Chapter 5 Of Acc 401

25 Questions  I  By Jselig83
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EXAM 2 for ACC 401

  
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  • 1. 
    IFRS allows an alternative method for valuing the acquired subsidiary’s goodwill.  When is U.S. GAAP and IFRS valuation the same regardless of which valuation method is used under IFRS?
    • A. 

      There is no noncontrolling interest in the acquired subsidiary.

    • B. 

      There are no revaluations of the acquired subsidiary’s identifiable net assets.

    • C. 

      There is no goodwill impairment.

    • D. 

      It is the date of acquisition.


  • 2. 
    Which is the best measure of fair value per share for the noncontrolling interest in a subsidiary at the date of acquisition, if the subsidiary’s stock is actively traded?
    • A. 

      The parent’s acquisition cost per share.

    • B. 

      The market value per share.

    • C. 

      The parent’s acquisition cost per share less a discount per share for noncontrolling interest.

    • D. 

      The present value of the subsidiary’s future cash flows, on a per share basis.


  • 3. 
    As compared with past practice, SFAS 160 requirements for displaying noncontrolling interests in the consolidated income statement:
    • A. 

      Reduce consolidated net income

    • B. 

      Reduce consolidated revenue

    • C. 

      Increase consolidated net income

    • D. 

      Increase consolidated revenue


  • 4. 
    Noncontrolling interest is reported on the consolidated financial statements as:
    • A. 

      An asset on the consolidated balance sheet

    • B. 

      A distribution of consolidated net income on the consolidated income statement

    • C. 

      An expense on the consolidated income statement

    • D. 

      A liability on the consolidated balance sheet


  • 5. 
    U.S. GAAP and IFRS can differ on valuation of noncontrolling interests on the consolidated balance sheet.  Assume a parent owns 90% of a subsidiary, acquired several years ago.  Which statement is true?
    • A. 

      IFRS allows noncontrolling interests to be reported at the current market value of the shares held by the noncontrolling interests.

    • B. 

      IFRS requires noncontrolling interests to be reported at fair value at the date of acquisition, adjusted for the accumulated noncontrolling interests’ share of the subsidiary’s net income and dividends since acquisition

    • C. 

      IFRS allows noncontrolling interests to be reported at 10% of the current fair value of the subsidiary’s identifiable net assets.

    • D. 

      IFRS allows noncontrolling interests to be reported at 10% of the fair value of the subsidiary’s identifiable net assets at the date of acquisition, adjusted for the accumulated noncontrolling interests’ share of the subsidiary’s net income and dividends since acquisition.


  • 6. 
    Assume a parent acquires 75% of the stock of a subsidiary, in an acquisition in which goodwill is reported.  If goodwill is not impaired, on the consolidated income statement the noncontrolling interest in net income as measured by U.S. GAAP is:
    • A. 

      Always less than noncontrolling interest in net income as measured using IFRS

    • B. 

      Always the same as noncontrolling interest in net income as measured using IFRS

    • C. 

      Always greater than noncontrolling interest in net income as measured using IFRS

    • D. 

      Greater than the noncontrolling interest in net income as measured using IFRS, but only if the alternative valuation method allowed by IFRS is used


  • 7. 
    Noncontrolling interest is reported on the consolidated financial statements as:
    • A. 

      A revenue on the consolidated income statement

    • B. 

      An equity on the consolidated balance sheet

    • C. 

      A reduction in retained earnings on the consolidated statement of retained earnings

    • D. 

      An expense on the consolidated income statement


  • 8. 
    Which statement is true concerning valuation of noncontrolling interests at the date of acquisition per U.S. GAAP?
    • A. 

      Per-share value of the noncontrolling interest is likely to be higher than the acquisition price per share.

    • B. 

      Market price per share is the best measure of noncontrolling interest value if the stock is not actively traded.

    • C. 

      The main difference in per-share value between the controlling and noncontrolling interest is a control premium for the acquirer’s interest.

    • D. 

      The per-share fair value of the controlling and noncontrolling interest is likely to be the same, due to market pressures.


  • 9. 
    An acquirer buys 75% of the stock of a target company for a price well in excess of the target’s book value.  The target company’s assets and liabilities are determined to be fairly reported on the target company’s books, and it does not have any previously unrecorded intangibles.  The acquirer is a non-U.S. company that reports using IFRS.  It uses the alternative valuation method for noncontrolling interests that is not allowed under U.S. GAAP.  Which statement is true?
    • A. 

      The noncontrolling interest is initially reported at 25% of the target company’s book value.

    • B. 

      Goodwill for the acquisition equals the acquisition price paid by the acquirer plus the fair value of the noncontrolling interest less the book value of the target.

    • C. 

      Goodwill for the acquisition is the same as under U.S. GAAP.

    • D. 

      Future noncontrolling interest in net income will be adjusted for the noncontrolling interest’s share of goodwill impairment, if any.


  • 10. 
    Where is the noncontrolling interest in consolidated net income reported?
    • A. 

      As a contra equity account in the equity section of the consolidated balance sheet.

    • B. 

      As a component of accumulated other comprehensive income.

    • C. 

      On the consolidated income statement as a distribution of consolidated net income.

    • D. 

      On the consolidated income statement as an expense, deducted to get consolidated net income.


  • 11. 
    A parent owns 80% of a subsidiary’s voting stock.  On the consolidated balance sheet, at what value is consolidated intangible assets reported?
    • A. 

      The parent’s book value of intangibles plus the subsidiary’s book value of intangibles.

    • B. 

      The parent’s fair value of intangibles plus the subsidiary’s fair value of intangibles.

    • C. 

      The parent’s book value of intangibles plus the subsidiary’s book value of intangibles, plus the unamortized revaluations of the subsidiary’s intangibles.

    • D. 

      The parent’s book value of intangibles plus 80% of the subsidiary’s book value of intangibles, plus the unamortized revaluations of the subsidiary’s intangibles.


  • 12. 
    A parent owns 85% of a subsidiary’s voting stock, in an acquisition accounted for as a bargain purchase.  The subsidiary had previously unreported identifiable intangible assets valued at $10,000,000 on the date of acquisition.  Which statement is true concerning consolidation eliminations at the date of acquisition?
    • A. 

      15% of the goodwill recognized at the date of acquisition is attributed to the noncontrolling interest.

    • B. 

      All of the previously unreported identifiable intangible assets are attributed to the controlling interest.

    • C. 

      Less than 15% of the previously unreported identifiable intangible assets are attributed to the noncontrolling interest.

    • D. 

      All of the goodwill recognized at the date of acquisition is attributed to the noncontrolling interest


  • 13. 
    An acquired company’s assets all have fair values greater than book values.  When compared with an acquisition with goodwill, an acquisition reported as a bargain purchase generally results in:
    • A. 

      Lower revaluation of plant & equipment

    • B. 

      Lower revaluation of identifiable intangibles

    • C. 

      Lower consolidated dividends

    • D. 

      Lower noncontrolling interest in equity


  • 14. 
    Which statement is false concerning a bargain purchase with noncontrolling interest, at the date of acquisition?
    • A. 

      The noncontrolling interest is reported at its fair value.

    • B. 

      The investment balance is reported at acquisition cost.

    • C. 

      The subsidiary’s identifiable intangible assets are revalued to fair value.

    • D. 

      The subsidiary’s tangible net assets are revalued to fair value.


  • 15. 
    Which statement is correct concerning consolidation eliminating entries for a bargain purchase, in subsequent years, when there is a 5% noncontrolling interest?
    • A. 

      Entry (E) allocates less than 5% of the subsidiary’s beginning retained earnings to the noncontrolling interest.

    • B. 

      Entry (C) eliminates less than 100% of the parent’s equity in net income of subsidiary.

    • C. 

      Entry (R) allocates more than 5% of the subsidiary’s previously unreported identifiable intangibles to the noncontrolling interest.

    • D. 

      Entry (O) shows no goodwill impairment loss.


  • 16. 
    X Company has no equity ownership in Y Company, but is its primary beneficiary.  X and Y were not previously under common control.  Which statement is true at the date X becomes Y’s primary beneficiary?
    • A. 

      X does not consolidate Y.

    • B. 

      There is no consolidated noncontrolling interest.

    • C. 

      Consolidated noncontrolling interest equals the book value of Y’s net assets.

    • D. 

      Consolidated noncontrolling interest equals the fair value of Y’s net assets.


  • 17. 
    X Company has no equity ownership in Y Company, but is its primary beneficiary.  X and Y were previously under common control.  Which statement is true at the date X becomes Y’s primary beneficiary?
    • A. 

      X does not consolidate Y.

    • B. 

      There is no consolidated noncontrolling interest.

    • C. 

      Consolidated noncontrolling interest equals the book value of Y’s net assets.

    • D. 

      Consolidated noncontrolling interest equals the fair value of Y’s net assets.


  • 18. 
    P acquires 90% of S’s voting stock.  At the date of acquisition, S’s net assets are carried at amounts approximating fair value, but S has previously unreported leaseholds with a fair value of $20,000,000, 5-year life.  Elimination R credits the noncontrolling interest in equity in the amount of
    • A. 

      10% of the unamortized value of the leaseholds as of the beginning of the current year

    • B. 

      10% of the fair value of the leaseholds at the date of acquisition.

    • C. 

      10% of the unamortized value of the leaseholds as of the end of the current year.

    • D. 

      None of the leasehold value; it is attributed entirely to the controlling interest.


  • 19. 
    A parent owns less than 100% of the voting stock of its subsidiary.  On its consolidated income statement, earnings per share is calculated using which of the following amounts in the numerator?
    • A. 

      Consolidated net income

    • B. 

      Consolidated net income less consolidated dividends

    • C. 

      Consolidated net income plus noncontrolling interest in net income

    • D. 

      Consolidated net income less noncontrolling interest in net income


  • 20. 
    A bargain purchase consolidation differs from a normal consolidation in which elimination entry or entries?
    • A. 

      C

    • B. 

      E and R

    • C. 

      E and O

    • D. 

      R


  • 21. 
    Which statement is true concerning the consolidated statement of cash flows?
    • A. 

      When using the indirect method to determine cash from operating activities, the noncontrolling interest in net income is subtracted from consolidated net income.

    • B. 

      Dividends paid by the subsidiary to the parent are shown as cash used for financing activities.

    • C. 

      In determining cash from operating activities using the indirect method, goodwill impairment charges are added to consolidated net income.

    • D. 

      Dividends received from unconsolidated subsidiaries accounted for using the equity method are included in cash flow from investing activities.


  • 22. 
    On the consolidated statement of cash flows, cash received from intercompany sales between the parent and subsidiary are:
    • A. 

      Reported in the operating activities section

    • B. 

      Reported in the investing activities section

    • C. 

      Reported in the financing activities section

    • D. 

      Not reported


  • 23. 
    On the consolidated statement of cash flows, cash dividends paid to the shareholders of the parent company are:
    • A. 

      Reported in the operating activities section

    • B. 

      Reported in the investing activities section

    • C. 

      Reported in the financing activities section

    • D. 

      Not reported


  • 24. 
    On the consolidated statement of cash flows, where should dividends paid to noncontrolling shareholders appear?
    • A. 

      Operating activities section

    • B. 

      Investing activities section

    • C. 

      Financing activities section

    • D. 

      Does not appear on the statement


  • 25. 
    In the operating section of the consolidated statement of cash flows, using the indirect method, all but which one of the following might appear?
    • A. 

      Add amortization of bonds payable discount to net income

    • B. 

      Add goodwill impairment to net income

    • C. 

      Subtract noncontrolling interest in net income from net income

    • D. 

      Subtract undistributed equity method income from net income


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