[Topic 3] Chapter 2 and Chapter 3 Exam Flashcards
The investment in a subsidiary should be recorded on the parent’s books at the
a. Fair value of the subsidiary’s net identifiable assets.
b. Fair value of the consideration given.
c. Underlying book value of the subsidiary’s net assets.
d. Fair value of the consideration given plus an estimated value of goodwill.
Fair value of the consideration given.
Which of the following costs of a business combination can be included in the value charged to paid-in capital in excess of par?
a. Direct acquisition costs and stock issue costs if stock is issued as consideration.
b. Stock issue costs if stock is issued as consideration.
c. Direct acquisition costs.
d. Direct and indirect acquisition costs.
Stock issue costs if stock is issued as consideration.
Partial equity is the same with equity method except that amortization of allocated excess is not recognized in the investment and income account.
TRUE
The non-controlling shareholder’s claim of the subsidiary’s net assets is based on the book value of the subsidiary’s net assets.
FALSE
The best theoretical justification for consolidated financial statements is that in form and substance the companies are one entity.
FALSE
What is the method of presentation required by PFRS 10 of “non-controlling interest” on a consolidated balance sheet?
a. As a separate item between liabilities
and stockholders’ equity.
b. As
part of stockholders’ equity.
c. As a separate item within the
long-term liabilities section.
d. As a deduction from goodwill from
consolidation.
As part of stockholders’ equity.
On the consolidated balance sheet,
consolidated stockholders’ equity is
a. Equal to the sum of the parent and subsidiary stockholders’ equity.
b. Equal to the parent’s stockholder equity.
c. Greater than the parent’s stockholder equity.
d. Less than the parent’s stockholders’ equity.
Equal to the parent’s stockholder equity.
Under the cost method, the investment account is reduced when
a. There is a liquidating dividend.
b. The subsidiary declares a cash dividend.
c. The subsidiary incurs a net loss.
d. None of these.
None of these.
Total assets reported by the parent generally will be less than total assets reported on the consolidated balance sheet.
TRUE
The standard that requires goodwill to be reviewed annually for impairment loss.
PAS 36
The appropriate accounting treatment for the value assigned in the research and development acquired in a business combination is to _________ such value.
CAPITALIZE
Direct and indirect acquisition costs of a business combination are treated as a/an ________.
EXPENSE
A standard that discusses separate financial statements.
PAS 27
In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are treated as a/an _________.
DEDUCTION FROM PAID-IN CAPITAL IN EXCESS OF PAR
The investment in a subsidiary should be recorded on the parent’s books at the __________.
FV OF CONSIDERATION GIVEN
In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the _______.
COST METHOD
A standard that discusses consolidated financial statements.
PFRS 10
The criterion for identifying a parent-subsidiary relationship and the basis for
consolidation.
CONTROL
When the implied value exceeds the aggregate fair values of identifiable net assets, the
residual difference is accounted for as _____________.
GOODWILL
The parent company records its share of a subsidiary’s income by
a. Crediting Investment in S Company under the equity method.
b. Crediting Equity in Subsidiary Income/Investment Income under both the cost and equity methods.
c. Debiting Equity in Subsidiary Income/Investment Income under the cost method.
d. None of these.
None of these.
In preparing consolidated working papers, beginning retained earnings of the parent
company will be adjusted in years subsequent to acquisition with an elimination entry
whenever
a. The complete equity method is in use.
b. It does not reflect the equity method.
c. A non-controlling interest exists.
d. The cost method has been used only.
It does not reflect the equity method.
What is push-down accounting?
a. A requirement that a subsidiary must use the same accounting principles as a parent company.
b. Inventory transfers made from a parent company to a subsidiary.
c. The adjustments required for consolidation when a parent has applied the equity method of accounting for internal reporting purposes.
d. A subsidiary’s recording of the fair value allocations as well as subsequent
amortization.
A subsidiary’s recording of the fair value allocations as well as subsequent
amortization.
Eliminating entries are made to cancel the effects of intercompany transactions and are
made on the
a. Books of both the parent company and the subsidiary.
b. Books of the parent company.
c. Work paper only.
d. Books of the subsidiary company.
Work paper only.
In consolidated financial statements, it is expected that retained earnings equals the sum of the controlling interest’s separate retained earnings and the non-controlling interest’s separate retained earnings.
FALSE
In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is included with parent company income from other sources to constitute consolidated net income.
FALSE
Which of the following is not correct with regard to a parent’s ownership of 100 percent of a subsidiary’s stock subsequent to a book value acquisition?
a. Consolidated net income equals the parent’s net income
b. Consolidated Investment in Subsidiary balance equals the parent’s Investment in Subsidiary balance
c. Consolidated Retained Earnings equals the parent’s Retained Earnings
d. Consolidated dividends equal the parent’s dividends
Consolidated Investment in Subsidiary balance equals the parent’s Investment in Subsidiary balance
Which of the following statements applying the use of the equity method versus the cost method is true?
a. If no dividends were paid by the subsidiary, the investment account would have the same balance under both methods.
b. An advantage of the equity method is that no amortization of excess adjustments needs to be made on the consolidated worksheet.
c. The equity method is required when one firm owns 20% or more of the common stock of another firm.
d. The method used has no significance to consolidated statements.
The method used has no significance to consolidated statements.
