F5 - Deck 2 Flashcards

1
Q

What is the correct method to account for goodwill in the current year under equity method?
-Test for impairment at YE
-No account necessary
-Amortization over 40 years
-Amortization over life of company

A

-No account necessary

Any goodwill created in an investment accounted for under the equity method is ignored.

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2
Q

What is the calculation of goodwill?

A

Residual value above the fair value of the identifiable net assets.

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3
Q

What inventory adjustment is needed for intercompany? SOLD all of inventory.

A

Sales and cost of goods sold should be reduced by the intercompany sales.

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4
Q

A subsidiary copmany has a payable with its parent. Which BS will the payable be reported?

A

The Subsidiary.

Any payables or receivables between the parent and its subsidiary company must be eliminated in a consolidated presentation in order to avoid double-counting.

However, on the subsidiary’s own balance sheet, any payables or receivables resulting from a transaction with the parent company should be reflected.

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5
Q

Under the acquisition method. What amount would the parent report equity amounts (ie. RE and CStk)?
- Percent of ownerhsip
- Full amount
- Not recorded

A
  • Not recorded

Under the acquisition method, the preacquisition equity of the subsidiary is not carried forward in an acquisition.

Consolidated equity will be equal to the parent’s equity balance.

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6
Q

When noncash items contributed to a partnership, what value is used?
- Carry Value
- Original Cost
- Fair Value

A
  • Fair Value

*Will be net with an liabilities

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7
Q

Under the bonus method, how are premiums paid on retiring partnership recorded?
-As an expense
-Reduction to other partnership capital
-Recorded as goodwill
-No effect

A

-Reduction to other partnership capital

Under the bonus method, any premium paid to the retiring partner is allocated to the remaining partners’ accounts, based on the profit and loss ratios of the remaining partners.

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8
Q

Which item is an investment activity?
- Collection of an overdue account receivable from a customer.
- Collection of proceeds from a note payable.
- Collection of a tax refund from the government.
- Collection of a note receivable from a related party.

A
  • Collection of a note receivable from a related party.

Loans to other entities and the consequent collection of the loans are reflected in the investing activity section of the cash flow statement.

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9
Q

What type of cashflow activities are these transactions?
A Principal payments on notes payable
B Interest payments on notes payable
C Cash payment to purchase 100 shares of another company’s common stock

A

A Financing
B Operating
C Investing

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10
Q

What items below are permanent/temporary tax differences?
A - Accounting for sales of property under the installment method.
B - Tax penalties paid to tax authorities.
C - Prepaid insurance.
D - Warranty payable

A

A, C, D = Temporary
B = Permanent

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11
Q

When preparing Q1 FS. What tax rate is used?
- effective income tax rate
- previous year
- Effective annual income tax rate
- Statutory tax rate

A
  • Effective annual income tax rate

When preparing interim financial statements, income tax expense is estimated each quarter using the effective tax rate expected to apply to the entire year.

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