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QUESTIONS

True or False Chapter 4


For each of the following statements, circle the T or the F to indicate whether the statement is true or
false.
T F 1. In a centralized accounting system for branches, the branch accounting records are
maintained by the home office. (T)
T F 2. Both the Home Office ledger account and the Investment in Branch account are displayed
in the combined financial statements for the home office and the branch. (F)
T F 3. The combined net income for the home office and branches would be the same when the
home office bills merchandise to branches at home office cost as when the home office bills
branches at amounts above home office cost. (T)
T F 4. In most cases, a branch is operated more as a cost center than as a profit center. (F)
T F 5. A branch imprest cash fund is displayed under the heading Investments in the combined
balance sheet of the home office and the branch. (F)
T F 6. The Investment in Branch ledger account is displayed as a noncurrent asset in the
separate balance sheet of the home office, and the Home Office account is displayed as a long-term
liability in the separate balance sheet of the branch. (F)
T F 7. The fiscal year for the home office must coincide with the fiscal year for the branch to
facilitate the preparation of combined financial statements. (T)
T F 8. A net loss reported by a branch is recorded by the home office by a debit to the
Investment in Branch ledger account. (F)
T F 9. If branch trade accounts receivable are carried in the home office accounting records,
doubtful accounts expense of the branch is recorded by the home office by a debit to Branch Loss
and a credit to Investment in Branch. (F)
T F 10. If merchandise is billed to a branch at a price above home office cost, the net income
reported to the home office by the branch is overstated. (F)
T F 11. Separate financial statements for an enterprises home office and branches generally are
prepared for use by creditors and government agencies. (F)
T F 12. In a working paper for combined financial statements of a home office and branches, the
balance of the Shipments to Branch ledger account is eliminated against the balance of the Home
Office account. (F)
T F 13. In a separate balance sheet for a home office, the balance of the Allowance for
Overvaluation of Inventories: Branch ledger account is deducted from the balance of the Investment
in Branch ledger account. (T)
T F 14. The beginning inventories of a branch are reduced to home office cost in the working
paper for combined financial statements by a debit to Allowance for Overvaluation of Inventories:
Branch and a credit to beginning inventories when the periodic inventory system is used. (T)
T F 15. The perpetual inventory system is impractical for a home office with many branches. (F)

T F 16. If a remittance of cash by a branch has not been recorded by the home office, the balance
of the branchs Home Office ledger account exceeds the balance of the home offices Investment in
Branch account. (F)
T F 17. Freight costs on merchandise shipments from Cody Branch to Dana Branch in excess of
normal freight costs from the home office to Dana Branch should be recognized as operating
expenses of Dana Branch. (F)
T F 18. If a new branch is expected to be profitable starting with the second year of operations, a
loss incurred by the new branch in the first year should be deferred and recognized as expense over a
period of three to five years. (F)
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QUESTIONS
True or False Chapter 5
For each of the following statements, circle the T or the F to indicate whether the statement is true or false.
T F

1. Business combinations provide a method for achieving rapid growth in assets and sales. (T)

T F

2. In a statutory merger, a new corporation is formed to issue its common stock for the common
stock of two or more existing corporations, which then are liquidated. (F)

T F

3. A combinee is a corporation that acquires all or part of the common stock of another corporation.
(F)

T F

4. The exchange ratio expresses the relationship of the number of shares of the combinors
common stock exchanged for outstanding common stock of the combinee. (T)

T F

5. Purchase accounting must be used for all business combinations.(T)

T F

6. Goodwill in a business combination is valued at an amount representing the capitalized value of


the average excess earnings of the combinee. (F)

T F

7. Legal fees incurred for the SEC registration statement covering shares of common stock issued in
a business combination are included in cost of the combinee. (F)

T F

8. Goodwill recognized in a business combination is entered in the accounting records of the


combinee. (F)

T F

9. Out-of-pocket costs of a business combination are recognized as expenses. (F)