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ACCT 559 DeVry Midterm Exam

Comments: Question 4.

Comments: Question 4. Question : (TCO B) Using the purchase method, goodwill is generally defined as the cost of the investment less the subsidiary's fair value at acquisition date. cost of the investment less the subsidiary's fair value at the beginning of the year. cost of the investment less the subsidiary's book value at the acquisition date. cost of the investment less the subsidiary's book value at the beginning of the year. It is no longer allowed under federal law. Question 5. Question : (TCO B) What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation? If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values. If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company. If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition. If the subsidiary is dissolved, it will not be operated as a separate division. If the subsidiary is dissolved, assets and liabilities are consolidated at their book values. Question 6. Question : (TCO C) Which of the following accounts would not appear on the consolidated financial statements at the end of the first fiscal period of the combination? Common Stock Additional Paid-in Capital Investment in Subsidiary Goodwill Equipment Question 7. Question : (TCO C) Under the partial equity method, the parent recognizes income when the related contract is signed by the subsidiary. dividends are declared by the investee. dividends are received from the investee. the related expense has been incurred. it is earned by the subsidiary. Question 8. Question : (TCO C) Which of the following will result in the recognition of an impairment loss on goodwill? Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values. The fair value of a reporting unit falls below the original consideration transferred for the acquisition. The fair value of the entity declines significantly.

Goodwill amortization is to be recognized annually on a systematic and rational basis. The entity is investigated by the SEC and its reputation has been severely damaged. Question 9. Question : (TCO A) Which types of transactions, exchanges, or events would indicate that an investor has the ability to exercise significant influence over the operations of an investee? . Question 10. Question : (TCO B) What is the primary difference between recording an acquisition when the subsidiary is dissolved after acquisition versus when a separate incorporation is maintained? Question 11. Question : (TCO C) Jewels Co. acquired Diamond Co. in an acquisition transaction. Yules decided to use the partial equity method to account for the investment. The current balance in the investment account is $430,000. Describe in words how this balance was derived. Question 12. Question : (TCO C) Why is push-down accounting a popular reporting technique internally for a parent corporation? 10 Comments: Question 13. Question : (TCO A) On January 2, 20X1, Heinreich Co. paid $500,000 for 24% of the voting common stock of Jones Corp. At the time of the investment, Jones had net assets with a book value and fair value of $1,800,000. During 20X1, Jones incurred a net loss of $60,000 and paid dividends of $100,000. Any excess cost over book value is attributable to goodwill with an indefinite life. Required: -1) Prepare a schedule to show the amount of goodwill from Heinrich's investment in Jones. -2) Prepare a schedule to show the balance in Heinreich's investment account at December 31, 20X1. Question 14. Question : (TCO A) Nathan Inc. sold $180,000 in inventory to Miller Co. during 20X0 for $250,000. Miller resold $108,000 of this merchandise in 20X0 with the remainder to be disposed of during 20X1. Assume Nathan owns 25% of Miller and applies the equity method. Required: -1) Determine Nathan's share of the unrealized gain at the end of 20X0. -2) Prepare the journal entry Nathan should record at the end of 20X0 to defer the unrealized intra-entity inventory profit. Question 15. Question : (TCO A) Jasper Inc. holds 30% of the outstanding voting shares of Kinson Co. and appropriately applies the equity method of accounting. Amortization associated with this investment equals $11,000 per year. For 20X1, Kinson reported earnings of $100,000 and paid cash dividends of $40,000. During 20X1, Kinson acquired inventory for $62,400, which was then sold to Jasper for $96,000. At the end of 20X1, Jasper still held some of this inventory at its transfer price of $50,000. Required:

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