Deck 16: Accounting for Multiple Entities

Question 1

The acquisition method of accounting for a business combination is consistent with
A)Entity theory.

A)Residual interest theory.
B)Proprietary theory.
C)Parent company theory.

Answer 1

A

Question 2

On October 1,Company X acquired for cash all of the outstanding common stock of Company Y.Both companies have a December 31 year end and have been in business for many years.Consolidated net income for the year ended December 31 should include net income of

A)Company X for3 months and Company Y for 3 months
B)Company X for 12 months and Company Y for 3 months
C)Company X for 12 months and Company Y for 12 months
D)Company X for 12 months,but no income from Company Y until Company Y distributed a dividend

Answer 2

B

Question 3

Under the acquisition method for a business combination,the cost incurred to effect the business combination,such as finders and legal fees are

A)Considered part of the historical cost of the business.
B)Expensed as incurred.
C)Allocated,along with the purchase price of the acquired company's stock to the assets of the acquiree company.
D)Deferred until a full accounting of all costs to acquire the acquire company are known.

Answer 3

B

Question 4

Under the acquisition method of accounting for a business combination,restructuring costs are

A)Capitalized and amortized over a period not exceeding ten years.
B)Fees paid to lawyers and accountants to bring about the business combination .
C)Costs incurred to effect the business combination.
D)Treated as post acquisition expenses.

Question 5

Goodwill represents the excess of the cost of an acquired company over the

A)Sum of the fair values assigned to identifiable assets acquired less liabilities assumed
B)Sum of the fair values assigned to tangible assets acquired less liabilities assumed
C)Sum of the fair values assigned to intangible assets acquired less liabilities assumed
D)Book value of an acquired company

Question 6

Under the acquisition method of accounting for a business combination,a bargain purchase is

A)Reported as goodwill in the balance sheet.
B)Tested annually for impairment.
C)Reported as a gain in the income statement.
D)Reported as an adjustment to other comprehensive income.

Question 7

Arkin,Inc.,owns 90 percent of the outstanding stock of Baldwin Company.Curtis,Inc.,owns 10 percent of the outstanding stock of Baldwin Company.On the consolidated financial statements of Arkin,Curtis should be considered as

A)A holding company
B)A subsidiary not to be consolidated
C)An affiliate
D)A noncontrolling interest

Question 8

Under the acquisition method of accounting for a business combination,goodwill is equal to

A)The acquired company's ability to generate excess profits .
B)The excess of the cost of the acquisition plus the fair value of the noncontrolling interest over the fair value of the acquiree's net assets.
C)The excess of the cost of the acquisition over the fair value of the acquiree's net assets.
D)The excess of the fair value of acquiree's net assets over the cost of acquisition.

Question 9

Under which of the theories of equity is a manager's goals considered as important as those of the common stockholder.

A)Proprietary theory.
B)Commander theory.
C)Entity theory.
D)Enterprise theory.

Question 10

For a business combination,we measure all assets and liabilities of an acquired company at fair value.Fair value

A)Is an exit value.
B)Is an entry value.
C)Is an appraisal value.
D)Can be either an exit value or an entry value depending on the circumstances.

Question 11

Which of the following is not a consideration in segment reporting for diversified enterprises?

A)Allocation of joint costs
B)Transfer pricing
C)Defining the segments
D)Consolidation policy

Question 12

A subsidiary's functional currency is the local currency that has not experienced significant inflation.The appropriate exchange rate for translating the depreciation on plant assets in the income statement of the foreign subsidiary is the

A)Exit exchange rate
B)Historical exchange rate
C)Weighted average exchange rate over the economic life of each plant asset
D)Weighted average exchange rate for the current year

Question 13

Under the acquisition method of accounting for a business combination when the parent company has acquired only 90% of the voting stock of a subsidiary,

A)10% of the goodwill will be reported in a separate section of the balance sheet because it belongs to the noncontrolling interest .
B)The consolidated balance sheet will report 100% of the value of goodwill.
C)The consolidated balance sheet will report 90% of the value of goodwill.
D)Goodwill will be amortized over its useful life or 40 years whichever comes first.

Question 14

Consolidated statements are proper for Neely,Inc.,Randle,Inc.,and Walker,Inc.,if

A)Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Randle owns 30 percent of Walker.
B)Neely owns 100 percent of the outstanding common stock of Randle and 90 percent of Walker; Neely bought the stock of Walker one month before the balance sheet date and sold it seven weeks later.
C)Neely owns 100 percent of the outstanding common stock of Randle and Walker; Walker is in legal reorganization.
D)Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Reeves,Inc.,owns 55 percent of Walker.

Question 15

The theoretically preferred method of presenting noncontrolling interest on a consolidated balance sheet is

A)As a separate item with the deferred credits section
B)As a reduction from contra to)goodwill from consolidation,if any
C)By means of notes or footnotes to the balance sheet
D)As a separate item within the stockholders' equity section

Question 16

Meredith Company and Kyle Company were combined in an acquisition transaction.Meredith was able to acquire Kyle at a bargain price.The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Meredith.After revaluing noncurrent assets to zero there was still some of the bargain purchase amount remaining formerly termed negative goodwill).Proper accounting treatment by Meredith is to report the amount as

A)An extraordinary item
B)Part of current income in the year of combination
C)A deferred credit and amortize it
D)Paid-in capital

Question 17

Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?

A)Historic cost
B)Book value
C)Cost plus any excess of purchase price over book value of asset acquired
D)Fair value

Question 18

In a business combination that is accounted for under the acquisition method the entity that obtains control over one or more businesses and establishes the acquisition date that control was achieved is called the

A)Controller.
B)Acquirer.
C)Proprietor.
D)Controlling interest.

Question 19

A sale of goods,denominated in a currency other than the entity's functional currency,resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received.Exchange rates between the functional currency and the currency in which the transaction was denominated changed.The resulting gain should be include as a an)

A)Other comprehensive income
B)Deferred credit
C)Component of income from continuing operations
D)Extraordinary item

Question 20

The noncontrolling interest in a subsidiary is reported in the consolidated balance sheet

A)As an investment.
B)As a liability.
C)At fair value,as determined on the acquisition date.
D)As an element of stockholders' equity.

Question 21

Define noncontrolling interest.Historically,how has noncontrolling interest been disclosed on corporate balance sheets

Question 22

How does SFAS No.52 FASB ASC 830)define functional currency?

Question 23

List and explain three reasons why businesses combine.

Question 24

How are operating segments defined by SFAS No.131 FASB ASC 280-10-50-1)?

Question 25

How is the recorded cost determined in an acquisition business combination?