FAR 3

Question 1

How do you treat the receipt of a stock dividend?

Answer 1

A stock dividend is not income, but the shares are added to the total purchased shares.

Question 2

How should stock dividend received be recorded?

Answer 2

It should be recorded as a memorandum entry reducing the unit cost of all stock owned.

Question 3

How are the receipt of dividends on the cost method recorded?

Answer 3

they are recorded as income and it does not affect the investment account.

Question 4

How to handle additional ownership shares purchased in the equity Method?

Answer 4

the additional shares adopted should be treated from that date going forward.

Question 5

How do you record receipt of cash dividend on the cost method?

Answer 5

recorded as income and does not affect the investment account.

Dr: Cash
CR: dividend Income

Question 6

How do you record receipt of cash dividend on the equity method?

Answer 6

the dividend is recorded as a decrease in the investment account.

Dr: Investment in investee
CR: Equity in earnings

Question 7

What is Goodwill?

Answer 7

It is the excess of the purchase price over the fair value of the net asset

Question 8

How do you account for an investment in preferred stock?

Answer 8

you will use the cost Method and report the amount of dividend income on the income statement

Question 9

How is Goodwill treated under the investment account in the equity method?

Answer 9

Goodwill needs no accounting necessary. It is ignored.

Question 10

How do you treat a subsidiary that is acquired with an acquisition cost less than the FV of assets?

Answer 10

It would be a gain, after adjusting the BS to fair value.

Question 11

How do you value the stockholders equity of the subsidiary?

Answer 11

It is the same as the parent company.

Question 12

How do you value assets and liabilities when the acquisition pries exceeds the fair value?

Answer 12

assets and liabilities should be valued at fair value.

Question 13

How do you treat legal and consulting fees?

Answer 13

Legal and Consulting fees are expensed as incurred

Question 14

What part of the FS remain the same as the parent when consolidated FS?

Answer 14

Retained Earnings, Common Stock, Net income, and stockholders equity, and dividends paid are valued the same in consolidation as the parent company.

Question 15

How is a bargain purchase recognized?

Answer 15

As a gain at the acquisition date.

Question 16

How do you recognize a gain from the purchase of a parent stock by a subsidiary?

Answer 16

It is a treasury stock transaction and there is no gain recognized

Question 17

What percentage must a subsidiary have to be eliminated?

Answer 17

Must be have a greater than 50% percentage. And you will not report on consolidated FS because they will be eliminated.

Question 18

When can combined financial statements be prepared?

Answer 18

for may companies owned by one individual, many companies under common management, and unconsolidated subsidiaries.

Question 19

How do you count for an impairment loss reversal under IFRS with bonds classified as available for sale?

Answer 19

Recognize the reversal in the current years OCI

Question 20

What is the formula for price index?

Answer 20

Ending inventory current cost/ending inventory base year cost

Question 21

in a period of rising prices what does FIFO create?

Answer 21

Highest ending inventory, lowest COGS, and highest net income

Question 22

What is the LIFO reserve?

Answer 22

Its the difference between inventory on the LIFO method verse any other cost method.

Question 23

What is a disadvantage of the periodic inventory system?

Answer 23

The COGS amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.