2/21/22, 8:41 PM Assignment Print View

Score: 45/45 Points 100 %

 
 1. Award: 4.50 out of 4.50 points  

Which of the following is the best theoretical justification for consolidated financial statements?

 In form and substance the companies are separate.

 In form the companies are one entity; in substance they are separate.

✓  In form the companies are separate; in substance they are one entity.

 In form and substance the companies are one entity.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 02-02 Recognize when

consolidation of financial information into a
single set of statements is necessary.

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2/21/22, 8:41 PM Assignment Print View
 
 2. Award: 4.50 out of 4.50 points
 

On January 1, 2018, Jay Company acquired all the outstanding ownership shares of Zee Company. In assessing
Zee’s acquisition-date fair values, Jay concluded that the carrying value of Zee’s long-term debt (8-year remaining
life) was less than its fair value by $20,000. At December 31, 2018, Zee Company’s accounts show interest
expense of $12,000 and long-term debt of $250,000. What amounts of interest expense and long-term debt
should appear on the December 31, 2018, consolidated financial statements of Jay and its subsidiary Zee?
 
  Interest expense Long-term debt
a. $14,500 $270,000
b. $14,500 $267,500
c. $9,500 $270,000
d. $9,500 $267,500

 Option A

 Option B

 Option C

✓  Option D

Interest expense is reduced by $2,500 resulting from the acquisition-date fair value of long-term debt allocation.
The debt is increased by $20,000 less $2,500 (1 year of interest amortization).

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 03-04 Understand that a

parent's internal accounting method for its
subsidiary investments has no effect on the
resulting consolidated financial statements.

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2/21/22, 8:41 PM Assignment Print View
 
 3. Award: 4.50 out of 4.50 points
 

FASB ASC 805, Business Combinations, provides principles for allocating the fair value of an acquired business.
When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair
value of the consideration transferred, the difference should be:

 Treated as goodwill and tested for impairment on an annual basis.

✓  Recognized as an ordinary gain from a bargain purchase.

 Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.

 Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific noncurrent
assets of the acquired firm.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 02-04 Describe the

valuation principles of the acquisition method.

 
 4. Award: 4.50 out of 4.50 points
 

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting
purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the
company have made this decision?

 Consolidation is not required when the parent uses the equity method.

✓  Operating results appearing on the parent’s financial records reflect consolidated totals.

 GAAP now requires the use of this particular method for internal reporting purposes.

 It is a relatively easy method to apply.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 03-02 Identify and describe
the various methods available to a parent
company in order to maintain its investment in
subsidiary account in its internal records.

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2/21/22, 8:41 PM Assignment Print View
 
 5. Award: 4.50 out of 4.50 points
 

What is the appropriate accounting treatment for the value assigned to in-process research and development
acquired in a business combination?

✓  Capitalize as an asset.

 Expense upon acquisition.

 Expense until future economic benefits become certain and then capitalize as an asset.

 Expense if there is no alternative use for the assets used in the research and development and
technological feasibility has yet to be reached.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 02-08 Describe the

accounting treatment for the various intangible
assets often acquired in a business
combination.

 
 6. Award: 4.50 out of 4.50 points
 

Which of the following does not represent a primary motivation for business combinations?

✓  Larger firms are less likely to fail.

 Combinations are often a vehicle to accelerate growth and competitiveness.

 Synergies may be available through quick entry for new and existing products into markets.

 Cost savings can be achieved through elimination of duplicate facilities and staff.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 02-01 Discuss the motives
for business combinations.

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2/21/22, 8:41 PM Assignment Print View
 
 7. Award: 4.50 out of 4.50 points
 

What is a statutory merger?

✓  A business combination in which only one company continues to exist as a legal entity.

 A merger approved by the Securities and Exchange Commission.

 A takeover completed within one year of the initial tender offer.

 An acquisition involving the purchase of both stock and assets.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 02-03 Define the term
business combination and differentiate across
various forms of business combinations.

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2/21/22, 8:41 PM Assignment Print View
 
 8. Award: 4.50 out of 4.50 points
 

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar’s equipment (10-year
remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year
remaining life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record
its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $294,000 but a fair
value of $445,200. Kimmel has equipment with a book value of $190,400 but a fair value of $357,000. What is the
consolidated balance for the Equipment account as of December 31, 2017?

 $484,400

✓  $574,000

 $612,600

 $802,200

Explanation:
       
Paar’s equipment book value—12/31/17 $ 294,000  
Kimmel’s equipment book value—12/31/17   190,400  
Original acquisition-date allocation to Kimmel's equipment
   
($400,000 − $272,000) 128,000
Amortization of allocation
 
($128,000 ÷ 10 years for 3 years) (38,400)
Consolidated equipment $ 574,000  

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 03-01 Recognize the

complexities in preparing consolidated financial
reports that emerge from the passage of time.

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2/21/22, 8:41 PM Assignment Print View
 
 9. Award: 4.50 out of 4.50 points  

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting
purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might
the company have made this decision?

 GAAP now requires the use of this particular method for internal reporting purposes.

 Consolidation is not required when the parent uses the initial value method.

 Operating results appearing on the parent’s financial records reflect consolidated totals.

✓  It is a relatively easy method to apply.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 03-02 Identify and describe
the various methods available to a parent
company in order to maintain its investment in
subsidiary account in its internal records.

 
 10. Award: 4.50 out of 4.50 points
 

When should a consolidated entity recognize a goodwill impairment loss?

 Annually on a systematic and rational basis.

 If the fair value of a reporting unit with goodwill falls below its carrying amount.

 Whenever the entity’s fair value declines significantly.

✓  If both the fair value of a reporting unit and its associated implied goodwill fall below their respective
carrying amounts.

No further explanation details are available for this problem.

References

Multiple Choice Difficulty: 1 Easy Learning Objective: 03-05 Discuss the rationale
for the goodwill impairment testing approach.

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