Question 1

If the acquisition cost exceeds the current value of the net assets (assets minus liabilities) acquired, the investor must also be purchasing an intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location.

Accepted Answer

A) True 
 B)False

Question 2

Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?

Accepted Answer

A) $15,754.28 
B) $16,113.45 
C) $13,772.55 
D) $14,038.95

Question 3

Match the following terms to their correct definition:
-An intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location

Accepted Answer

A) equity security 
B) debt security 
C) passive 
D) significant influence 
E) control
F)parent
G)subsidiary
H)trading securities
I)available-for-sale securities
J)held-to-maturity securities
K)amortized cost method
L)fair value method
M)unrealized gains and losses
N)equity method
O)consolidation worksheet
P)minority interest
Q)business combination
R)goodwill

Question 4

In present value problems, the interest rate is also called the __________________.

Accepted Answer

The answer of In present value problems, the interest rate...

Question 5

Cash flows are described as either single cash flows or _______________.

Accepted Answer

The answer of Cash flows are described as either single...

Question 6

The excess of the investor's acquisition cost over the current value of the investee's identifiable net assets is recorded as an intangible asset called ____________________.

Accepted Answer

The answer of The excess of the investor's acquisition cost...

Question 7

Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings bond?

Accepted Answer

A) $1,425.98 
B) $1,330.12 
C) $9,533.08 
D) $8,200.40

Question 8

Match the following terms to their correct definition:
-Any voting stock not held by the parent in situations where consolidation is required because the investor acquires between 50% and 100% of the investee's stock

Accepted Answer

A) equity security 
B) debt security 
C) passive 
D) significant influence 
E) control
F)parent
G)subsidiary
H)trading securities
I)available-for-sale securities
J)held-to-maturity securities
K)amortized cost method
L)fair value method
M)unrealized gains and losses
N)equity method
O)consolidation worksheet
P)minority interest
Q)business combination
R)goodwill

Question 9

The present value of an annuity is the discounted future value of cash flows made at regular intervals.

Accepted Answer

A) True 
 B)False

Question 10

You are the accounting manager for a mid-sized electronics retailer. Your accounting intern is having trouble understanding how your company accounts for its investments in the stock of other companies. You just spent the better part of the morning reviewing in detail all of the recording and reporting requirements but the intern is still fuzzy.
Complete the following table to compare and contrast for your intern the requirements for the different types of stock investments that your company might make. Be sure to use the legend provided.
Investments in Equity Securities  Legend:
Accounting Method: Equity method, Equity method + Consolidation, or Fair value method
Impact of Dividend Receipts: Decrease investment, Eliminated, or Increase income
Reporting of unrealized gains/losses: Balance sheet, Income statement, or Not recognized

Accepted Answer

The answer of  
You are the accounting manager for...

Question 11

Match the following terms to their correct definition:
-Situation where the investor owns over 50% of the outstanding common stock and is therefore deemed to own the investee

Accepted Answer

A) equity security 
B) debt security 
C) passive 
D) significant influence 
E) control
F)parent
G)subsidiary
H)trading securities
I)available-for-sale securities
J)held-to-maturity securities
K)amortized cost method
L)fair value method
M)unrealized gains and losses
N)equity method
O)consolidation worksheet
P)minority interest
Q)business combination
R)goodwill

Question 12

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year) into an account that earns 4% interest compounded annually?

Accepted Answer

A) $51,169.86 
B) $63,732.74 
C) $46,071.15 
D) $49,506.11

Question 13

A purchased company must be recorded at the value of the cash and other consideration given by the acquiring company.

Accepted Answer

A) True 
 B)False

Question 14

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

Accepted Answer

A) True 
 B)False

Question 15

When an investor is able to exert significant influence over another company, the ____________________ method of accounting is used for the investment.

Accepted Answer

The answer of When an investor is able to exert...

Question 16

Securities issued by a corporation as a form of ownership in the business, such as common stock and preferred stock, are called equity securities.

Accepted Answer

A) True 
 B)False

Question 17

Consolidation is required when a parent acquires between 50% and 100% of the subsidiary's stock. Any voting stock not held by the parent is called the ____________________.

Accepted Answer

The answer of Consolidation is required when a parent acquires...

Question 18

A business combination is recorded at the cost of acquisition, without regard to the seller's ____________________ value.

Accepted Answer

The answer of A business combination is recorded at the...

Question 19

The fair value method should be used to account for stock investments of less than 20% of the outstanding shares.

Accepted Answer

A) True 
 B)False

Question 20

When the present value of an annuity is calculated, which of the following is not required?

Accepted Answer

A) The number of cash flows. 
B) The interest of discount rate per period. 
C) The future value of the cash flows. 
D) The amount of each repeating cash flow.

Exam 13: Finance and Stock Market Equilibrium

Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?

Match the following terms to their correct definition: -An intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location

In present value problems, the interest rate is also called the __________________.

Cash flows are described as either single cash flows or _______________.

The excess of the investor's acquisition cost over the current value of the investee's identifiable net assets is recorded as an intangible asset called ____________________.

Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings bond?

Match the following terms to their correct definition: -Any voting stock not held by the parent in situations where consolidation is required because the investor acquires between 50% and 100% of the investee's stock

The present value of an annuity is the discounted future value of cash flows made at regular intervals.

Match the following terms to their correct definition: -Situation where the investor owns over 50% of the outstanding common stock and is therefore deemed to own the investee

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year) into an account that earns 4% interest compounded annually?

A purchased company must be recorded at the value of the cash and other consideration given by the acquiring company.

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

When an investor is able to exert significant influence over another company, the ____________________ method of accounting is used for the investment.

Securities issued by a corporation as a form of ownership in the business, such as common stock and preferred stock, are called equity securities.

Consolidation is required when a parent acquires between 50% and 100% of the subsidiary's stock. Any voting stock not held by the parent is called the ____________________.

A business combination is recorded at the cost of acquisition, without regard to the seller's ____________________ value.

The fair value method should be used to account for stock investments of less than 20% of the outstanding shares.

When the present value of an annuity is calculated, which of the following is not required?