Exam 2 Review Questions Flashcards
- In order to complete the Purchasing Process, the process steps must be completed in what order:
A. Invoice, Purchase Order, Goods Received, Purchase Requisition, Cash Paid
B. Purchase Requisition, Goods Received, Invoice, Purchase Order, Cash Paid
C. Purchase Requisition, Purchase Order, Goods Received, Invoice, Cash Paid
D. Purchase Order, Purchase Requisition, Goods Received, Invoice, Cash Paid
C. Purchase Requisition, Purchase Order, Goods Received, Invoice, Cash Paid
2. On January 1, 2010, Bangle Company purchased 30% of the voting common stock of Sleat Corp. for $1,000,000. Any excess of cost over book value was assigned to goodwill. During 2010, Sleat paid dividends of $24,000 and reported a net loss of $140,000. What is the balance in the investment account on December 31, 2010? A. $950,800. B. $945,800. C. $939,300. D. $990,100. E. $956,400.
A. $950,800.
- In a situation where the investor exercises significant influence over the investee, which of the following entries is not actually posted to the books of the investor?
A. Debit to the Investment account, and a Credit to the Equity in Investee Income account.
B. Debit to Cash (for dividends received from the investee), and a Credit to Dividends Revenue.
C. Debit to Cash (for dividends received from the investee), and a Credit to the Investment account.
D. All of the above are posted to the investor’s books.
E. None of the above is posted to the investor’s books.
B. Debit to Cash (for dividends received from the investee), and a Credit to Dividends Revenue.
- 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. A cumulative effect change in accounting principle must occur.
B. A prospective change in accounting principle must occur.
C. A retroactive change in accounting principle must occur.
D. The investor will not receive future dividends from the investee.
E. Future dividends will continue to be recorded as revenue.
C. A retroactive change in accounting principle must occur.
- Which of the following is a reason for a business combination to take place?
A. Cost savings through elimination of duplicate facilities.
B. Quick entry for new and existing products into domestic and foreign markets.
C. Diversification of business risk.
D. Vertical integration.
E. All of the above.
E. All of the above.
- A statutory merger is a(n)
A. business combination in which only one of the two companies continues to exist as a legal corporation.
B. business combination in which both companies continues to exist.
C. acquisition of a competitor.
D. acquisition of a supplier or a customer.
E. legal proposal to acquire outstanding shares of the target’s stock.
A. business combination in which only one of the two companies continues to exist as a legal corporation.
- How are stock issuance costs and direct consolidation costs treated in a business combination which is accounted for as an acquisition, when the subsidiary will retain its incorporation?
A. Stock issuance costs are a part of the acquisition costs, and the direct consolidation costs are a reduction to additional paid-in capital.
B. Direct consolidation costs are expensed, and the stock issuance costs are a reduction to additional paid-in capital.
C. Both are treated as part of the acquisition price.
D. Both are treated as a reduction to additional paid-in capital.
E. Both are treated as a reduction to retained earnings.
B. Direct consolidation costs are expensed, and the stock issuance costs are a reduction to additional paid-in capital.
- Which of the following statements is true regarding a statutory consolidation?
A. The original companies dissolve while remaining as separate divisions of a newly created company.
B. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.
C. The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
D. The acquiring company acquires the stock of the acquired company as an investment.
E. None of the above.
A. The original companies dissolve while remaining as separate divisions of a newly created company.
- When is a goodwill impairment loss recognized?
A. Annually on a systematic and rational basis.
B. Never.
C. If both the market value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
D. If the market value of a reporting unit falls below its original acquisition price.
E. Whenever the market value of the entity declines significantly.
C. If both the market value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
- When negotiating business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future of performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?
A. The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met.
B. The fair value of the contingent consideration is expensed immediately at acquisition date.
C. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners’ equity is recognized.
D. The fair value of the contingent consideration is recorded as a reduction of the otherwise determinable fair value of the acquired.
C. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners’ equity is recognized.
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire 100% of Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
Building (20 yr. life) BV = $240K, FMV =$268K
Equipment (10 yr life) BV = $540K, FMV = $516K
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
12. In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary earnings? A. $77,000. B. $79,000. C. $125,000. D. $127,000. E. $81,800.
13. What is the balance in Cale's investment in subsidiary account at the end of 2010? A. $1,099,000. B. $1,020,000. C. $1,096,200. D. $1,098,000. E. $1,144,400.
12) D. $127,000.
13) A. $1,099,000.
- According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?
A. Goodwill recognized in consolidation must be amortized over 20 years.
B. Goodwill recognized in consolidation must be expensed in the period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E. Goodwill recognized in consolidation must be amortized over 40 years.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
