Question 1

While both IFRS and GAAP require companies to consolidate entities they control,IFRS defines control more narrowly than GAAP.

Accepted Answer

A) True 
 B)False

Question 2

Debt or equity securities held in a firm's trading portfolio that suffer other-than-temporary declines in market value are recorded at fair value with the unrealized losses recognized in other comprehensive income,net of applicable taxes.

Accepted Answer

A) True 
 B)False

Question 3

The Parent Company purchased 80% of the Sub Corporation's voting stock on January 1,2015.The Parent Company used the acquisition method to prepare the consolidated balance sheet.Which of the following is not an accurate description of the consolidated balance sheet on January 1,2015?

Accepted Answer

A) Consolidated stockholders' equity does not include the stockholders' equity of the Sub Corporation. 
B) Consolidated assets does not include the Investment in Sub account. 
C) The fair value of both Parent's and Sub's assets are included within the consolidated balance sheet. 
D) Consolidated assets will include goodwill if the imputed total business fair value of Sub is in excess of the fair value of Sub's identifiable assets. 
A) Consolidated stockholders' equity does not include the stockholders' equity of the Sub Corporation. 
B) Consolidated assets does not include the Investment in Sub account. 
C) The fair value of both Parent's and Sub's assets are included within the consolidated balance sheet. 
D) Consolidated assets will include goodwill if the imputed total business fair value of Sub is in excess of the fair value of Sub's identifiable assets.

Question 4

On January 1, 2015, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air's net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air's depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation. During 2015, Air reported net income of $75,000 and paid dividends of $30,000.
-Regal has elected the fair value option to account for equity method investments.The fair value of the Air investment as of December 31,2015 was $295,000.The carrying value of the Air investment on December 31,2015 was

Accepted Answer

A) $295,000. 
B) $300,000. 
C) $310,500. 
D) $313,500. 
A) $295,000. 
B) $300,000. 
C) $310,500. 
D) $313,500.

Question 5

On January 1, 2015, Como Company purchased 45% of the outstanding common shares of the Lite Company for $200,000. The net assets of Lite Company totaled $400,000. The inventory had a book value of $100,000 and a fair value of $120,000. Excess cost attributable to inventory is written off in 2015. During 2015, Lite Company earned $200,000 and declared a dividend of $40,000 for the year.
-The carrying value of the Lite investment at the end of 2015 is

Accepted Answer

A) $200,000. 
B) $290,000. 
C) $272,000. 
D) $263,000. 
A) $200,000. 
B) $290,000. 
C) $272,000. 
D) $263,000.

Question 6

Which of the following statements does not properly describe the accounting for business combinations?

Accepted Answer

A) Under the purchase method,the subsidiary's assets and liabilities are not valued at their full fair values on the consolidated balance sheet when minority interests are present. 
B) Under the acquisition method,the subsidiary's assets and liabilities are valued at their full fair values on the consolidated balance sheet when minority interests are present. 
C) The parent company has the option of choosing either the purchase method or the acquisition method to account for the business combination. 
D) The noncontrolling interest is reported as a component of stockholders' equity when using the acquisition methoD. 
A) Under the purchase method,the subsidiary's assets and liabilities are not valued at their full fair values on the consolidated balance sheet when minority interests are present. 
B) Under the acquisition method,the subsidiary's assets and liabilities are valued at their full fair values on the consolidated balance sheet when minority interests are present. 
C) The parent company has the option of choosing either the purchase method or the acquisition method to account for the business combination. 
D) The noncontrolling interest is reported as a component of stockholders' equity when using the acquisition methoD.

Question 7

Financial analysts must be wary of business acquisitions accounted for as pooling of interests because this method tends to inflate the

Accepted Answer

A) current ratio. 
B) inventory turnover ratio. 
C) rate of return ratios. 
D) cash flow ratio. 
A) current ratio. 
B) inventory turnover ratio. 
C) rate of return ratios. 
D) cash flow ratio.

Question 8

On January 1, 2015, the Husky Corporation purchased 90% of the Spartan Company's voting stock for $2,700,000. Spartan's net assets had a book value of $2,450,000; the fair value of Spartan's building was $325,000 greater than its book value. The book value of Husky's net assets immediately after the acquisition of Spartan totaled $6,850,000. Husky used the acquisition method to prepare its consolidated balance sheet.
-What is total stockholders' equity on the January 1,2015 consolidated balance sheet?

Accepted Answer

A) $9,300,000 
B) $6,850,000 
C) $7,150,000 
D) $7,120,000 
A) $9,300,000 
B) $6,850,000 
C) $7,150,000 
D) $7,120,000

Question 9

The consolidated financial statements under a pooling of interests combine the market values of the two entities.

Accepted Answer

A) True 
 B)False

Question 10

Perry Investments bought 2,000 shares of Able, Inc. common stock on January 1, 2015, for $20,000 and 2,000 shares of Baker, Inc. common stock on July 1, 2015 for $24,000. Baker paid $2,400 of previously declared dividends to Perry on December 31, 2015. At the end of 2015, the market value of the Able stock was $18,000 and the market value of the Baker stock was $28,000. The stocks were purchased for short-term speculation. Perry owns 10% of each company.
-The entry to record the purchase of Able,Inc.common stock would be

Accepted Answer

A)    
B)  DR Available-for-sale securities-Able common $\quad 20,000$
CR Cash$\quad$20,000 
C)  DR Held to maturity securities-Able common$\quad$20,000
CR Cash$\quad$20,000 
D)  DR Cash$\quad$20,000
CR Available-for-sale securities
-Able common$\quad$20,000 
A)    
B)  DR Available-for-sale securities-Able common $\quad 20,000$
CR Cash$\quad$20,000 
C)  DR Held to maturity securities-Able common$\quad$20,000
CR Cash$\quad$20,000 
D)  DR Cash$\quad$20,000
CR Available-for-sale securities
-Able common$\quad$20,000

Question 11

In a pooling of interests,both companies are assumed to combine their resources with neither having a controlling interest over the other.

Accepted Answer

A) True 
 B)False

Question 12

The fixed assets reported on a consolidated balance sheet include assets of both the parent company and the subsidiary company.

Accepted Answer

A) True 
 B)False

Question 13

Hill Company entered into the following inventory transactions with its investees during 2015:
• Sold inventory to Grant Inc.for $150,000.The inventory originally cost Hill $120,000.Grant sold 75% of the inventory during 2015.
• Hill owns 15% of the voting stock of Grant and does not use the equity method to account for the Grant investment.
• Sold inventory to Thornton Inc.for $400,000.The inventory originally cost Hill $320,000.Thornton sold 60% of the inventory during 2015.Hill owns 100% of the voting stock of Thornton.
Which of the following adjustments is not correct with respect to preparing Hill's 2015 consolidated financial statements?

Accepted Answer

A) Sales will be decreased $400,000. 
B) Cost of goods sold will be decreased $368,000. 
C) Inventory will be decreased $32,000. 
D) Gross profit will be decreased $110,000. 
A) Sales will be decreased $400,000. 
B) Cost of goods sold will be decreased $368,000. 
C) Inventory will be decreased $32,000. 
D) Gross profit will be decreased $110,000.

Question 14

On January 2,2015,the Rambler Company purchased 40% of the outstanding common stock of the AMC Corporation for $2,000,000.AMC's net assets had a book value of $3,900,000 as of January 2,2015.AMC's buildings were undervalued by $350,000,their land was overvalued by $75,000,and their inventory was undervalued by $145,000.
Required:
Determine the amount of goodwill that Rambler acquired as a result of the AMC stock purchase.

Accepted Answer

The answer of On January 2,2015,the Rambler Company purchased 40%...

Question 15

Minority active equity investments are accounted for by the

Accepted Answer

A) fair value method. 
B) purchase method. 
C) equity method. 
D) cost. 
A) fair value method. 
B) purchase method. 
C) equity method. 
D) cost.

Question 16

Stock shares classified as trading securities are typically purchased by the investor to generate profits on trading gains.

Accepted Answer

A) True 
 B)False

Question 17

For an investor each share of common stock and each share of preferred stock owned usually entitles the owner to one vote.

Accepted Answer

A) True 
 B)False

Question 18

The realized gain on an investment classified as trading securities is calculated by comparing the selling price to the original cost.

Accepted Answer

A) True 
 B)False

Question 19

When the ownership percentage of stock exceeds 20 percent but is less than 50 percent,GAAP presumes that the investor

Accepted Answer

A) has no influence to exert over the investee company. 
B) is only investing for a short term trading position. 
C) is able to exert influence over the investee company. 
D) is trying to take over the investee company. 
A) has no influence to exert over the investee company. 
B) is only investing for a short term trading position. 
C) is able to exert influence over the investee company. 
D) is trying to take over the investee company.

Question 20

IFRS does not permit use of the fair value option for equity-method investments.

Accepted Answer

A) True 
 B)False

While both IFRS and GAAP require companies to consolidate entities they control,IFRS defines control more narrowly than GAAP.

Debt or equity securities held in a firm's trading portfolio that suffer other-than-temporary declines in market value are recorded at fair value with the unrealized losses recognized in other comprehensive income,net of applicable taxes.

The Parent Company purchased 80% of the Sub Corporation's voting stock on January 1,2015.The Parent Company used the acquisition method to prepare the consolidated balance sheet.Which of the following is not an accurate description of the consolidated balance sheet on January 1,2015?

Which of the following statements does not properly describe the accounting for business combinations?

Financial analysts must be wary of business acquisitions accounted for as pooling of interests because this method tends to inflate the

The consolidated financial statements under a pooling of interests combine the market values of the two entities.

In a pooling of interests,both companies are assumed to combine their resources with neither having a controlling interest over the other.

The fixed assets reported on a consolidated balance sheet include assets of both the parent company and the subsidiary company.

Minority active equity investments are accounted for by the

Stock shares classified as trading securities are typically purchased by the investor to generate profits on trading gains.

For an investor each share of common stock and each share of preferred stock owned usually entitles the owner to one vote.

The realized gain on an investment classified as trading securities is calculated by comparing the selling price to the original cost.

When the ownership percentage of stock exceeds 20 percent but is less than 50 percent,GAAP presumes that the investor

IFRS does not permit use of the fair value option for equity-method investments.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Statement of Cash Flows

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Exam 16: Intercorporate Equity Investments

While both IFRS and GAAP require companies to consolidate entities they control,IFRS defines control more narrowly than GAAP.

Debt or equity securities held in a firm's trading portfolio that suffer other-than-temporary declines in market value are recorded at fair value with the unrealized losses recognized in other comprehensive income,net of applicable taxes.

The Parent Company purchased 80% of the Sub Corporation's voting stock on January 1,2015.The Parent Company used the acquisition method to prepare the consolidated balance sheet.Which of the following is not an accurate description of the consolidated balance sheet on January 1,2015?

Which of the following statements does not properly describe the accounting for business combinations?

Financial analysts must be wary of business acquisitions accounted for as pooling of interests because this method tends to inflate the

The consolidated financial statements under a pooling of interests combine the market values of the two entities.

In a pooling of interests,both companies are assumed to combine their resources with neither having a controlling interest over the other.

The fixed assets reported on a consolidated balance sheet include assets of both the parent company and the subsidiary company.

Minority active equity investments are accounted for by the

Stock shares classified as trading securities are typically purchased by the investor to generate profits on trading gains.

For an investor each share of common stock and each share of preferred stock owned usually entitles the owner to one vote.

The realized gain on an investment classified as trading securities is calculated by comparing the selling price to the original cost.

When the ownership percentage of stock exceeds 20 percent but is less than 50 percent,GAAP presumes that the investor

IFRS does not permit use of the fair value option for equity-method investments.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Statement of Cash Flows

Filters