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Week 6 Quiz Review:  ACC 577

Question 1 

At the time Company P acquired controlling interest of Company S the following accounts and balances existed on the books of the two companies: Which one of the following amounts should be eliminated in preparing a consolidated balance sheet immediately following the business combination?

Question 2                  

In which one of the following cases will a non-cash asset transferred as consideration in a business combination be measured at carrying value, not at fair value?

Question 3 

On January 1, 200x Ritt Corp. purchased 80% of Shaw Corp.’s $10 par common stock for $975,000. On this date, the carrying amount of Shaw’s net assets was $1,000,000. The fair values of Shaw’s identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) which were $100,000 in excess of the carrying amount. On that date, the fair value of the 20% noncontrolling interest in Shaw was appropriately determined to be $200,000. For the year ended December 31, 200x, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, 200x consolidated balance sheet, goodwill should be reported at

Question 4 

On December 31, 1988, 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 company’s balance sheet immediately before the combination was: Assume that the merger is accounted for using the acquisition method of accounting. December 31, 1988 additional paid-in capital should be reported at

Question 5      

Scroll, Inc., a wholly owned subsidiary of Pirn, Inc., began operations on January 1, 2005. The following information is from the condensed 2005 income statements of Pirn and Scroll: Additional information:

Sales by Pirn to Scroll are made on the same terms as those made to third parties. Equipment purchased by Scroll from Pirn for $36,000 on January 1, 2005, is depreciated using the straight-line method over four years. In Pirn’s December 31, 2005, consolidating worksheet, how much intercompany profit should be eliminated from Scroll’s inventory?

Question 6      

The preparation of consolidated statements likely will require the following information about the subsidiary’s assets and liabilities at the date of acquisition:

Question 7      

Which one of the following levels of voting ownership is normally assumed to convey significant influence over an investee?

Question 8      

In recording its acquisition of Lambda, Inc., Omega, Inc. properly recognized a contingent consideration liability of $28,000 associated with a possible payment based on a target amount of post-combination cash flow from operations. Shortly after the combination, but during the measurement period, the national economy experienced a significant downturn which made it unlikely that the target amount would be reached. As a consequence, at the end of Omega’s fiscal period, the liability was properly revalued to a fair value of $9,000. Which one of the following is the amount of gain or loss that will be recognized in income as a result of the reevaluation of the contingent liability?

Question 9      

Beni Corp. purchased 100% of Carr Corp.’s outstanding capital stock for $430,000 cash. Immediately before the purchase, the balance sheets of both corporations reported the following: On the date of purchase, the fair value of Carr’s assets was $50,000 more than the aggregate carrying amounts. In the consolidated balance sheet prepared immediately after the purchase, the consolidated stockholders’ equity should amount to:

Question 10    

Which one of the following methods, if any, may a parent use on its books to carry an investment in a subsidiary that it will consolidate?

Question 11 

Parco owns 100% of its subsidiary, Subco, which it acquired at book value. It carries its investment in Subco on its books using the equity method of accounting. At the beginning of its 2009 fiscal year, the investment in Subco account was $552,000. During 2009 Subco reported the following: In preparing its 2009 fiscal year consolidated statements, which one of the following is the total amount of equity revenue that Parco will have to reverse for 2009 as a result of it ownership of Subco?

Question 12 

Which of the following kinds of transactions should be eliminated in the consolidating process?

Question 13 

Which of the following statements concerning the primary beneficiary of a variable-interest entity is/are correct? I. The primary beneficiary has the ability to direct the most significant economic activities of the variable-interest entity. II. Only one entity can be the primary beneficiary of a variable-interest entity. III. The investor that has the greatest equity ownership in a variable-interest entity will be the primary beneficiary of the entity.

Question 14    

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers, and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct?

Question 15 

P Co. purchased term bonds at a premium on the open market. These bonds represented 20 percent of the outstanding class of bonds issued at a discount by S Co., P’s wholly owned subsidiary. P intends to hold the bonds until maturity. In a consolidated balance sheet, the difference between the bond carrying amounts in the two companies would be

Question 16    

In which of the following circumstances of a business combination, if any, could the recognition of a gain occur at the time of the combination?

Question 17 

Aceco has significant investments in three separate entities. These investments are: Which of Aceco’s investments would be consolidated with Aceco in its consolidated financial statements?

Question 18 

Consolidated financial statements are based on the concept that:

Question 19    

On January 1, 2005, Poe Corp. sold a machine for $900,000 to Saxe Corp., its wholly-owned subsidiary. Poe paid $1,100,000 for this machine, which had accumulated depreciation of $250,000. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line method over 20 years, a policy which Saxe continued. In Poe’s December 31, 2005, consolidated balance sheet, this machine should be included in cost and accumulated depreciation as

Question 20 

In which one of the following cases is Company A most likely to be the acquirer of Company B in a business combination? 

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