425 Exam Investment

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  • 1/32 Questions

    After allocating cost in excess of book calue, which asset or liabilty would not be amortized over a useful life?

    • COGS
    • Prop,plant,equip
    • Goodwill
    • Bonds payable
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About This Quiz

Simply put, investment is the act of putting in resources (money, time, et cetera) with the objective of benefiting and reaping more than was put in after some time. The quiz below tests on the different concepts of financial investment.

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  • 2. 

    Sisk company has owned 10 percent of maust inc for the past several years. this ownership did not allow sisk to have sig inf over maust. recently sisk aquired an addititonal 30 percent of muast and now will use the equity method. how will the investor report the change

    • A cumulative effect of an accounting change is shown in current inc statement

    • No change is recorded

    • A retrospective adjustment is made to restate all prior yeras presented using equity method

    • Sisk will report the change as a component of accum other comp income

    Correct Answer
    A. A retrospective adjustment is made to restate all prior yeras presented using equity method
  • 3. 

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

    • Combinations as a vehilcle for acheiving rapid growth and competitiveness

    • Cost savings through elimination of duplicate facilities and staff

    • Quick entry for new and exisitng products into markets

    • Large rfirms being less likely to fail

    Correct Answer
    A. Large rfirms being less likely to fail
  • 4. 

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

    • Expense upon acquisition

    • Capatiliz as an asset

    • Expense is there is no alternative use for the assetsused in r&d

    • Expense until further economic benefits become ceratin

    Correct Answer
    A. Capatiliz as an asset
  • 5. 

    According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be

    • Capatilized as part of the overall FV

    • Recorded as an expense in the period the merger takes place

    • Included in recognized goodqill

    • Written off over a five year useful life

    Correct Answer
    A. Recorded as an expense in the period the merger takes place
  • 6. 

    A company acquires a sub and will prepare cons fincl statements for external reporting purposes. for internal reporting the company has chosen to apply the initial value method. why would they do this?

    • It is a relatively easy method to apply

    • Operating results appearing on on the parents fincls reflect cons. totals

    • GAAP now required the use of this method for internal purposes

    • Consolidation is not required when the parent uses the initial value method

    Correct Answer
    A. It is a relatively easy method to apply
  • 7. 

    When should a consolidated entity recognize a goodwill impairment loss?

    • If both the fair value of a reporting unit and its associtaed implied goodwill fall below their repestive carrying amoutns

    • Whenever the entitys fair value declines significantly

    • If a reporting units fair value falls below its original acquisition price

    • Annually on a systematic and rational basis

    Correct Answer
    A. If both the fair value of a reporting unit and its associtaed implied goodwill fall below their repestive carrying amoutns
  • 8. 

    Which of the following does not indicate an investor companys ability to significantly influence an investee

    • Material intra-entity transactions

    • The investor owns 30 percent of the investeee but another owner holds 70 percent

    • Interchange of personnel

    • Technological dependency

    Correct Answer
    A. The investor owns 30 percent of the investeee but another owner holds 70 percent
  • 9. 

    According to GAAP regarding mortization of goodill and ther intangible assets, which of the following is true?

    • Goodwill recognized in consolidation must be amortized over 20 years

    • Goodwill recognized in consolidation will not be amortized, but subject to an annual test or impairment

    • Goodwill recognized in consolidation can never be written off

    • Goodwill recognized in consolidation must be amortized over 40 years

    Correct Answer
    A. Goodwill recognized in consolidation will not be amortized, but subject to an annual test or impairment
  • 10. 

    When an investor elects the fair value option for a significant influence invesment, cash dividends recieved by the investor from the investeee should be recorded as

    • A deduction from the investors share of the investees reported income

    • A deductions from the investment account

    • A reduction from accum other comp income reported

    • Dividend income

    Correct Answer
    A. Dividend income
  • 11. 

    The noncontrolling interst represents an outside ownership in a sub that is not attributable to the parent company.Where in the consolidated balance sheet is this outside ownership interest recognized?

    • In the liability section

    • In the mezzanine section between liabilities and owners equity

    • In the owners equity section

    • The noncontrolling interst in not recognized

    Correct Answer
    A. In the owners equity section
  • 12. 

    When does gain recognition company a business combination

    • When a bargain purchase occurs

    • In a combination created in the middle of a fiscal year

    • In an acquisition when the value cannot be determined

    • When the amount of a bargain exceeds the value of assets

    Correct Answer
    A. When a bargain purchase occurs
  • 13. 

    On November 8, 2011, Power Co. sold land to Wood Co., its wholly owned subsidiary. The land cost 61,500 and was sold to Wood for 89,000. From the perspective of the combination, when is the gain on the sale of the land recognized?

    • Proportionally over a designated period of years

    • When Wood Co. sells the land to a third party

    • No gain can be recognized

    • As wood uses the Land

    Correct Answer
    A. When Wood Co. sells the land to a third party
  • 14. 

    Under fair value option, which of the following affects the income the investor recognizes from its ownership in the investee

    • The investees reported income adjusted for excess cost over book value amortization

    • Changes in the fair value of the investors ownership shares of the investee

    • Intra-equity profits from upstream sales

    • Extraordinary items reported by the investee

    Correct Answer
    A. Changes in the fair value of the investors ownership shares of the investee
  • 15. 

    Factors that should be considered in determining the useful life of an intangible asset include:

    • Legal, regulatory, or contractual provisions

    • The residual value of an asset

    • The entitys expected use of the intangible asset

    • All of the above

    Correct Answer
    A. All of the above
  • 16. 

    Which of the following varies betweeen the equity, initial value, and partial equity methods of accounting for an investment?

    • The amount of consolidated net income

    • The assets on the consolidated balance sheet

    • The balance in the investment account of the parents books

    • The amount of consolidated COGS

    Correct Answer
    A. The balance in the investment account of the parents books
  • 17. 

    Using the acquisition method for a business combination, goodwill is generally defined as:

    • Cost of the investment less the subs BV at the beginning of the year

    • Cost of the investment less the subs BV at the acquisition date

    • Cost of the investment less the subs FV at the beginning of the year

    • Cost of the investment less the subs FV at the acquistion date

    Correct Answer
    A. Cost of the investment less the subs FV at the acquistion date
  • 18. 

    Which of the following is the best threoretical justification for consolidatioed fincl staements

    • In form the companies are one entity; in substance they are seperate

    • In form the companies are seperate; in substance they are one entity

    • In form and subtance they are one entitiy

    • In form and substacne they are seperate

    Correct Answer
    A. In form the companies are seperate; in substance they are one entity
  • 19. 

    An acquired entity has a long term opertaing lease for an office building used for central mgmt, the lease prohibits subleasing or any other transfer of rights, how should it be reported in the fincl statements

    • An intangible asset under the contractual-legal criterion

    • A parrt of goodwill

    • An intangible asset under the seperability criterion

    • A building

    Correct Answer
    A. An intangible asset under the contractual-legal criterion
  • 20. 

    What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

    • Cons fincl statements should be primarily for the benfit of the parent companys stockholders

    • Cons fincl statements shoud be produced only if both the parent and the sub are in the same basic industry

    • A sub is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership

    • Cons fincl statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent

    Correct Answer
    A. A sub is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership
  • 21. 

    James Company acquired 85 percent of MArk-Right Company on April 1, On its Dec 31 cons income statement, how should james account for Mark Rights revenues and expenses that occured before April 1

    • Include 100 percent of mark-Rights revenues and expenses

    • Exclude 100 percent of the preacquisiton revenues and 100 percent f the preacquisition expenses from their respective consolidated totals

    • Exclude 15 percent of preacquisition revenues and expences

    • Deduct 15 percent from net combined revenues and expenses

    Correct Answer
    A. Exclude 100 percent of the preacquisiton revenues and 100 percent f the preacquisition expenses from their respective consolidated totals
  • 22. 

    WHen an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee shoul be recored as

    • A deduction from the investors share of the profits

    • Dividend income

    • A deduction from the stockholders equity account

    • E deduction from the investment account (AICPA adapted)

    Correct Answer
    A. E deduction from the investment account (AICPA adapted)
  • 23. 

    FASB ASC 85 provides principles for allocating the fair value of an acquired business. when the collective fair values of the seperately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the diference should be:

    • Recognized as an ordinary gain from a bargain purchase

    • Treated as negative goodwill

    • Treated as goodwill

    • Applied pro rata to reeduce the amounts initially assigned

    Correct Answer
    A. Recognized as an ordinary gain from a bargain purchase
  • 24. 

    What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?

    • Revenues and COGS must be recognized for all intra-entity sales regardless of whether the sales are upstream or downstream

    • Intra-entity sales result from gross profit overstaements

    • Gross profits must be deferred indefinately because sales among affilaites always remian in the consolidation group

    • When intra-entity sales remian in ending inventory, ownership of the goods has not changes

    Correct Answer
    A. When intra-entity sales remian in ending inventory, ownership of the goods has not changes
  • 25. 

    At the date of an acquisiton which is not a bargain purchase, the acquisiton method

    • Consolidates the subs assets at FV and the liabs at BV

    • Consolidate all subs assets and liabs at BV

    • Consolidate all subs assets and liabs at FV

    • Consolidates the subs assets at BV and the liabs at FV

    Correct Answer
    A. Consolidate all subs assets and liabs at FV
  • 26. 

    Why would a company want to use the equity methos for internal purposes?

    • It is a relatively easy method to apply

    • Operating results appearing on on the parents fincls reflect cons. totals

    • GAAP now required the use of this method for internal purposes

    • Consolidation is not required when the parent uses the initial value method

    Correct Answer
    A. Operating results appearing on on the parents fincls reflect cons. totals
  • 27. 

    If no legal, regulatory, contractrual, economic, or other factors limit the life of an intangible asset, the assets assigned value is allocated to expense over which of the following?

    • 20 years

    • 20 years with an annual impairment review

    • Infinitely

    • Indefinately (no amortization) with an annual impairment review until its life becomes finite

    Correct Answer
    A. Indefinately (no amortization) with an annual impairment review until its life becomes finite
  • 28. 

    What is push-down accounting?

    • A requirement that a sub must use the same accounting principles as its parent company

    • Inventory transfers made from a parent to a sub

    • A subs recording of the fair value allocations as well as subsequent amortization

    • The adjustments required fro consolidation when a parent has applied the equity method of accounting for internal purposes

    Correct Answer
    A. A subs recording of the fair value allocations as well as subsequent amortization
  • 29. 

    How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the sub will retain its incorporation

    • Stock issuance costs are a part of the acquistion costs

    • Direct combination costs are a part of the acquisition costs and stock issuance costs are a reduction to addition PIC

    • Direct combination costs are expensed and stock issuance costs are a reduction to addition PIC

    • Both are treated as reduction to PIC

    Correct Answer
    A. Direct combination costs are expensed and stock issuance costs are a reduction to addition PIC
  • 30. 

    A parent buys 32 percents opfa  sub in one year and then buys an additional 40 percent in the nexrt year. in step acquistion of this type, the original 32 percent acquisiotn should be

    • Maintained as initial value

    • Adjusted to its equity method balance as the date of the second acquisition

    • Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded

    • Adjusted to fair value at the date of the second acquisition with a resulting adjustment to addintional paid in capital

    Correct Answer
    A. Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded
  • 31. 

    Goodwill recognized in a business combination must be allocated among a firms indentified reporting units. if the fair value of a particular reporting unit with recognized goodwill falls blow its carrying amount, which of the following is true?

    • No goodwill impairment loss isrecognized unless the implied value for goodwill exceeds its carrying amount

    • A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value

    • A goodwill impairment loss is recognized for the difference betweeen the reporting units fair calue and carrying amount

    • The reporting unit reduces the values assigned to its longterm assets

    Correct Answer
    A. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value
  • 32. 

    In computing the noncontrolling interests share of consolidated net income, how should the subs net income be adjusted for intra-entity transfers?

    • The subs reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interests allocation

    • The subs reported income is adjusted for the impact of all transfers prior to computing the noncontrolling interests allocation

    • The subs reported income is not adjusted for the impact of transfers prior to computing the noncontrolling interests allocation

    • The subs reported net income is adjusted for the impact of downstream transfers prior to computing the noncontrolling interests allocation

    Correct Answer
    A. The subs reported net income is adjusted for the impact of upstream transfers prior to computing the noncontrolling interests allocation

Quiz Review Timeline (Updated): Mar 20, 2022 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 20, 2022
    Quiz Edited by
    ProProfs Editorial Team
  • Sep 23, 2013
    Quiz Created by
    Zdavis5291
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