Question 39 A business merger differs from a business consolidation because Answers:A. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms a new corporation. B. a consolidation is created when two entities join, but a merger is created when more than two entities join. C. a merger is created when two entities join, but a consolidation is created when more than two entities join. D. a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities. Question 40 A parent company uses the equity method to account for its wholly-owned subsidiary. Which of the following will be a correct procedure for the Investment account? Answers:A. A debit for subsidiary dividends received and a credit for a subsidiary loss B. A credit for a subsidiary loss and a credit for dividends received C. A credit for subsidiary income and a debit for dividends received D. A debit for a subsidiary loss and a credit for dividends received Question 41 Pinkerton Inc. owns 10% of Sable Company. In the most recent year, Sable had net earnings of $40,000 and paid dividends of $6,000. Pinkerton's accountant mistakenly assumed Pinkerton had considerable influence over Sable and used the equity method instead of the cost method. What is the impact on the investment account and net earnings, respectively? Answers:A. By using the equity method, the accountant has overstated the investment account and understated the net earnings. B. By using the equity method, the accountant has understated the investment account and understated the net earnings. C. By using the equity method, the accountant has overstated the investment account and overstated the net earnings. D. By using the equity method, the accountant has understated the investment account and overstated the net earnings. Question 42 What is the reported amount for the noncontrolling interest? Answers:A. $80,000 B. $84,400 C. $122,500 D. $98,000 Question 43 What amount of Goodwill will be reported? Answers:A. $90,000 B. $68,000 C. $72,000 D. $54,400 Question 44 In a business combination, which of the following will occur? Answers:A. All identifiable assets and liabilities are recorded at book value at the date of acquisition. B. All identifiable assets and liabilities are recorded at fair value at the date of acquisition. C. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. D. The Sarbanes-Oxley Act requires firms to report material aggregate amounts of goodwill as a separate balance sheet line item. Question 45 Which of the following will be debited to the Investment account when the equity method is used? Answers:A. Depreciation of excess purchase cost attributable to investee equipment B. Investee net losses C. Investee net profits D. Investee declaration of dividends Question 46 According to ASC 810-10, liabilities assumed in an acquisition will be valued at the ________. Answers:A. historical book value B. current replacement cost C. fair value D. present value using market interest rates Question 47 From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements? Answers:A. In substance the companies are separate, but in form the companies are one entity. B. In substance and form the companies are one entity. C. In substance and form the companies are separate entities. D. In substance the companies are one entity, but in form they are separate. Question 48 In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers? Answers:A. Receivables and payables but not revenues, expenses, gains, and losses B. All revenues, expenses, gains, losses, receivables, and payables C. All revenues, expenses, gains, and losses but not receivables and payables D. Only sales revenue and cost of goods sold Question 49 Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment? Answers:A. The present value of future cash flows discounted at the firm's cost of capital B. Financial analyst forecasts C. Senior executive's estimates D. Fair value Question 50 Pomograte Corporation bought 75% of Sycamore Company's common stock, with a book value of $900,000, on January 2, 2014 for $750,000. The law firm of Dewey, Cheatam and Howe was paid $55,000 to facilitate the purchase. At what amount should Pomograte's Investment in Sycamore account be reported on January 2, 2014? Answers:A. $675,000 B. $695,000 C. $845,000 D. $750,000 Wednesday, June 9, 2021 1:25:42 PM EDT

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Answered: Question 39 A business merger…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question 39

A business merger differs from a business consolidation because

Answers:	A. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms a new corporation.
	B. a consolidation is created when two entities join, but a merger is created when more than two entities join.
	C. a merger is created when two entities join, but a consolidation is created when more than two entities join.
	D. a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities.

Question 40

A parent company uses the equity method to account for its wholly-owned subsidiary. Which of the following will be a correct procedure for the Investment account?

Answers:	A. A debit for subsidiary dividends received and a credit for a subsidiary loss
	B. A credit for a subsidiary loss and a credit for dividends received
	C. A credit for subsidiary income and a debit for dividends received
	D. A debit for a subsidiary loss and a credit for dividends received

Question 41

Pinkerton Inc. owns 10% of Sable Company. In the most recent year, Sable had net earnings of $40,000 and paid dividends of $6,000. Pinkerton's accountant mistakenly assumed Pinkerton had considerable influence over Sable and used the equity method instead of the cost method. What is the impact on the investment account and net earnings, respectively?

Answers:	A. By using the equity method, the accountant has overstated the investment account and understated the net earnings.
	B. By using the equity method, the accountant has understated the investment account and understated the net earnings.
	C. By using the equity method, the accountant has overstated the investment account and overstated the net earnings.
	D. By using the equity method, the accountant has understated the investment account and overstated the net earnings.

Question 42

What is the reported amount for the noncontrolling interest?

Answers:	A. $80,000
	B. $84,400
	C. $122,500
	D. $98,000

Question 43

What amount of Goodwill will be reported?

Answers:	A. $90,000
	B. $68,000
	C. $72,000
	D. $54,400

Question 44

In a business combination, which of the following will occur?

Answers:	A. All identifiable assets and liabilities are recorded at book value at the date of acquisition.
	B. All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
	C. Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired.
	D. The Sarbanes-Oxley Act requires firms to report material aggregate amounts of goodwill as a separate balance sheet line item.

Question 45

Which of the following will be debited to the Investment account when the equity method is used?

Answers:	A. Depreciation of excess purchase cost attributable to investee equipment
	B. Investee net losses
	C. Investee net profits
	D. Investee declaration of dividends

Question 46

According to ASC 810-10, liabilities assumed in an acquisition will be valued at the ________.

Answers:	A. historical book value
	B. current replacement cost
	C. fair value
	D. present value using market interest rates

Question 47

From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements?

Answers:	A. In substance the companies are separate, but in form the companies are one entity.
	B. In substance and form the companies are one entity.
	C. In substance and form the companies are separate entities.
	D. In substance the companies are one entity, but in form they are separate.

Question 48

In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?

Answers:	A. Receivables and payables but not revenues, expenses, gains, and losses
	B. All revenues, expenses, gains, losses, receivables, and payables
	C. All revenues, expenses, gains, and losses but not receivables and payables
	D. Only sales revenue and cost of goods sold

Question 49

Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

Answers:	A. The present value of future cash flows discounted at the firm's cost of capital
	B. Financial analyst forecasts
	C. Senior executive's estimates
	D. Fair value

Question 50

Pomograte Corporation bought 75% of Sycamore Company's common stock, with a book value of $900,000, on January 2, 2014 for $750,000. The law firm of Dewey, Cheatam and Howe was paid $55,000 to facilitate the purchase. At what amount should Pomograte's Investment in Sycamore account be reported on January 2, 2014?

Answers:	A. $675,000
	B. $695,000
	C. $845,000
	D. $750,000

Wednesday, June 9, 2021 1:25:42 PM EDT

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