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ADV-MC_1-3
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Preguntas del test (38)
1Growth in the complexity of the U.S. business environment
- AHas led to increased use of partnerships to avoid legal liability.
- BHas led to increasingly complex organizational structures as management has attempted to achieve its business objectives.
- CHas encouraged companies to reduce the number of operating divisions and product lines so they may better control those they retain.
- DHas had no particular impact on the organizational structures or the way in which companies are managed.
2Which of the following is not an appropriate reason for establishing a subsidiary?
- AThe parent wishes to protect existing operations by shifting new activities with greater risk to a newly created subsidiary.
- BThe parent wishes to avoid subjecting all of its operations to regulatory control by establishing a subsidiary that focuses its operations in regulated industries.
- CThe parent wishes to reduce its taxes by establishing a subsidiary that focuses its operations in areas where special tax benefits are available.
- DThe parent wishes to be able to increase its reported sales by transferring products to the subsidiary at the end of the fiscal year.
3Which of the following actions is likely to result in recording goodwill on Randolph Company’s books?
- ARandolph acquires Penn Corporation in a business combination recorded as a merger.
- BRandolph acquires a majority of Penn’s common stock in a business combination and continues to operate it as a subsidiary.
- CRandolph distributes ownership of a newly created subsidiary in a distribution considered to be a spin-off
- DRandolph distributes ownership of a newly created subsidiary in a distribution considered to be a split-off.
4When an existing company creates a new subsidiary and transfers a portion of its assets and liabilities to the new entity
- AThe new entity records both the assets and liabilities it received at fair values.
- BThe new entity records both the assets and liabilities it received at the carrying values of the original company
- CThe original company records a gain or loss on the difference between its carrying values and the fair values of the assets transferred to the new entity.
- DThe original company records the difference between the carrying values and the fair values of the assets transferred to the new entity as goodwill.
5Goodwill represents the excess of the sum of the fair value of the (1) consideration given, (2) shares already owned, and (3) the noncontrolling interest over the
- ASum of the fair values assigned to identifiable assets acquired less liabilities assumed
- BSum of the fair values assigned to tangible assets acquired less liabilities assumed.
- CSum of the fair values assigned to intangible assets acquired less liabilities assumed.
- DBook value of an acquired company.
6In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n)
- AExpense of the combined company for the period in which the costs were incurred
- BDirect addition to stockholders’ equity of the combined company.
- CReduction of the recorded value of the securities
- DAddition to goodwill.
7Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?
- AHistorical cost.
- BBook value.
- CCost plus any excess of purchase price over book value of assets acquired.
- DFair value
8In a business combination in which an acquiring company purchases 100 percent of the out- standing common stock of another company, if the fair value of the net identifiable assets acquired exceeds the fair value of the consideration given. The excess should be reported as a
- ADeferred credit
- BReduction of the values assigned to current assets and a deferred credit for any unallocated portion
- CPro rata reduction of the values assigned to current and noncurrent assets and a deferred credit for any unallocated portion.
- DNo answer listed is correct
9AandBCompanieshavebeenoperatingseparatelyforfiveyears.Eachcompanyhasaminimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange for 40 percent of its voting stock A Company, acquires 80 percent of the common stock of B Company. This is a “tax-free” stock-for-stock exchange for tax purposes. B Com- pany’s identifiable assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000, and the fair value of the noncontrolling interest is $175,000. The goodwill reported following the acquisition would be
- AZero
- B$60,000.
- C$75,000.
- D$295,000.
10Topper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Topper had purchased the equipment with ten-year expected life of four years earlier for $100,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record
- AEquipment at $72,000 and no accumulated depreciation.
- BEquipment at $60,000 and no accumulated depreciation.
- CEquipment at $100,000 and accumulated depreciation of $40,000.
- DEquipment at $120,000 and accumulated depreciation of $48,000.
11LeadCorporationestablishedanewsubsidiaryandtransferredtoitassetswithacostof$90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The transfer will result in
- AA reduction of net assets reported by Lead Corporation of $90,000
- BA reduction of net assets reported by Lead Corporation of $75,000
- CNo change in the reported net assets of Lead Corporation.
- DAn increase in the net assets reported by Lead Corporation of $25,000
12Tear Company, a newly established subsidiary of Stern Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the par- ent in exchange for 7,000 shares of Tear’s $8 par value common stock. Tear should record
- AAdditional paid-in capital of $0.
- BAdditional paid-in capital of $84,000.
- CAdditional paid-in capital of $144,000.
- DAdditional paid-in capital of $204,000.
13n December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its $10 par common stock, with a market price of $18 a share, for all of Saxe’s common stock. The stockholders’ equity section of each com- pany’s balance sheet immediately before the combination was:
Common Stock 3,000,000 (POE) 3,000,000 (SAXE)
Additional Paid-In Capital 1,300,000 (POE) 150,000 (SAXE)
Retained Earnings 2,500,000 (POE) 850,000 (SAXE)
In the December 31, 20X3, consolidated balance sheet, additional paid-in capital should be
reported at- A$950,000.
- B$1,300,000.
- C$1,450,000.
- D$2,900,000.
14OnJanuary1,20X1,RolanCorporationissued10,000sharesofcommonstockinexchangefor all of Sandin Corporation’s outstanding stock. Condensed balance sheets of Rolan and Sandin immediately before the combination follow:
Total Assets $1,000,000 (Rolan) $500,00 (Sandin)
Liabilities $300,000 (Rolan) $150,00 (Sandin)
Common Stock ($10 par) $200,000 (Rolan) $100,00 (Sandin)
Retained Earnings $500,000 (Rolan) $250,00 (Sandin)
Total Liabilities and Equities $1,000,000 (Rolan) $500,00 (Sandin)
Rolan’s common stock had a market price of $60 per share on January 1, 20X1. The market price of Sandin’s stock was not readily determinable. The fair value of Sandin’s net identifiable assets was determined to be $570,000. Rolan’s investment in Sandin’s stock will be stated in Rolan’s balance sheet immediately after the combination in the amount of- A$350,000
- B$500,000
- C$570,000
- D$600,000
15On April 1, 20X2, Jack Company paid $800,000 for all of Ann Corporation’s issued and out- standing common stock. Ann’s recorded assets and liabilities on April 1, 20X2, were as follows:
Cash $80,000
Inventory $240,000
P&E $480,000
Liabilities ($180,000)
On April 1, 20X2, Ann’s inventory was determined to have a fair value of $190,000, and the property and equipment had a fair value of $560,000. What is the amount of goodwill resulting from the business combination?- A$0
- B$50,000
- C$150,000
- D$180,000
16Action Corporation issued nonvoting preferred stock with a fair market value of $4,000,000 in exchange for all the outstanding common stock of Master Corporation. On the date of the exchange, Master had tangible net assets with a book value of $2,000,000 and a fair value of $2,500,000. In addition, Action issued preferred stock valued at $400,000 to an individual as a finder’s fee in arrang- ing the transaction. As a result of this transaction, Action should record an increase in net assets of
- A$2,000,000.
- B$2,500,000.
- C$4,000,000.
- D$4,500,000.
17Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it uses the cost method or equity method of accounting?
- ACost: No
Equity: No - BCost: Yes
Equity: No - CCost: No
Equity: Yes - DCost: Yes
Equity: Yes
- ACost: No
18Aninvestorusestheequitymethodtoaccountforaninvestmentincommonstock.Assumethat (1) the investor owns more than 50 percent of the outstanding common stock of the investee, (2) the investee company reports net income and declares dividends during the year, and (3) the investee’s net income is more than the dividends it declares. How would the investor’s invest- ment in the common stock of the investee company under the equity method differ at year-end from what it would have been if the investor had accounted for the investment under the cost method?
- AThe balance under the equity method is higher than it would have been under the cost method.
- BThe balance under the equity method is lower than it would have been under the cost method
- CThe balance under the equity method is higher than it would have been under the cost method, but only if the investee company actually paid the dividends before year-end
- DThe balance under the equity method is lower than it would have been under the cost method, but only if the investee company actually paid the dividends before year-end.
19A corporation exercises significant influence over an affiliate in which it holds a 40 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the investor corporation?
- AResult in an increased current ratio
- BResult in increased earnings per share
- CIncrease asset turnover ratios
- DDecrease book value per share.
20Companies often acquire ownership in other companies using a variety of ownership arrange- ments. The investor should use equity-method reporting whenever
- AThe investor purchases voting common stock of the investee.
- BThe investor has significant influence over the operating and financing decisions of the investee
- CThe investor purchases goods and services from the investee
- DThe carrying value of the investment is less than the market value of the investee’s shares held by the investor
21The carrying amount of an investment in stock correctly accounted for under the equity method is equal to
- AThe original price paid to purchase the investment
- BThe original price paid to purchase the investment plus cumulative net income plus cumulative dividends declared by the investee since the date the investment was acquired
- CThe original price paid to purchase the investment plus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired
- DThe original price paid to purchase the investment minus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired
22On January 2, 20X3, Kean Company purchased a 30 percent interest in Pod Company for
$250,000. Pod reported net income of $100,000 for 20X3 and declared and paid a dividend of $10,000. Kean accounts for this investment using the equity method. In its December 31, 20X3, balance sheet, what amount should Kean report as its investment in Pod?- A$160,000
- B$223,000
- C$340,000
- D$277,000
23Investor Inc. owns 40 percent of Alimand Corporation. During the calendar year 20X5,
Alimand had net earnings of $100,000 and paid dividends of $10,000. Investor mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively?- AUnderstate, overstate, overstate.
- BOverstate, understate, understate
- COverstate, overstate, overstate
- DUnderstate, understate, understate.
24A corporation using the equity method of accounting for its investment in a 40 percent–owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries:
Investment in Investee 8,000
Income from Investee 8,000
Cash 2,000
Dividend Revenue 2,000
What effect will these entries have on the investor’s statement of financial position?- AFinancial position will be fairly stated.
- BInvestment in the investee will be overstated, retained earnings understated
- CInvestment in the investee will be understated, retained earnings understated.
- DInvestment in the investee will be overstated, retained earnings overstated
25When a parent–subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of
- AReliability
- BMateriality
- CLegal entity
- DEconomic entity.
26Consolidated financial statements are typically prepared when one company has a controlling interest in another unless
- AThe subsidiary is a finance company
- BThe fiscal year-ends of the two companies are more than three months apart
- CCircumstances prevent the exercise of control.
- DThe two companies are in unrelated industries, such as real estate and manufacturing
27PennInc.,amanufacturingcompany,owns75percentofthecommonstockofSellInc.,aninvest- ment company. Sell owns 60 percent of the common stock of Vane Inc., an insurance company. In Penn’s consolidated financial statements, should Sell and Vane be consolidated or reported as equity method investments (assuming there are no side agreements)?
- AConsolidation used for Sell and equity method used for Vane.
- BConsolidation used for both Sell and Vane
- CEquity method used for Sell and consolidation used for Vane.
- DEquity method used for both Sell and Vane.
28Which of the following is the best theoretical justification for consolidated financial statements?
- AIn form, the companies are one entity; in substance, they are separate
- BIn form, the companies are separate; in substance, they are one entity
- CIn form and substance, the companies are one entity
- DIn form and substance, the companies are separate
29An enterprise that will absorb a majority of a variable interest entity’s expected losses is called the
- APrimary beneficiary
- BQualified owner
- CMajor facilitator
- DCritical management director.
30In determining whether or not a variable interest entity is to be consolidated, the FASB focused on
- ALegal control
- BShare of profits and obligation to absorb losses
- CFrequency of intercompany transfers
- DProportionate size of the two entities
31Consolidated financial statements are typically prepared when one company has
- AAccounted for its investment in another company by the equity method
- BAccounted for its investment in another company by the cost method.
- CSignificant influence over the operating and financial policies of another company.
- DThe controlling financial interest in another company.
32Aaron Inc. owns 80 percent of the outstanding stock of Belle Inc. Compare the total consoli- dated net earnings of Aaron and Belle (X) and Aaron’s operating earnings before consider- ing the income from Belle (Y). Assume that neither company incurs a net loss during the period.
- AX is more than Y.
- BX is equal to Y
- CX is less than Y.
- DCannot be determined
33On October 1, X Company acquired for cash all of Y Company’s outstanding common stock. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income of
- AX Company for three months and Y Company for three months
- BX Company for 12 months and Y Company for 3 months
- CX Company for 12 months and Y Company for 12 months.
- DX Company for 12 months, but no income from Y Company until Y Company distributes a dividend
34Ownership of 51 percent of the outstanding voting stock of a company would usually result in
- AThe use of the cost method
- BThe use of the lower-of-cost-or-market method
- CThe use of the equity method
- DA consolidation
35On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company’s outstanding common stock at an amount equal to its underlying book value. Selected balance sheet data at December 31, 20X8, are as follows:
Totals Assets 420,000 (Pare) 180,000 (Kidd)
Liabilities 120,000 (Pare) 60,000 (Kidd)
Common Stock 100,000 (Pare) 50,000 (Kidd)
Retained Earnings 200,000 (Pare) 70,000 (Kidd)
420,000 (Pare) 180,000 (Kidd)
In Pare’s December 31, 20X8, consolidated balance sheet, what amount should be reported as minority interest in net assets?- A$0.
- B$30,000.
- C$45,000.
- D$105,000.
36On January 2, 20X8, Pare Company acquired 75 percent of Kidd Company’s outstanding common stock at an amount equal to its underlying book value. Selected balance sheet data at December 31, 20X8, are as follows:
Totals Assets 420,000 (Pare) 180,000 (Kidd)
Liabilities 120,000 (Pare) 60,000 (Kidd)
Common Stock 100,000 (Pare) 50,000 (Kidd)
Retained Earnings 200,000 (Pare) 70,000 (Kidd)
420,000 (Pare) 180,000 (Kidd)
n its consolidated balance sheet at December 31, 20X8, what amount should Pare report as common stock outstanding?- A$50,000.
- B$100,000.
- C$137,500.
- D$150,000.
37Consolidated statements are proper for Neely Inc., Randle Inc., and Walker Inc., if
- ANeely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Randle owns 30 percent of Walker.
- BNeely owns 100 percent of the outstanding common stock of Randle and 90 percent of Walker; Neely bought the Walker stock one month before the foreign country in which Walker is based imposed restrictions preventing Walker from remitting profits to Neely.
- CNeely owns 100 percent of the outstanding common stock of Randle and Walker; Walker is in legal reorganization.
- DNeely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Reeves Inc. owns 55 percent of Walker.
38What is the theoretically preferred method of presenting a noncontrolling interest in a consoli- dated balance sheet?
- AAs a separate item within the liability section
- BAs a deduction from (contra to) goodwill from consolidation, if any
- CBy means of notes or footnotes to the balance sheet
- DAs a separate item within the stockholders’ equity section
Información
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- - AdvAcct Test sobre ADV-MC_1-3, creado por susan bye el 29/05/2018.
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- susan bye
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