ACC 401 Week 11 Quiz Final Exam– Strayer

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Quiz (Chapter 15 – 16) Final Exam (Chapter 5, 8, and 10 – 16)

Chapter 5

Allocation and Depreciation of Differences Between Implied and Book Value

Multiple Choice

1.         When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as

a.   excess of implied over fair value.

b.   a deferred credit.

c.   difference between implied and fair value.

d.   goodwill.

2.         Long-term debt and other obligations of an acquired company should be valued for consolidation purposes at their

a.   book value.

b.   carrying value.

c.   fair value.

d.   face value.

3.         On January 1, 2010, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2010, consolidated balance sheet, goodwill would be reported at

a.   $152,000.

b.   $177,143.

c.   $80,000.

d.   $0.

4.         When the value implied by the purchase price of a subsidiary is in excess of the fair value of identifiable net assets, the workpaper entry to allocate the difference between implied and book value includes a

1.   debit to Difference Between Implied and Book Value.

2.   credit to Excess of Implied over Fair Value.

3.   credit to Difference Between Implied and Book Value.

a.   1

b.   2

c.   3

d.   Both 1 and 2

5.         If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account

a.   debits Excess of Fair Value over Implied Value.

b.   debits Difference Between Implied and Fair Value.

c.   debits Difference Between Implied and Book Value.

d.   credits Difference Between Implied and Book Value.

6.         The entry to amortize the amount of difference between implied and book value allocated to an unspecified intangible is recorded

1.   on the subsidiary's books.

2.   on the parent's books.

3.   on the consolidated statements workpaper.

a.   1

b.   2

c.   3

d.   Both 2 and 3

7.         The excess of fair value over implied value must be allocated to reduce proportionally the fair values initially assigned to

a.   current assets.

b.   noncurrent assets.

c.   both current and noncurrent assets.

d.   none of the above.

8.         The SEC requires the use of push down accounting when the ownership change is greater than

a.   50%

b.   80%

c.   90%

d.   95%

9.         Under push down accounting, the workpaper entry to eliminate the investment account includes a

a.   debit to Goodwill.

b.   debit to Revaluation Capital.

c.   credit to Revaluation Capital.

d.   debit to Revaluation Assets.

10.       In a business combination accounted for as an acquisition, how should the excess of fair value of identifiable net assets acquired over implied value be treated?

a.   Amortized as a credit to income over a period not to exceed forty years.

b.   Amortized as a charge to expense over a period not to exceed forty years.

c.   Amortized directly to retained earnings over a period not to exceed forty years.

d.   Recognized as an ordinary gain in the year of acquisition.

11.       On November 30, 2010, Pulse Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2010, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2010, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2010, consolidated balance sheet of Pulse Incorporated, and its wholly owned subsidiary, Surge Company?

a.   $0.

b.   $800,000.

c.   $1,200,000.

d.   $2,000,000.

12.       Goodwill represents the excess of the implied value of an acquired company over the

a.   aggregate fair values of identifiable assets less liabilities assumed.

b.   aggregate fair values of tangible assets less liabilities assumed.

c.   aggregate fair values of intangible assets less liabilities assumed.

d.   book value of an acquired company.

13.       Scooter Company, a 70%-owned subsidiary of Pusher Corporation, reported net income of $240,000 and paid dividends totaling $90,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Scooter's identifiable net assets at the date of the business combination was $45,000. The noncontrolling interest in net income of Scooter for Year 3 was

a.   $58,500.

b.   $13,500.

c.   $27,000.

d.      $72,000.

14.       Porter Company acquired an 80% interest in Strumble Company on January 1, 2010, for $270,000 cash when Strumble Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strumble Company made $30,000 in 2010 and paid no dividends. Porter Company’s separate income in 2010 was $375,000. Controlling interest in consolidated net income for 2010 is:

a.       $405,000.

b.      $399,000.

c.       $396,000.

d.      $375,000.

15.       In preparing consolidated working papers, beginning retained earnings of the parent company will be adjusted in years subsequent to acquisition with an elimination entry whenever:

a.       a noncontrolling interest exists.

b.      it does not reflect the equity method.

c.       the cost method has been used only.

d.      the complete equity method is in use.

16.       Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent under the

a.   partial equity method.

b.   equity method.

c.   cost method.

d.   equity and partial equity methods.

Use the following information to answer questions 17 through 20.

On January 1, 2010, Pandora Company purchased 75% of the common stock of Saturn Company. Separate balance sheet data for the companies at the combination date are given below:

                                                                                                        Saturn Co.                Saturn Co.

                                                                      Pandora Co.             Book Values              Fair Values

            Cash                                                   $  18,000                  $155,000                  $155,000

            Accounts receivable                            108,000                      20,000                      20,000

            Inventory                                               99,000                      26,000                      45,000

            Land                                                      60,000                      24,000                      45,000

            Plant assets                                          525,000                    225,000                    300,000

            Acc. depreciation                               (180,000)                    (45,000)

            Investment in Saturn Co.                   330,000                                                                      

            Total assets                                        $960,000                  $405,000                  $565,000

            Accounts payable