Acc 401 Midterm

1. Question : The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the

Student Answer:bonus.

goodwill.

implied offering price.

takeover premium.

Points Received: 0 of 8

Comments:

2. Question : The objectives of FASB 141R (Business Combinations) and FASB 160 (NonControlling Interests in Consolidated Financial Statements) are as follows:

Student Answer:to improve the relevance, comparibility, and transparency of

financial information related to business combinations.

to eliminate the amortization of Goodwill.

to facilitate the convergence project of the FASB and the

International Accounting Standards Board.

a and b only


Comments:

3. Question : A potential offering price for a company is computed by adding the estimated goodwill to the

Student Answer:book value of the company’s net assets.

book value of the company’s net identifiable assets.

fair value of the company’s net assets.

fair value of the company’s net identifiable assets.

1474695165 MultipleChoice 12 False

0 1474695165 MultipleChoice 12




Comments:

4. Question : 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

Student Answer:acquisition.

combination.

consolidation.

merger.


Comments:

5. Question : SFAS 141R requires that the acquirer disclose each of the following for each material business combination except the

Student Answer:name and a description of the acquiree.

percentage of voting equity instruments acquired.

fair value of the consideration transferred.

Each of the above is a required disclosure


Comments:

6. Question : If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be

Student Answer:allocated to reduce any previously recorded goodwill and classify

any remainder as an ordinary gain.

allocated to reduce current and long-lived assets.

1474695167 MultipleChoice 15 True






allocated to reduce long-lived assets.

accounted for as goodwill.


Comments:

7. Question : With an acquisition, direct and indirect expenses are

Student Answer:expensed in the period incurred.

capitalized and amortized over a discretionary period.

considered a part of the total cost of the acquired company.

charged to retained earnings when incurred.


Comments:

8. Question : In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures except

Student Answer:a description of the facts and circumstances leading to the

impairment.

the amount of goodwill by reporting segment.

the method of determining the fair value of the reporting unit.

the amounts of any adjustments made to impairment estimates from

earlier periods, if significant.


Comments:

9. Question : When the acquisition price of an acquired firm is less than the fair value of the identifiable net assets, all of the following are recorded at fair value except







Student Answer:Assumed liabilities.

Current assets.

Long-lived assets.

Each of the above is recorded at fair value.


Comments:

10. Question : The Difference between Implied and Book Value account is:

Student Answer:an account necessary for the preparation of consolidated working

papers.

used in allocating the amounts paid for recorded balance sheet

accounts that are different than their fair values.

the excess implied value assigned to goodwill.

the unamortized excess that cannot be assigned to any related

balance sheet accounts


Comments:

11. Question : In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are

Student Answer:expensed as incurred.

deducted from other contributed capital.

included in the investment cost.

deducted from the investment cost.


Comments:






12. Question : Which of the following is a limitation of consolidated financial statements?

Student Answer:Consolidated statements provide no benefit for the stockholders and

creditors of the parent company.

Consolidated statements of highly diversified companies cannot be

compared with industry standards.

Consolidated statements are beneficial only when the consolidated

companies operate within the same industry.

Consolidated statements are beneficial only when the consolidated

companies operate in different industries.


Comments:

13. Question : The main evidence of control for purposes of consolidated financial statements involves

Student Answer:possessing majority ownership

having decision-making ability that is not shared with others.

being the sole shareholder

having the parent company and the subsidiary participating in the

same industry.


Comments:

14. Question : The parent company records its share of a subsidiary’s income by

Student Answer:crediting Investment in S Company under the partial equity method.

crediting Equity in Subsidiary Income under both the cost and partial

equity methods.

debiting Equity in Subsidiary Income under the cost method.






none of these.


Comments:

15. Question : Consolidated net income for a parent company and its partially owned subsidiary is best defined as the parent company’s

Student Answer:recorded net income.

recorded net income plus the subsidiary’s recorded net income.

recorded net income plus the its share of the subsidiary’s recorded

net income.

income from independent operations plus subsidiary’s income

resulting from transactions with outside parties.


Comments:

16. Question : 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 Company’s 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?

Student Answer:$208,000

$260,000

$248,000

$432,000


Comments:







17. Question : In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is

Student Answer:included with parent company income from other sources to

constitute consolidated net income.

assigned as a component of the noncontrolling interest.

allocated proportionately to consolidated net income and the

noncontrolling interest.

eliminated.


Comments:

18. Question : On the consolidated statement of cash flows, the parent’s acquisition of additional shares of the subsidiary’s stock directly from the subsidiary is reported as

Student Answer:an investing activity.

a financing activity.

an operating activity.

none of these.


Comments:

19. Question : Scooter Company, a 70%-owned subsidiary of Pusher Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Scooter's identifiable net assets at the date of the business combination was $45,000. The noncontrolling interest in net income of Scooter for Year 3 was

Student Answer:$58,500.

$13,500.

$27,000.





$72,000.


Comments:

20. Question : On January 1, 2010, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be reported at


$177,143.

$80,000.

$0.


Comments:

21. Question : Long-term debt and other obligations of an acquired company should be valued for consolidation purposes at their

Student Answer:book value.

carrying value.

fair value.

face value.


Comments:

22. Question : In a business combination accounted for as an acquisition, how should the excess of fair value of identifiable net assets acquired over implied value be treated?







Student Answer:Amortized as a credit to income over a period not to exceed forty

years.

Amortized as a charge to expense over a period not to exceed forty

years.

Amortized directly to retained earnings over a period not to exceed

forty years.

Recognized as an ordinary gain in the year of acquisition.


Comments:

23. Question : Failure to eliminate intercompany sales would result in an overstatement of consolidated

Student Answer:net income.

gross profit.

cost of sales.

all of these.


Comments:

24. Question : The material sale of inventory items by a parent company to an affiliated company:

Student Answer:enters the consolidated revenue computation only if the transfer was

the result of arm’s length bargaining.

affects consolidated net income under a periodic inventory system

but not under a perpetual inventory system.

does not result in consolidated income until the merchandise is sold

to outside parties.

does not require a working paper adjustment if the merchandise was

transferred at cost.






Comments:

25. Question : The noncontrolling interest’s share of the selling affiliate’s profit on intercompany sales is considered to be realized under

Student Answer:partial elimination.

total elimination.

100% elimination.

both total and 100% elimination.


Comments:

26. Question : 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 subsidiary’s reported net income

Student Answer:plus unrealized profit in ending inventory less unrealized profit in

beginning inventory.

plus realized profit in ending inventory less realized profit in


less unrealized profit in ending inventory plus realized profit in


less realized profit in ending inventory plus realized profit in



Comments:

27. Question : P Company purchased land from its 80% owned subsidiary at a cost of $100,000 greater than it subsidiary’s book value. Two years later P sold the land to an outside entity for $50,000 more than it’s cost. In its current year consolidated income statement P and its subsidiary should report a







gain on the sale of land of:


$120,000.

$130,000.

$150,000.


Comments:

28. Question : P Corporation acquired an 80% interest in S Corporation two years ago at an implied value equal to the book value of S. On January 2, 2011, S sold equipment with a five-year remaining life to P for a gain of $180,000. S reports net income of $900,000 for 2011 and pays dividends of $300,000. P’s Equity from Subsidiary Income for 2011 is:


$576,000.

$604,800.

$864,000


Comments:

29. Question : 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 equipment’s book value but less than its original cost. The equipment should be reported on the December 31, 2011 consolidated balance sheet at

Student Answer:Pinick’s original cost less 90% of Shell’s recorded gain.

Pinick’s original cost less Shell’s recorded gain.

Shell’s original cost.

Pinick’s original cost.






Comments:

30. Question : Gain or loss resulting from an intercompany sale of equipment between a parent and a subsidiary is

Student Answer:recognized in the consolidated statements in the year of the sale.

considered to be realized over the remaining useful life of the

equipment as an adjustment to depreciation in the consolidated statements.

considered to be unrealized in the consolidated statements until the

equipment is sold to a third party.

amortized over a period not less than 2 years and not greater than

40 years.


Comments:

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Acc 401 Midterm