Acct 610 Exam 1

Front 1

When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as....

Back 1

A deduction from the investment account (AICPA adapted)

Front 2

Which of the following does not indicate an investor company's ability to significantly influence an investee?

Back 2

Material intra-entity transactions

Front 3

Sisk company has owned 10% of Maust, Inc., for the past several years. This ownership did not allow Sisk to have significant influence over Maust. Recently, Sisk acquired an additional 30% of Maust and now will use the equity method. How will the investor report change?

Back 3

A retrospective adjustment is made to restate all prior years presented using the equity method.

Front 4

Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?

Back 4

Changes in the fair value of the investor's ownership shares of the investee

Front 5

When an equity investment account is reduced to a zero balance

Back 5

The investment retains a zero balance until subsequent investee profits elimiate all unrecognized losses.

Front 6

Perez Inc., applies the equity method for it 25% investment in Senior, Inc. During 2015, Pereq sold goods with a 40% gross profit to Senior. Senior sold all of these goods in 2015. How should Perez report the effect of the intra-entity sale on its 2015 income statement.

Back 6

No adjustment is necessary

Front 7

Which of the following does not represent a primary motivation for business combinations?

Back 7

Larger firms being less likely to fail.

What represents: Combinations as a vehicle for achieving rapid growth & competiveness. Cost savings through elimination of duplicate facilities & staff. Quick entry for new & existing products into markets.

Front 8

Which of the following is the best theoretical justification for consolidated financial statements?

Back 8

In form the companies are separate; in substance they are one entity.

Front 9

What is a statutory merger?

Back 9

A business combination in which only one company continues to exist as a legal entity.

Front 10

FASB ASC 805, "Business Combinations" provides principles for allocating the fair value of an acquired business. Wen the collective fair values of the separately indentified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:

Back 10

Recognized as an ordinary gain from a bargain purchase.

Front 11

What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?

Back 11

Capitalize as an asset.

Front 12

An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as

Back 12

An intangible asset under the contractual-legal criterion.

Front 13

When does gain recognition accompany a business combination?

Back 13

When a bargain purchase occurs

Front 14

According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be

Back 14

Recorded as an expense in the period the merger takes place.

Front 15

When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?

Back 15

The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners equity is recognized.

Front 16

An acquired firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary.

Back 16

The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately indentifiable assets acquired and liabilities assumed.

Front 17

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?

Back 17

It is a relatively easy method to apply.

Front 18

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply equity method. Why might the company have made this decision?

Back 18

Operating results appearing on the parent's financial records reflect consolidated totals

Front 19

When should a consolidated entity recognize a goodwill impairment loss

Back 19

IF both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.

Front 20

Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true.

Back 20

A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.

Front 21

If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's assigned value is allocated to expense over which of the following?

Back 21

Indefinitely (no amortization) with an annual impairment review until its life becomes finite.