subsequent to the year a 90% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is computed by multiplying the noncontrolling interest percentage by the subsidiarys reported net income

Answer Selected Answer:

minus the net amount of unrealized gain on the intercompany sale.

Correct Answer:
plus intercompany gain considered realized in the current period.

Question 19
0 out of 8 points
In the year an 80% owned subsidiary sells equipment to its parent company at a gain, the noncontrolling interest in consolidated income is calculated by multiplying the noncontrolling interest percentage by the subsidiarys reported net income

Answer Selected Answer:

plus the net amount of unrealized gain on the intercompany sale.

Correct Answer:
minus the net amount of unrealized gain on the intercompany sale.

Question 20
0 out of 8 points

Pinick Corp. owns 90% of the outstanding common stock of Shell Company. On December 31, 2011, Shell sold equipment to Pinick for an amount greater than the equipments book value but less than its original cost. The equipment should be reported on the December 31, 2011 consolidated balance sheet at

Answer Selected Answer:

Pinicks original cost less 90% of Shells recorded gain.

Correct Answer:
Pinicks original cost less Shells recorded gain.

Question 21
8 out of 8 points
When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities, the result is a statutory

Answer Selected Answer:

consolidation.

Correct Answer:
consolidation.

Question 22
8 out of 8 points
A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition?

Answer Selected Answer:

All of the above

Correct Answer:
All of the above

Question 23
0 out of 8 points
The objectives of FASB 141R (Business Combinations) and FASB 160 (NonControlling Interests in Consolidated Financial Statements) are as follows:

Answer Selected Answer: Correct Answer:

a and b only to improve the relevance, comparibility, and transparency of financial information related to business combinations.

Question 24
8 out of 8 points
The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called

Answer Selected Answer:

greenmail.

Correct Answer:
greenmail.

Question 25
8 out of 8 points
The third period of business combinations started after World War II and is called

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merger mania.

Correct Answer:
merger mania.

Question 26
8 out of 8 points
SFAS 141R requires that all business combinations be accounted for using

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the acquisition method.

Correct Answer:
the acquisition method.

Question 27
8 out of 8 points
If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be

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accounted for as goodwill.

Correct Answer:
accounted for as goodwill.

Question 28
8 out of 8 points
Once a reporting unit is determined to have a fair value below its carrying value, the goodwill impairment loss is computed by comparing the

Answer Selected Answer:

carrying value of the goodwill to its implied fair value.

Correct Answer:
carrying value of the goodwill to its implied fair value.

Question 29
8 out of 8 points
In a business combination in which the total fair value of the identifiable assets acquired over liabilities assumed is greater than the consideration paid, the excess fair value is:

Answer Selected Answer: Correct Answer:

allocated first to eliminate any previously recorded goodwill, and any remaining excess over the consideration paid is classified as an ordinary gain.

allocated first to eliminate any previously recorded goodwill, and any remaining excess over the

consideration paid is classified as an ordinary gain.

Question 30
8 out of 8 points
The fair value of net identifiable assets exclusive of goodwill of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, including $60,000 goodwill. If the fair value of the reporting unit is $335,000, what amount of goodwill impairment will be recognized for this unit?

Answer Selected Answer:

$25,000

Correct Answer:
$25,000