ACCT4110 Exam1

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Question 1 3
/ 3 points

A business combination in which the acquired company’s
assets and liabilities are combined with those of the acquiring company into a
single entity is defined as:

a) Stock acquisition

b) Leveraged buyout

c) Statutory Merger

d) Reverse statutory rollup

Question 2 3
/ 3 points

In which of the following situations do accounting standards
not require that the financial statements of the parent and subsidiary be
consolidated:

a) A corporation creates a new 100
percent owned subsidiary

b) A corporation purchases 90 percent of
the voting stock of another company

c) A corporation has both control and
majority ownership of an unincorporated company

d) A corporation owns less-than a
controlling interest in an unincorporated company

Question 3 3
/ 3 points

Which of the following situations best describes a business
combination to be accounted for as a statutory merger?

a) Both companies in a combination
continue to operate as separate, but related, legal entities.

b) Only one of the combining companies
survives and the other loses its separate identity.

c) Two companies combine to form a new
third company, and the original two companies are dissolved.

d) One company transfers assets to
another company it has created.

Question 4 3
/ 3 points

A statutory consolidation is a type of business combination
in which:

a) one of the combining companies
survives and the other loses its separate identity.

b) one company acquires the voting
shares of the other company and the two companies continue to operate as
separate legal entities.

c) two publicly traded companies agree to
share a board of directors.

d) each of the combining companies is
dissolved and the net assets of both companies are transferred to a newly
created corporation.

Question 5 3
/ 3 points

Rivendell Corporation and Foster Company merged as of
January 1, 20X9. To effect the merger, Rivendell paid finder’s fees of $40,000,
legal fees of $13,000, audit fees related to the stock issuance of $10,000,
stock registration fees of $5,000, and stock listing application fees of
$4,000.

Based on the preceding information, under the acquisition
method, what amount relating to the business combination would be expensed?

a) $72,000

b) $19,000

c) $53,000

d) $63,000

Question 6 3
/ 3 points

Rivendell Corporation and Foster Company merged as of
January 1, 20X9. To effect the merger, Rivendell paid finder’s fees of $40,000,
legal fees of $13,000, audit fees related to the stock issuance of $10,000,
stock registration fees of $5,000, and stock listing application fees of
$4,000.

Based on the preceding information, under the acquisition
method:

a) $72,000 of stock issue costs are
treated as goodwill.

b) $19,000 of stock issue costs are
treated as a reduction in the issue price.

c) $19,000 of stock issue costs are
expensed.

d) $72,000 of stock issue costs are
expensed.

Question 7 3
/ 3 points

Burrough Corporation paid $80,000 to acquire all of Helyar
Company’s net assets. Helyar reported assets with a book value of $60,000 and
fair value of $98,000 and liabilities with a book value and fair value of
$23,000 on the date of combination. Burrough also paid $3,000 to a search firm
for finder’s fees related to the acquisition. What amount will be recorded as goodwill
by Burrough Corporation while recording its investment in Helyar?

a) $0

b) $5,000

c) $8,000

d) $13,000

Question 8 3
/ 3 points

Which of the following observations is (are) consistent with
the acquisition method of accounting for business combinations?

I. Expenses related to the business combination are
expensed.

II. Stock issue costs are treated as a reduction in the
issue price.

III. All merger and stock issue costs are expensed.

IV. No goodwill is ever recorded.

a) III

b) IV

c) I and II

d) I, II, and IV

Question 9 3
/ 3 points

Which of the following observations refers to the term
differential?

a) Excess of consideration exchanged
over fair value of net identifiable assets.

b) Excess of fair value over book value
of net identifiable assets.

c) Excess of consideration exchanged over
book value of net identifiable assets.

d) Excess of fair value over historical
cost of net identifiable assets.

Question 10 3
/ 3 points

Which of the following observations concerning
“goodwill” is NOT correct?

a) Once written down, it may be written
up for recoveries.

b) It must be tested for impairment at
least annually.

c) Goodwill impairment losses are
recognized in income from continuing operations or income before extraordinary
gains and losses.

d) It must be reported as a separate line
item in the balance sheet.

Question 11 3
/ 3 points

If Push Company owned 51 percent of the outstanding common
stock of Shove Company, which reporting method would be appropriate?

a) Cost method

b) Consolidation

c) Equity method

d) Merger method

Question 12 3
/ 3 points

Usually, an investment of 20 to 50 percent in another
company’s voting stock is reported under the:

a) cost method

b) equity method

c) full consolidation method

d) fair value method

Question 13 3
/ 3 points

From an investor’s point of view, a liquidating dividend
from an investee is:

a) a dividend declared by the investee
in excess of its earnings in the current year

b) a dividend declared by the investee
in excess of its earnings since acquisition by the investor

c) any dividend declared by the investee
since acquisition

d) a dividend declared by the investee in
excess of the investee’s retained earnings

Question 14 3
/ 3 points

Under the equity method of accounting for a stock
investment, the investment initially should be recorded at:

a) cost

b) cost minus any differential

c) proportionate share of the fair value
of the investee company’s net assets

d) proportionate share of the book value
of the investee company’s net assets

Question 15 3
/ 3 points

What portion of the subsidiary stockholders’ equity account
balances should be eliminated in preparing the consolidated balance sheet?

a) Common stock

b) Additional paid-in capital

c) Retained Earnings

d) All of the balances are eliminated

Question 16 3
/ 3 points

The consolidation process consists of all the following
except:

a) combining the financial statements of
two or more legally separate companies

b) eliminating intercompany transactions
and holdings

c) closing the individual subsidiary’s
revenue and expense accounts into the parent’s retained earnings

d) combining the accounts of separate
companies, creating a single set of financial statements

Question 17 3
/ 3 points

In which of the following cases would consolidation be
inappropriate?

a) The subsidiary is in bankruptcy.

b) Subsidiary’s operations are
dissimilar from those of the parent.

c) The parent owns 90 percent of the
subsidiary’s common stock, but all of the subsidiary’s nonvoting preferred
stock is held by a single investor.

d) Subsidiary is foreign.

Question 18 3
/ 3 points

On January 1, 20X8, Zeta Company acquired 85 percent of
Theta Company’s common stock for $100,000 cash. The fair value of the
noncontrolling interest was determined to be 15 percent of the book value of
Theta at that date. What portion of the retained earnings reported in the
consolidated balance sheet prepared immediately after the business combination
is assigned to the noncontrolling interest?

a) None

b) 15 percent

c) 100 percent

d) Cannot be determined

Question 19 3
/ 3 points

On January 3, 20X9, Redding Company acquired 80 percent of
Frazer Corporation’s common stock for $344,000 in cash. At the acquisition
date, the book values and fair values of Frazer’s assets and liabilities were
equal, and the fair value of the noncontrolling interest was equal to 20
percent of the total book value of Frazer. The stockholders’ equity accounts of
the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in
Redding’s consolidated income statement for 20X9.

Based on the preceding information, what amount will be
assigned to the noncontrolling interest on January 3, 20X9, in the consolidated
balance sheet?

a) $86,000

b) $44,000

c) $68,800

d) $50,000

Question 20 0
/ 3 points

On January 3, 20X9, Redding Company acquired 80 percent of
Frazer Corporation’s common stock for $344,000 in cash. At the acquisition
date, the book values and fair values of Frazer’s assets and liabilities were
equal, and the fair value of the noncontrolling interest was equal to 20
percent of the total book value of Frazer. The stockholders’ equity accounts of
the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in
Redding’s consolidated income statement for 20X9.

Based on the preceding information, what is the total
stockholders’ equity in the consolidated balance sheet as of January 3, 20X9?

a) $1,580,000

b) $1,064,000

c) $1,150,000

d) $1,236,000

Question 21 3
/ 3 points

On January 3, 20X9, Redding Company acquired 80 percent of
Frazer Corporation’s common stock for $344,000 in cash. At the acquisition
date, the book values and fair values of Frazer’s assets and liabilities were
equal, and the fair value of the noncontrolling interest was equal to 20
percent of the total book value of Frazer. The stockholders’ equity accounts of
the two companies at the acquisition date are:

Noncontrolling interest was assigned income of $11,000 in
Redding’s consolidated income statement for 20X9.

Based on the preceding information, what will be the amount
of net income reported by Frazer Corporation in 20X9?

a) $44,000

b) $55,000

c) $66,000

d) $36,000

Question 22 3
/ 3 points

On January 3, 20X9, Jane Company acquired 75 percent of
Miller Company’s outstanding common stock for cash. The fair value of the
noncontrolling interest was equal to a proportionate share of the book value of
Miller Company’s net assets at the date of acquisition. Selected balance sheet
data at December 31, 20X9, are as follows:

Based on the preceding information, what amount should be
reported as noncontrolling interest in net assets in Jane Company’s December
31, 20X9, consolidated balance sheet?

a) $90,000

b) $54,000

c) $36,000

d) $0

Question 23 3
/ 3 points

On January 3, 20X9, Jane Company acquired 75 percent of
Miller Company’s outstanding common stock for cash. The fair value of the
noncontrolling interest was equal to a proportionate share of the book value of
Miller Company’s net assets at the date of acquisition. Selected balance sheet
data at December 31, 20X9, are as follows:

Based on the preceding information, what amount will Jane
Company report as common stock outstanding in its consolidated balance sheet at
December 31, 20X9?

a) $120,000

b) $180,000

c) $156,000

d) $264,000

Question 24 3
/ 3 points

Under ASC 805, consolidation follows largely which theory
approach?

a) Proprietary

b) Parent company

c) Entity

d) Variable

Question 25 3
/ 3 points

On January 1, 20X9, Heathcliff Corporation acquired 80
percent of Garfield Corporation’s voting common stock. Garfield’s buildings and
equipment had a book value of $300,000 and a fair value of $350,000 at the time
of acquisition.

Based on the preceding information, what will be the amount
at which Garfield’s buildings and equipment will be reported in consolidated
statements using the current accounting practice?

a) $350,000

b) $340,000

c) $280,000

d) $300,000

Question 26 3
/ 3 points

On January 1, 20X9, Gold Rush Company acquires 80 percent
ownership in California Corporation for $200,000. The fair value of the
noncontrolling interest at that time is determined to be $50,000. It reports
net assets with a book value of $200,000 and fair value of $230,000. Gold Rush
Company reports net assets with a book value of $600,000 and a fair value of
$650,000 at that time, excluding its investment in California. What will be the
amount of goodwill that would be reported immediately after the combination
under current accounting practice?

a) $50,000

b) $30,000

c) $40,000

d) $20,000

Question 27 3
/ 3 points

On July 1, 20X9, Link Corporation paid $340,000 for all of
Tinsel Company’s outstanding common stock. On that date, the costs and fair
values of Tinsel’s recorded assets and liabilities were as follows:

Based on the preceding information, the differential
reflected in a consolidation worksheet to prepare a consolidated balance sheet
immediately after the business combination is:

a) $0.

b) $25,000.

c) $70,000.

d) $45,000.

Question 28 3
/ 3 points

On July 1, 20X9, Link Corporation paid $340,000 for all of
Tinsel Company’s outstanding common stock. On that date, the costs and fair
values of Tinsel’s recorded assets and liabilities were as follows:

Based on the preceding information, what amount should be
allocated to goodwill in the consolidated balance sheet, prepared after this
business combination?

a) $0

b) $25,000

c) $70,000

d) $45,000

Question 29 3
/ 3 points

Enya Corporation acquired 100 percent of Celtic
Corporation’s common stock on January 1, 20X9.Summarized balance sheet
information for the two companies immediately after the combination is
provided:

Based on the preceding information, the amount of differential
associated with the acquisition is:

a) $0.

b) $58,000.

c) $22,000.

d) $36,000.

Question 30 3
/ 3 points

Enya Corporation acquired 100 percent of Celtic
Corporation’s common stock on January 1, 20X9.Summarized balance sheet
information for the two companies immediately after the combination is
provided:

Based on the information provided, the consolidated balance
sheet of Enya and Celtic will reflect goodwill in the amount of:

a) $0.

b) $58,000.

c) $22,000.

d) $36,000.

Question 31 3
/ 3 points

Tanner Company, a subsidiary acquired for cash, owned equipment
with a fair value higher than the book value as of the date of combination. A
consolidated balance sheet prepared immediately after the acquisition would
include this difference in:

a) goodwill.

b) retained earnings.

c) deferred charges.

d) equipment.

Question 32 0
/ 3 points

When a parent company uses the equity method to account for
investments, the controlling interest in consolidated net income includes all
of the following except:

a) The parent’s income from its own
operations.

b) The parent company’s share of income
from consolidated subsidiaries.

c) The non-controlling interest’s share
of income from consolidated subsidiaries.

d) Differential adjustments.

Question 33 3
/ 3 points

Company X acquires 100 percent of the voting shares of
Company Y for $275,000 on December 31, 20X8.The fair value of the net assets of
Company X at the date of acquisition was $300,000. This is an example of a(n):

a) positive differential.

b) bargain purchase.

c) extraordinary loss.

d) revaluation adjustment.

Question 34 3
/ 3 points

Which of the following observations is NOT consistent with
the use of push-down accounting?

a) The revaluation capital account is
part of the subsidiary’s stockholders’ equity.

b) No differential arises in the
consolidation process.

c) Revaluation Capital account is
eliminated in preparing consolidated statements.

d) Eliminating entries related to the
differential are needed in the worksheets.

Question 35 3
/ 3 points

Which of the following is true? When companies employ
push-down accounting:

a) the subsidiary revalues assets and
liabilities to their fair values as of the acquisition date.

b) a special account called Revaluation
Capital will appear in the consolidated balance sheet.

c) all consolidation elimination entries
are made on the books of the subsidiary rather than in consolidated worksheets.

d) the subsidiary is not substantially
wholly owned by the parent.

Question 36 15
/ 15 points

On January 1, 20X8, Alaska Corporation acquired Mercantile
Corporation’s net assets by paying $160,000 cash. Balance sheet data for the
two companies and fair value information for Mercantile Corporation immediately
before the business combination are given below:

Required:

Prepare the journal entry to record the acquisition of
Mercantile Corporation.

Question 37 10
/ 10 points

In reading a set of consolidated financial statements you
are surprised to see the term noncontrolling interest not reported under the
Liability section of the Balance Sheet.

Required:

a. What is a non-controlling interest?

b. Why must it be reported in the financial statements as an
element of equity rather than a liability?

Question 38 20
/ 20 points

Parent Company acquired 90% of Son Inc. on January 31, 20X2
in exchange for cash. The book value of Son’s individual assets and liabilities
approximated their acquisition-date fair values. On the date of acquisition,
Son reported the following:

During the year Son Inc. reported $310,000 in net income and
declared $15,000 in dividends. Parent Company reported $520,000 in net income
and declared $25,000 in dividends. Parent accounts for their investment using
the equity method.

Required:

1. What journal entry will Parent make on the date of
acquisition to record the investment in Son Inc.?

2. If Parent were to prepare a consolidated balance sheet on
the acquisition date (January 31, 20X2), what is the basic elimination entry
Parent would use in the consolidation worksheet?

3. What is Parent’s balance in “Investment in Son
Inc.” prior to consolidation on December 31, 20X2?

4. What is the basic elimination entry Parent would use in
the consolidation worksheet on December 31, 20X2?

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