Solutions for Advanced Financial
Accounting Exam 1 Multiple Choice 1st
edition by Nathalie Johnstone
1. Growth in the complexity of the U.S. business environment: - ANSa. Has led to increasingly
complex organizational structures as management has attempted to achieve its business
objectives.
2. Which of the following is not an appropriate reason for establishing a subsidiary? - ANSThe
parent wishes to be able to increase its reported sales by transferring products to the subsidiary
at the end of the fiscal year.
3. Which of the following actions is likely to result in recording goodwill on Poker Company's
books? - ANSPoker acquires Spade Corporation in a business combination recorded as a
merger.
4. When an existing company creates a new subsidiary and transfers a portion of its assets and
liabilities to the new entity - ANSThe new entity records both the assets and liabilities it received
at the carrying values of the original company.
5. When a company assigns goodwill to a reporting unit acquired in a business combination, it
must record an impairment loss if - ANSThe fair value of the reporting unit is less than its
carrying value.
1. Goodwill 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 - ANSSum of the fair values
assigned to identifiable assets acquired less liabilities assumed.
2. In a business combination, costs of registering equity securities to be issued by the acquiring
company are a(n) - ANSReduction of the recorded value of the securities.
3. Which of the following is the appropriate basis for valuing fixed assets acquired in a business
combination carried out by exchanging cash for common stock? - ANSFair value
4. In a business combination in which an acquiring company purchases 100% of the
outstanding 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
- ANSNO ANSWER LISTED IS CORRECT
, Pro rata reduction of the values assigned to current and noncurrent assets and a deferred credit
for any unallocated portion.
Reduction of the values assigned to current assets and a deferred credit for any unallocated
portion.
Deferred credit.
5. A and B Companies have been operating separately for five years. Each company has a
minimal 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
Company'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 - ANS$75,000
1. Peel Company received a cash dividend from a common stock investment. Should Peel
report an increase in the investment account if it carries the investment at fair value or if it uses
the equity method of accounting?
Fair Value Equity - ANSNo, No
2. In 20X0, Neil Company held the following investments in common stock:
- 25,000 shares of B&K Inc.'s 100,000 outstanding shares. Neil's level of ownership gives it the
ability to exercise significant influence over the financial and operating policies of B&K.
- 6,000 shares of Amal Corporation's 309,000 outstanding shares.
During 20X0, Neil received the following distributions from its common stock investments:
November 6 $30,000 cash dividend from B&K
November 11 $1,500 cash dividend from Amal
December 26 3 percent common stock dividend from Amal The closing price of this stock was
$115 per share.
What amount of dividend revenue should Neil report for 20X0? - ANS$1,500
3. An investor uses the equity method to account for an investment in common stock. Assume
that (1) the investor owns less than 50 percent of the outstanding common stock of the investee,
(2) the investee company reports net income and declares dividends during the year, (3) the fair
value of the investee's stock is unchanged during the year, and (4) the investee's net income is
more than the dividends it declares. How would the investor's investment in the common stock
of the investee company under the equity method differ at year-end from what it would have
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