Advanced Accounting Quiz Wk 1-5

1. Question : (TCO 1) Which of the following results in a decrease in the Equity in Investee Income account when applying the equity method?

Student Answer:

Dividends paid by the investor

Net income of the investee

Unrealized gain on inter-company inventory transfers for the current year

Unrealized gain on inter-company inventory transfers for the prior year

Extraordinary gain of the investee

Points Received: 0 of 2

Comments: Review this concept of transactions between Investor and Investee.

2. Question : (TCO 1) Which of the following results in an increase in the investment account when applying the equity method?

Student Answer:

Unrealized gain on inter-company inventory transfers for the prior year

Unrealized gain on inter-company inventory transfers for the current year

Dividends paid by the investor

Dividends paid by the investee

Sale of a portion of the investment during the current year


Comments: Review this concept.

3. Question : (TCO 1) All of the following statements regarding the investment account using the equity method are true except

Student Answer:

The investment is recorded at cost

Dividends received are reported as revenue

Net income of investee increases the investment account

Dividends received reduce the investment account

Amortization of fair value over cost reduces the investment account


1862514819 MultipleChoice 3 False

0 1862514819 MultipleChoice 3



Comments:

4. Question : (TCO 1) After allocating cost in excess of book value, which asset or liability would not be amortized over a useful life?

Student Answer:

Cost of goods sold

Property, plant, & equipment

Patents

Goodwill

Bonds payable


Comments:

5. Question : (TCO 1) According to FAS 159

Student Answer:

all entities my elect the fair value option (159 pg 2)

The statement permits all entities to choose to measure eligible items at fair value at specified dates (159 pg 2)

the fair value option may be applied instrument by instrument with a few exceptions (159 pg 2)

FAS 159 is similar to IAS 39 but it is not identical (pg 2)

All of the above


Comments: Good.

1. Question : (TCO 2) In a transaction accounted for using the purchase method where cost exceeds book value, which statement is true for the acquiring company with regard to its investment?

Student Answer:

Net assets of the acquired company are revalued to their fair values and any excess of cost over fair value is allocated to goodwill

Net assets of the acquired company are maintained at book value and any excess of cost over book value is allocated to goodwill

Assets are revalued to their fair values. Liabilities are maintained at book values. Any excess is allocated to goodwill

Long-term assets are revalued to their fair values. Any excess is allocated to goodwill

1862514821 MultipleChoice 15 True





Comments:

2. Question : (TCO 2)

Bullen Inc. assumed 100% control over Vicker Inc. on January 1, 20x1. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

Bullen Vicker Vicker

Book Book Fair

Value Value ValueRetained Earnings, 1/1/x1

160,000

240,000

Cash receivables 170,000

70,000

70,000

Inventory 230,000

170,000

210,000

Land 280,000

220,000

240,000

Buildings (net) 480,000

240,000

270,000

Equipment (net) 120,000

90,000

90,000

Liabilities 650,000

430,000

420,000

Common Stock 360,000

80,000

Additional paid-in capital

20,000

40,000

Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1, 20X1 balances) as a result of this transaction (which is not a pooling of interests)?

Student Answer:

$20,000 and $160,000

$20,000 and $260,000

$380,000 and $160,000

$464,000 and $160,000

$380,000 and $260,000




Comments: Review the consolidation accounting concepts.

3. Question : (TCO 2) Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue Town Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2009, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock. This combination was accounted for as an acquisition. Immediately after the combination, what was the consolidated net assets?

Student Answer:

$2,520,000

$1,190,000

$1,680,000

$2,870,000

$2,030,000


Comments:

4. Question : (TCO 2) Which of the following statements is true regarding a statutory consolidation?

Student Answer:

The original companies dissolve while remaining as separate divisions of a newly created company

Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company

The acquired company dissolves as a separate corporation and becomes a division of the acquiring company

The acquiring company acquires the stock of the acquired company as an investment

A statutory consolidation is no longer a legal option


Comments:

5. Question : (TCO 2) According to FAS 141R (FASB, 2008), the new statement requires

Student Answer:

acquisition related costs to be recognized separately from the acquisition. Restructuring costs that the acquirer expected but was not obligated to incur are recognized as if they were a liability assumed at the acquisition date

the acquirer to recognize goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired.







recognition of assets and liabilities arising from contractual contingencies as of the acquisition date.

recognition of the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date.

All of the above

None of the above

Instructor Explanation: Lecture notes Acquisition Method


Comments: Review the types of consolidations.

1. Question : (TCO 2) Under the equity method of accounting for an investment,

Student Answer:

The investment account remains at initial value

Dividends received are recorded as revenue

Goodwill is amortized over 20 years

Income reported by the subsidiary increases the investment account

Dividends received increase the investment account


Comments:

2. Question : (TCO 3) Red Co. acquired 100% of Green, Inc. on October 1, 2009. On January 1, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2009. Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much amortization expense will be on the consolidated financial statements for the year ended on December 31, 2009 related to the acquisition of Green?

Student Answer:

$43,000

$33,000

$5,000

$15,000

0


Comments:




3. Question : (TCO 3) One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?

Student Answer:

It is the only method allowed by the SEC

It is relatively easy to apply

It is the only internal reporting method allowed by generally accepted accounting principles

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

When the initial method is used, no worksheet entries are required in the consolidation process


Comments:

4. Question : (TCO 3) Which of the following statements is false regarding push-down accounting?

Student Answer:

Push-down accounting simplifies the consolidation process

Fewer worksheet entries are necessary when push-down accounting is applied

Push-down accounting provides better information for internal evaluation

Push-down accounting must be applied for combinations under a pooling of interests

Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and liabilities


Comments:

5. Question : (TCO 3) Match the following method, entry type, and year designation with what needs to be accomplished according to the interactive lecture this week

Student Answer:

: Equity, S entry, During current year

» 1 : Beginning SH equity of sub is eliminated against book value portion of investment account

: Initial Value, A entry, During subsequent year

» 4 : Unamortized cost at beginning of year is allocated to specific accounts and goodwill

: Partial Equity, *C entry, During current year

» 3 : No entry required

: Partial Equity, P entry, During

» 2 : Intercompany payable/receivable balances are offset






1

4

3

2

current year

Instructor Explanation: Try this interactive lecture


1. Question : (TCO 3) With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2009?

Student Answer:

Retained earnings

Cost of goods sold

Inventory

Investment Strickland Company



Comments:

2. Question : (TCO 3) Which of the following statements is true regarding an intercompany sale of land?

Student Answer:

A loss is always recognized but a gain is eliminated on a consolidated income statement

A loss and a gain are always eliminated on a consolidated income statement

A loss and a gain are always recognized on a consolidated income statement

A gain is always recognized but a loss is eliminated on a consolidated income statement

A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income


Comments:

3. Question : (TCO 3) What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

Student Answer:

Parent's dividends would be subtracted as a financing activity

Gain on sale of land would be deducted from net income

Non-controlling interest in net income of subsidiary would be added to net income





Proceeds from the sale of long-term investments would be added to investing activities

Loss on sale of equipment would be added to net income


Comments:

4. Question : (TCO 3) On January 1, 2009, Cocker issued 10,000 additional shares of common stock for $35 per share. Popper acquired 8,000 of these shares. How would this transaction affect the additional paid-in capital of the parent company?

Student Answer:

Increase it by $28,700


$0




Comments:

5. Question : (TCO 3) How do intercompany sales of inventory affect the preparation of a consolidated statement of cash flows?

Student Answer:

They must be added in calculating cash flows from investing activities

They must be deducted in calculating cash flows from investing activities

They must be added in calculating cash flows from operating activities

Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required

They must be deducted in calculating cash flows from operating activities


Comments:

1.Question :(TCO 2) Under the equity method of accounting for an investment,





Student Answer: The investment account remains at initial value

Dividends received are recorded as revenue

Goodwill is amortized over 20 years

Correct Asnwer: Income reported by the subsidiary increases the investment account

Dividends received increase the investment account

Points Received:0 of 2

Comments:

2.Question :(TCO 3) Melvin Company applies the equity method to account for its investment in Lang Company. Lang reports income in excess of an extraordinary loss in 2009. Melvin acknowledges that it must separately disclose the extraordinary loss in consolidated financial statements. What entry would be made by Melvin Company to record Lang's results?

Student Answer: A above

B above

C above

D above

E above


Comments:

3.Question :(TCO 3) Which of the following statements is false regarding push-down accounting?

Student Answer: Push-down accounting simplifies the consolidation process

Fewer worksheet entries are necessary when push-down accounting is applied

Push-down accounting provides better information for internal evaluation

Correct Answer: Push-down accounting must be applied for combinations under a pooling of interests

Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and liabilities


Comments:

4.Question :(TCO 3) Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2009:

(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.

(2.) To assume Brown's liabilities which have a fair value of $1,500.

On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be

Student Answer: $18,000

$16,500

$20,000

$18,500

Correct Answer: $19,500


Comments:

5.Question :(TCO 3) Match the following method, entry type, and year designation with what needs to be accomplished according to the interactive lecture this week

Student Answer: : Equity, S entry, During current year » 1 : Beginning SH equity of sub is eliminated against book value portion of investment account

: Initial Value, A entry, During subsequent year » 4 : Unamortized cost at beginning of year is allocated to specific accounts and goodwill

: Partial Equity, *C entry, During current year » 3 : No entry required

: Partial Equity, P entry, During current year » 2 : Intercompany payable/receivable balances are offset

Instructor Explanation: Try this interactive lecture


Question :(TCO 3) With regard to the intercompany sale, which of the following choices would be a debit entry in the consolidated worksheet for 2009?

Student Answer: Retained earnings

Correct Answer: Cost of goods sold

Inventory

Investment Strickland Company



Comments:

2.Question :(TCO 3) Which of the following statements is true regarding an intercompany sale of land?

Student Answer: A loss is always recognized but a gain is eliminated on a consolidated income statement

Correct Answer: A loss and a gain are always eliminated on a consolidated income statement

A loss and a gain are always recognized on a consolidated income statement

A gain is always recognized but a loss is eliminated on a consolidated income statement

A gain or loss is eliminated by adjusting stockholders' equity through comprehensive income


Comments:

3.Question :(TCO 3) What would differ between a statement of cash flows for a consolidated company and an unconsolidated company using the indirect method?

Student Answer: Parent's dividends would be subtracted as a financing activity

Gain on sale of land would be deducted from net income

Non-controlling interest in net income of subsidiary would be added to net income

Proceeds from the sale of long-term investments would be added to investing activities

Loss on sale of equipment would be added to net income


Comments:

4.Question :(TCO 3) On January 1, 2009, Cocker issued 10,000 additional shares of common stock for $35 per share. Popper acquired 8,000 of these shares. How would this transaction affect the additional paid-in capital of the parent company?

Student Answer: Increase it by $28,700


Correct Answer: $0




Comments:

5.Question :(TCO 3) How do intercompany sales of inventory affect the preparation of a consolidated statement of cash flows?

Correct Answer - Student Answer: They must be added in calculating cash flows from investing activities

They must be deducted in calculating cash flows from investing activities

They must be added in calculating cash flows from operating activities

Because the consolidated balance sheet and income statement are used in preparing the consolidated statement of cash flows, no special elimination is required

They must be deducted in calculating cash flows from operating activities


Documents

Advanced Accounting Quiz Wk 1-5