ACC 401 Week 3 Quiz - Strayer
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Chapter 3
Consolidated
Financial Statements—Date of Acquisition
Multiple Choice
1. A majority-owned subsidiary that is in
legal reorganization should normally be accounted for using
a. consolidated financial statements.
b. the equity method.
c. the market value method.
d. the cost method.
2. Under the acquisition method, indirect
costs relating to acquisitions should be
a. included in the investment cost.
b. expensed as incurred.
c. deducted from other contributed capital.
d. none of these.
3. Eliminating entries are made to cancel
the effects of intercompany transactions and are made on the
a. books of the parent company.
b. books of the subsidiary company.
c. workpaper only.
d. books of both the parent company and the
subsidiary.
4. One reason a parent company may pay an
amount less than the book value of the subsidiary's stock acquired is
a. an undervaluation of the subsidiary's assets.
b. the existence of unrecorded goodwill.
c. an overvaluation of the subsidiary's
liabilities.
d. none of these.
5. In a business combination accounted for
as an acquisition, registration costs related to common stock issued by the
parent company are
a. expensed as incurred.
b. deducted from other contributed capital.
c. included in the investment cost.
d. deducted from the investment cost.
6. On the consolidated balance sheet,
consolidated stockholders' equity is
a. equal to the sum of the parent and subsidiary
stockholders' equity.
b. greater than the parent's stockholders'
equity.
c. less than the parent's stockholders' equity.
d.
equal
to the parent's stockholders' equity.
7. Majority-owned subsidiaries should be
excluded from the consolidated statements when
a. control does not rest with the majority
owner.
b. the subsidiary operates under governmentally
imposed uncertainty.
c. a foreign subsidiary is domiciled in a
country with foreign exchange restrictions or controls.
d. any of these circumstances exist.
8. Under the economic entity concept,
consolidated financial statements are intended primarily for the benefit of the
a. stockholders of the parent company.
b. creditors of the parent company.
c. minority stockholders.
d. all of the above.
9. Reasons a parent company may pay more
than book value for the subsidiary company's stock include all of the following
except
a. the fair value
of one of the subsidiary's assets may exceed its recorded value because of
appreciation.
b. the existence of unrecorded goodwill.
c. liabilities may be overvalued.
d. stockholders' equity may be undervalued.
10. What is the method of presentation
required by SFAS 160 of “non-controlling interest” on a consolidated balance
sheet?
a. As a deduction from goodwill from
consolidation.
b. As a separate item within the long-term
liabilities section.
c. As a part of stockholders' equity.
d. As a separate item between liabilities and
stockholders' equity.
11. Which of the following is a limitation of
consolidated financial statements?
a. Consolidated statements provide no benefit
for the stockholders and creditors of the parent company.
b. Consolidated statements of highly diversified
companies cannot be compared with industry standards.
c. Consolidated statements are beneficial only
when the consolidated companies operate within the same industry.
d.
Consolidated
statements are beneficial only when the consolidated companies operate in
different industries.
12. Pine Corp. owns 60% of Sage Corp.'s
outstanding common stock. On May 1, 2011, Pine advanced Sage $90,000 in cash,
which was still outstanding at December 31, 2011. What portion of this advance
should be eliminated in the preparation of the December 31, 2011 consolidated
balance sheet?
a. $90,000.
b. $54,000.
c. $36,000.
d.
$-0-.
Use the
following information for questions 13-15.
On
January 1, 2011, Polk Company and Sigler Company had condensed balance sheets
as follows:
Polk Sigler
Current assets $ 280,000 $ 80,000
Noncurrent assets _360,000 __160,000
Total assets $ 640,000 $240,000
Current liabilities $ 120,000 $ 40,000
Long-term
debt 200,000 -0-
Stockholders'
equity __320,000
200,000
Total
liabilities & stockholders' equity $ 640,000 $240,000
On
January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of
the outstanding common stock of Sigler. This debt is payable in 10 equal annual
principal payments, plus interest, starting December 30, 2011. Any difference
between book value and the value implied by the purchase price relates to land.
On
Polk's January 2, 2011 consolidated balance sheet,
13. Noncurrent assets should be
a. $520,000.
b. $536,000.
c. $544,000.
d. $586,667.
14. Current liabilities should be
a. $200,000.
b. $184,000.
c. $160,000.
d. $120,000.
15. Noncurrent liabilities should be
a. $440,000.
b. $416,000.
c. $240,000.
d.
$216,000.
16. A newly acquired subsidiary has pre-existing
goodwill on its books. The parent
company’s consolidated balance sheet will:
a.
treat
the goodwill the same as other intangible assets of the acquired company.
b.
will
always show the pre-existing goodwill of the subsidiary at its book value.
c.
not
show any value for the subsidiary’s pre-existing goodwill.
d.
do
an impairment test to see if any of it has been impaired.
17. The Difference between Implied and
Book Value account is:
a.
an
account necessary for the preparation of consolidated working papers.
b.
used
in allocating the amounts paid for recorded balance sheet accounts that are
different than
their fair values.
c.
the
excess implied value assigned to goodwill.
d.
the
unamortized excess that cannot be assigned to any related balance sheet
accounts
18. The main evidence of control for purposes
of consolidated financial statements involves
a.
possessing
majority ownership
b.
having
decision-making ability that is not shared with others.
c.
being
the sole shareholder
d.
having
the parent company and the subsidiary participating in the same industry.
19. In which
of the following cases would consolidation be inappropriate?
a. The
subsidiary is in bankruptcy.
b. Subsidiary's
operations are dissimilar from those of the parent.
c. The
parent owns 90 percent of the subsidiary's common stock, but all of the
subsidiary's nonvoting preferred stock is held by a single investor.
d. Subsidiary
is foreign.
20. Princeton Company acquired 75 percent of
the common stock of Sheffield Corporation on December 31, 2011. On the date of
acquisition, Princeton held land with a book value of $150,000 and a fair value
of $300,000; Sheffield held land with a book value of $100,000 and fair value
of $500,000. What amount would land be reported in the consolidated balance
sheet prepared immediately after the combination?
a. $650,000
b. $500,000
c. $550,000
d. $375,000
Use
the following information to answer questions 21 - 23.
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