Advanced Accounting: Exam #1 Review
At the date of an acquisition which is not a bargain purchase, the acquisition method
Consolidates all subsidiary assets and liabilities at fair value
A statutory merger is a(n)
Business combination in which only one of the two companies continues to exist as a legal corporation
A company has been using the fair-value method to account for its investment. The company now has the ability to significantly control the investee and the equity method has been deemed appropriate. Which of the following statements is true?
A retrospective change in accounting principle must occur
What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation?
If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company
How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?
Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital
Which one of the following accounts would not appear on the consolidated financial statements at the end of the first fiscal period of the combination?
Investment in Subsidiary
A company has been using the equity method to account for its investment. The company sells shares and does not continue to have significant control. Which of the following statements is true?
A prospective change in accounting principle must occur.
In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?
A gain on bargain purchase is recorded.
Impairment losses on equity method (20% - 50%) investments are
reported on the income statement.
A company acquires all of the assets and liabilities of another company. Which one of the following increases the amount of goodwill the acquiring company reports?
The acquiring company's inventory is undervalued.
Held-to-maturity investments are reported at
ABC Company uses the equity method to report its investments in 25% of the stock of XYZ Company. Its original investment cost exceeded 25% of the book value of XYZ by a large amount. ABC is computing equity in net income of XYZ for the current year, which is five years after the acquisition. Which situation below requires ABC to adjust the equity in net income number for write-offs of the difference between investment cost and XYZ’s book value? Attribute the difference to
plant assets with a 20-year life.
The U.S. GAAP impairment test for equity method investments requires recognition of impairment losses when
fair value less than cost and the decline in value is other than temporary.
Following U.S. GAAP, when should a company use the equity method to report an intercorporate investment?
The company significantly influences the decisions of the investee.
A gain should be reported on an acquisition if
the fair value of the consideration paid plus the present value of any earnings contingency is less than the fair value of identifiable net assets acquired.
Company P acquires all of the stock of Company S. How are Company S's research and development costs of ongoing projects reported at the date of acquisition?
Asset, at fair value.
In a business combination, an acquiree's previously unreported in-process R&D
When consolidating the balance sheets of a parent and its subsidiary at the date of acquisition, consolidation eliminating entries
Remove the full balance of the parent's investment account and the subsidiary's equity accounts, and adjust the subsidiary's assets and liabilities to fair value at the date of acquisition.
According to U.S. GAAP, when should the financial information of Company A and Company B be consolidated on one balance sheet?
Company A controls the decisions made by Company B's managers.
Which one of the following accounts of an acquired company will not appear on a consolidated balance sheet?
Additional paid-in capital