Question 1

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

Accepted Answer

When a company acquires another at a bargain price, and the sum of the fair values of the identifiable assets acquired less the fair value of liabilities assumed exceeds the acquisition cost, the excess (formerly known as negative goodwill) should be recognized in current income in the year of the combination.

Question 2

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.

Accepted Answer

C

Question 3

In financial reporting for segments of a business enterprise,the operating profit or loss of a segment should include Reasonably allocated
Common Traceable
Operating costs operating costs
A)No No
B)No Yes
C)Yes No
D)Yes Yes

Accepted Answer

Operating profit or loss of a segment should include both reasonably allocated common costs and traceable operating costs to accurately reflect the segment's performance.

Question 4

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

Accepted Answer

The best choice for showing noncontrolling interest on a consolidated balance sheet is as a separate item within the stockholders' equity section. This is because noncontrolling interest represents the portion of ownership that is not held by the parent company, and therefore should be reflected in the equity section rather than as a liability or deferred credit. Additionally, presenting it separately allows for easier analysis and comparison with other equity items. Note disclosures may also be necessary to provide additional information about the nature and terms of the noncontrolling interest.

Question 5

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

Accepted Answer

Curtis, Inc. owns 10% of the outstanding stock of Baldwin Company. Since Arkin, Inc. owns 90% of the outstanding stock, it has control over Baldwin Company. Therefore, Curtis, Inc. should be considered as a noncontrolling interest in Baldwin Company, and its 10% ownership should be reported as such on the consolidated financial statements of Arkin, Inc.

Question 6

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

Accepted Answer

Consolidation policy is not a consideration in segment reporting for diversified enterprises as it relates to the accounting treatment of subsidiary companies and not segment reporting. The other options, allocation of joint costs, defining the segments, and transfer pricing are all relevant considerations in segment reporting.

Question 7

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 included as a an)
A)Other comprehensive income
B)Deferred credit
C)Component of income from continuing operations
D)Discontinued operations

Accepted Answer

The answer of A sale of goods,denominated in a currency...

Question 8

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.

Accepted Answer

According to the information given, Neely owns a majority percentage of both Randle and Walker, but neither company is in legal reorganization. Additionally, there is no mention of any recent or pending stock transactions. Therefore, choice A is the only option that meets the criteria for consolidation.

Question 9

When a parent-subsidiary relation exists,consolidated financial statements are prepared in recognition of the accounting concept of:
A)Reliability
B)Materiality
C)Legal entity
D)Economic entity

Accepted Answer

The accounting concept of economic entity recognizes that a parent company and its subsidiaries should be viewed as a single economic entity for financial reporting purposes, and thus consolidated financial statements must be prepared. This concept focuses on the substance of economic relationships rather than their legal form or structure.

Question 10

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.

Accepted Answer

The costs incurred to effect the business combination, such as finders and legal fees, are expensed as incurred under the acquisition method for a business combination. This is because these costs do not relate to the historical cost of the business being acquired.

Question 11

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

Accepted Answer

According to the concept of historical cost, plant assets are recorded at their original cost when purchased. Therefore, the appropriate exchange rate for translating the depreciation on plant assets in the income statement of the foreign subsidiary would be the historical exchange rate at the time when the asset was purchased. This would enable the company to accurately reflect the actual cost of the asset in its financial statements.

Question 12

The profitability information that should be reported for each reportable segment of a business enterprise consists of
A)An operating profit-or-loss figure consisting of segment revenues less traceable costs and allocated common costs
B)An operating profit-or-loss figure consisting of segment revenues less traceable costs but not allocated common costs
C)An operating profit-or-loss figure consisting of segment revenues less allocated common costs but not traceable costs
D)Segment revenues only

Accepted Answer

The most comprehensive profitability information that should be reported for each reportable segment of a business enterprise is an operating profit-or-loss figure consisting of segment revenues less traceable costs and allocated common costs. This provides a more accurate reflection of the segment's financial performance since it takes into account both direct and indirect costs associated with the segment's operations. Option B does not consider allocated common costs, while option C does not consider traceable costs. Option D only provides information on segment revenues and does not account for costs associated with generating those revenues.

Question 13

When translating foreign currency financial statements,which of the following accounts would be translated using current exchange rates? Property,Plant,and Inventories
Equipment carried at cost
A)Yes Yes
B)No No
C)Yes No
D)No Yes

Accepted Answer

The answer of When translating foreign currency financial statements,which of...

Question 14

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

Accepted Answer

Goodwill is calculated as the excess of the purchase price of an acquired company over the sum of the fair values of its identifiable assets less the liabilities assumed. It reflects the value of intangible assets such as brand reputation, customer relationships, and intellectual property that are not separately identifiable or separately recognized.

Question 15

Consolidated financial statements are typically prepared when one company has a controlling interest in another unless:
A)The subsidiary is a finance company
B)The fiscal year-ends of the companies are more than three months apart.
C)Circumstance prevent the exercise of control
D)The two company are in unrelated industries,such as real estate and manufacturing.

Accepted Answer

Consolidated financial statements are prepared when one company has a controlling interest in another, regardless of industry differences or fiscal year-end timing. The exception is when circumstances prevent the exercise of control, such as legal restrictions or severe long-term restrictions on fund transfers between the parent and subsidiary.

Question 16

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

Accepted Answer

Fair value is considered the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock. Fair value represents the current market value of the asset and takes into account factors such as supply and demand, economic conditions, and other market factors that may affect the value of the asset. This approach provides a more accurate representation of the value of the asset than historic cost, book value, or cost plus any excess of purchase price over book value of the asset acquired.

Question 17

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

Accepted Answer

The answer of On October 1,Company X acquired for cash...

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.

Accepted Answer

The entity that obtains control over one or more businesses and establishes the acquisition date that control was achieved is called the acquirer. This is the entity that acquires the assets and liabilities of the target company and gains control over the target company. The other options (Controller, Proprietor, and Controlling interest) do not accurately describe the acquirer in a business combination that is accounted for under the acquisition method.

Question 19

A foreign subsidiary's function currency is its local currency that has not experienced significant inflation.The weighted average exchange rate for the current year would be the appropriate exchange rate for translating Sales to
Wages expense Customers
A)Yes Yes
B)Yes No
C)No No
D)No Yes

Accepted Answer

The weighted average exchange rate is appropriate for translating both sales and wages expense because they are income statement items, and the average rate reflects the exchange rate over the period in which these transactions occur.

Question 20

Which of the following is the best theoretical justification for consolidated financial statements?
A)In form the companies are one entity;in substance they are separate
B)In form the companies are separate;in substance they are one entity
C)In form and substance,the companies are one entity
D)In form and substance,the companies are separate

Accepted Answer

The best theoretical justification for consolidated financial statements is that in form the companies are separate, but in substance they are one entity. This means that although the companies may legally exist as separate entities, they are so closely intertwined in their operations and financial performance that they should be treated as a single economic entity. Consolidated financial statements provide a more accurate and complete picture of the financial position and performance of the group as a whole.

Quiz 16: Accounting for Multiple Entities

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

In financial reporting for segments of a business enterprise,the operating profit or loss of a segment should include Reasonably allocated Common Traceable Operating costs operating costs

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

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

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

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

When a parent-subsidiary relation exists,consolidated financial statements are prepared in recognition of the accounting concept of:

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

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

The profitability information that should be reported for each reportable segment of a business enterprise consists of

When translating foreign currency financial statements,which of the following accounts would be translated using current exchange rates? Property,Plant,and Inventories Equipment carried at cost

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

Consolidated financial statements are typically prepared when one company has a controlling interest in another unless:

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?

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

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 foreign subsidiary's function currency is its local currency that has not experienced significant inflation.The weighted average exchange rate for the current year would be the appropriate exchange rate for translating Sales to Wages expense Customers

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