Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Advanced Accounting > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Consolidated financial statements are typically prepared when on company has ?

a. dividend income from another company.

b. significant influence over the operating and financial policies of another company

c. a controlling financial interest over another company

d. accounted for its investment in another company using the equity method

A

c. a controlling financial interest over another company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

T/F Diversification of business risk allows enhanced profitability in business combinations

A

true

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which of the following best describes a situation where one company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity?

A

Statutory Merger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When one business entity has a controlling financial interest in another entity, why are consolidated financial statement prepared for external reporting?

a. a dual economic entity is created requiring dual-based financial statements

b. the absence of a non-controlling interest causes one set of financial statements to become irrelevant

c. in all business combinations, the companies lose their separate legal identities

d. it is presumed that consolidated financial statements are necessary for a fair presentation

A

d. it is presumed that consolidated financial statements are necessary for a fair presentation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Consolidated financial statements typically represent which of the following?

a. the operations, financial position, and cash flows of a single independent company

b. a number of separate business companies tied together through a common control

c. any group of related companies

A

b. a number of separate business compoanies tied together through common control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which of the following is an attribute of a statutory consolidation?

a. an acquiring company gains a controlling, but less than 100 per cent, interest in an acquiree’s voting stock

b. one company requires another company that is subsequently dissolved by the surviving firm

c. two or more existing companies are united under the ownership of a newly created company

d. all of the companies involved in the business combination retain their separate legal existences

A

c. two or more existing companies are united under the ownership of a newly created company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Which of the following is an attribute of a statutory merger?

a. both of the companies involved retain their separate legal existences

b. the acquiring company must gain 100% of all voting shares of the acquired company

c. two or more existing companies are united under the ownership of a newly created company

d. one company directly acquires another company’s assets and assumes its liabilities

A

d. one company directly acquires another company’s assets and assumes its liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is a business combination?

a. a set of separate business organizations under the control of a single company

b. any set of business companies that operate within a defined industry

c. two companies that conduct business primarily with one another

A

a. a set of separate business organizations under the control of a single company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Which of the following best describes a statutory consolidation?

a. both of the companies involved retain their separate legal existences

b. one company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity

c. one company acquires a majority interest in another company’s voting stock

d. two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity

A

d. two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Which of the following best describes a statutory merger?

a. one company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity

b. two or more companies transfer their assets and liabilities to a newly formed entity

c. one company obtains control over another by acquiring a majority interest in another company’s voting stock

d. two or more companies transfer their capital stock to a newly formed entity and the predecessor companies undergo dissolution

A

a. one company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When a company acquires all of the assets and liabilities of another firm and the acquired firm is dissolved as separate entity, this combination is referred to as a statutory _______.

A

merger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the primary vehicle that business firms employ to exercise control over other business entities?

a. control through majority voting stock ownership

b. control through variable interests

c. control through minority participation rights

d. control through contractual arrangements with other firms

A

a. control through majority voting stock ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When a company acquires a majority, but less than 100% of the voting stock of another company.

a. dissolution of the acquired firm takes place

b. each company maintains its separate legal existence

c. a business combination has not taken place

d. legal control is not possible

A

b. each company maintains its separate legal existence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Which of the following best describes the accounting procedure for a statutory merger or statutory consolidation?

a. no consolidation procedures are necessary

b. the acquired firm records the acquirer’s assets and liabilities on its financial records

c. the acquired assets and liabilities are combined on a worksheet with no adjustments to the surviving firm’s records

d. the surviving company records the assets acquired and liabilities assumed in the merger on its financial statements

A

d. the surviving company records the assets acquired and liabilities assumed in the merger on its financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When a new entity is created to receive all the assets and liabilities (or capital stock) of two previous firms, this combination is referred to as a statutory _____.

A

consolidation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

The measurement attribute used by an acquirer to recognize an acquired firm’s assets and liabilities is _____ _____.

A

fair value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why are consolidated financial statements prepared when a business combination of two or more companies creates a single economic entity?

a. a controlling financial interest is absent in the combination

b. external shareholders with to evaluate each of the companies separately

c. the single economic entity becomes a single legal entity through the acquisition of control

d. there is a presumption that consolidated financial statements are more meaningful than separate financial statements

A

d. there is a presumption that consolidated financial statements are more meaningful than separate financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Contingent consideration is

a. a contractual provision to pay additional amounts to former owners of a business based upon achievements of future performance measures

b. immediately expensed at the acquisition date of the business combination

c. recognized only when payments are actually made upon achievement of performance objectives

d. not recorded as part of total consideration transferred in a business combination

A

a. a contractual provision to pay additional amounts to former owners of a business based upon achievements of future performance measures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What accounting procedures are appropriate when an acquired firm is dissolved immediately following a business combination?

a. the surviving company records the dissolved company’s assets and liabilities on its financial records

b. worksheets are typically used to organize and adjust the information needed to prepare consolidated financial statements

c. the surviving company reports consolidated financial information, but does not record the dissolved company’s assets and liabilities on its book

A

a. the surviving company records the dissolved company’s assets and liabilities on its financial records

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the measurement attribute employed in determining the consideration transferred in a business combination?

a. carrying amount of assets transferred

b. fair value

c. carrying amount of subsidiary net assets

A

b. fair value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Which of the following best describes control through majority voting stock ownership?

a. by exercising majority voting power, one firm can dictate the operating and financing activities of another firm

b. control is exercised through contractual arrangements that entitle one firm to become the primary beneficiary of another firm

c. the acquiring company must gain 100% of all voting shares of another company before exclusive control can be exercised

A

a. by exercising majority voting power, one firm can dictate the operating and financing activities of another firm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How does the acquisition method treat contingent consideration when present in a business combination

a. any contingent consideration is ignored until payment is made

b. as a negotiated component of the fair value the consideration transferred

c. as an expense recognized in the period of the business combination

A

b. as a negotiated component of the fair value of the consideration transferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

T/F Acquisition-date fair values are used to measure assets acquired and liabilities assumed across all business combinations

A

true

24
Q

T/F In a business combination, the acquiring firm increases its retained earning for the amount of the acquisition-date subsidiary retained earnings

A

false

25
Q

When the consideration transferred in a 100% acquisition exceeds the total net fair value of the identifiable net assets received, the excess is recognized as

a. a reduction in the net identifiable assets

b. goodwill as an unidentifiable asset

c. an increase in the net identifiable assets

d. an acquisition expense

A

b. goodwill as an unidentifiable asset

26
Q

What is the accounting treatment of the acquired subsidiary’s equity accounts in a business combination?

a. subsidiary equity accounts are included at book value in consolidated financial statements

b. subsidiary equity accounts are excluded from the accounting for the business combination

c. subsidiary equity accounts are included at fair value in consolidated financial statements

A

b. subsidiary equity accounts are excluded from the accounting for business combination

27
Q

T/F When an acquired firm is legally dissolved upon acquisition, the acquirer will record on its books all of the former firm’s assets and liabilities at their former book values

A

false

28
Q

A business combination occurs and the acquired firm is legally dissolved. If the consideration transferred by the acquiring firm equals the collective fair value of the acquired firm’s net identifiable asset, then

a. neither goodwill nor a bargain purchase gain is recorded

b. the acquired firm’s assets and liabilities are recorded by the acquiring firm at their former book values

c. intangible assets that had not been recognized by the acquired firm are similarly not recognized by the acquirer

A

a. neither goodwill nor a bargain purchase gain is recorded

29
Q

When the consideration transferred in a business combination is less than total net fair value of the identifiable net assets received, the excess is recognized as

a. a gain on bargain purchase

b. goodwill

c. an acquisition expense

d. a reduction of the recognized net identifiable assets

A

a. a gain on bargain purchase

30
Q

When a business combination results in a bargain purchase gain, which of the following best describes the valuation basis of the acquired firm?

a. the fair value of the consideration transferred by the acquiring firm

b. the collective book value of the ner identifiable assets acquired

c. the collective fair value of the net identifiable assets acquired

d. the collective fair value of the net identifiable assets acquired less the bargain purchase gain

A

c. the collective fair value of the net identifiable assets acquired

31
Q

Costs incurred to register and issue securities in connection with a business combination are recorded as

a. an expense recognized currently in income

b. an increase to additional paid-in capital

c. an increase to goodwill

d. a reduction of additional paid-in capital

A

d. a reduction of additional paid-in capital

32
Q

Attorney fees paid for service provided related to a business combination are accounted for as

a. a current period expense

b. as asset with an indefinite useful life

c. a reduction of additional paid-in capital

d. a component of goodwill

A

a. a current period expense

33
Q

For a 100% business acquisition where dissolution of the acquired firm does not occur, the parent company records on its books

a. goodwill resulting from the business combination

b. the fair values of the individual assets acquired and liabilities assumed

c. the fair value of the acquired firm in an investment account

A

c. the fair value of the acquired firm in an investment accounts

34
Q

The acquisition-date fair value allocation schedule helps to prepare the worksheet entries to adjust the subsidiary’s assets from book value to _____ value.

A

fair

35
Q

The second column of figures on the consolidated worksheet includes the subsidiary’s assets and liabilities at their ____ values.

A

book

36
Q

Consolidation entry S is a worksheet entry that:

a. has no effect on the individual financial records of neither the parent more the subsidiary

b. is a journal entry that is eventually recorded on the subsidiary’s books

A

a. has no effect on the individual financial record of neither the parent more the subsidiary

37
Q

Which of the following is a worksheet effect of consolidation entry S?

a. subsidiary stockholders’ equity account balances are brought to zero in consolidation

b. the parent and subsidiary stockholders’ equity account balances are brought to zero in consolidation

c. acquisition-date subsidiary retained earnings are combined with the parent’s retained earnings

A

a. subsidiary stockholders’ equity account balances are brought to zero in consolidation

38
Q

Consolidation entry A for an acquisition-date worksheet is designed to adjust the subsidiary’s assets and liabilities form _____ value to fair value.

A

book

39
Q

T/F The reported balances for a business combination are the same regardless of whether the acquired firm is dissolved or not.

A

true

40
Q

Even though measurement of an intangible asset (e.g., unpatented technology or customer relationships) may lack precision, recognition of the identified intangible may result in greater

a. goodwill

b. faithful representation

c. total consolidated assets

A

b. faithful representation

41
Q

Consolidation entry S bring subsidiary stockholders’ equity account balances to zero because

a. they represent ownership interest held by the parent and thus are not outstanding equity

b. the subsidiary’s stockholder equity account balances have already been added to the parent’s accounts

c. the parent company has dissolved the separate legal status of the subsidiary

A

a. they represent ownership interests held by the parent and thus are not outstanding equity

42
Q

The purpose of consolidation entry A is to

a. adjust the subsidiary asset and liability accounts to their acquisition-date fair value

b. allocate the acquisition price to the parent’s and subisdiary’s assets and liabilities

c. record on the subsidiary’s books the acquisition-date fair values of its assets and liabilities

A

a. adjust the subsidiary asset and liability accounts to their acquisition-date fair value

43
Q

In consolidation entry S, the “S” refers to

a. subsidiary goodwill

b. subsidiary stockholders’ equity

c. subsidiary fair value

A

b. subsidiary stockholders’ equity

44
Q

Why is the in-process research and development (IPR&D) of an acquired subsidiary recognized as an asset ?

a. although IPR&D benefits are uncertain, the parent can quickly amortize the asset to expense

b. the IPR&D has an acquisition-date fair value

c. the future value of the IPR&D is certain

A

b. the IPR&D has an acquisition-date fair value

45
Q

T/F Pre-existing goodwill, when present on an acquired firm’s separate balance sheet, is considered an identifiable intangible asset

A

false

46
Q

The goal of the FASB/IASB joint project on accounting for business combinations was to

a. to provide a standard approach to noncontrolling interest valuation

b. to develop a standard that includes a common set of principles to produce decision-useful information and minimizing exceptions to those principles

c. eliminate all differences in accounting for business combinations across the two sets of standards

A

b. to develop a standard that includes a common set of principles to produce decision-useful information and minimizing exceptions to those principles

47
Q

T/F A consolidation for a statutory merger takes place every time the company prepares its financial statements for external users

A

false

48
Q

T/F If both companies continue to exist as separate companies the consolidation will be recorded in a worksheet

A

true

49
Q

T/F When using the acquisition method for a business combination, goodwill is defined as the cost of the investment less the subsidiary’s book value at the date of acquisition

A

false

50
Q

T/F A statutory merger is a business combination in which only one company continues to exist as a legal entity

A

true

51
Q

T/F Consolidated financial statements are typically prepared when one company has significant influence over another company

A

false

52
Q

T/F Acquired in-process research and development is considered an asset and amortized over the life of the asset

A

true

53
Q

T/F In a transaction accounted for using the acquisition method, net assets are reported at their book value.

A

false

54
Q

T/F There is no difference in the consolidated results between a business combination whereby the acquired company is dissolved and one whereby separate incorporation is maintained

A

true

55
Q

T/F When using the acquisition method for a business combination direct costs and indirect costs are expensed

A

true

56
Q

T/F If a dissolution takes place of another company, the appropriate account balances are physically consolidated in the surviving company’s financial records.

A

true

Advanced Accounting (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions