95230313-Chap-002

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  Chapter 02 - Consolidation of Financial Information Chapter 02Consolidation of Financial Information   Multiple Choice Questions   1. At the date of an acquisition which is not a bargain purchase, the acquisition method A. Consolidates the subsidiar!s assets at fair alue and the liabilities at boo# alue$. Consolidates all subsidiar assets and liabilities at boo# alue C.  Consolidates all subsidiar assets and liabilities at fair alue%. Consolidates current assets and liabilities at boo# alue, long-term assets and liabilities at fair alue&. Consolidates the subsidiar!s assets at boo# alue and the liabilities at fair alue    Difficulty: Easy  2. In a purchase or acquisition where control is achie ed, how would the land accounts of the  parent and the land accounts of the subsidiar be combined' A. &ntr A B.  &ntr $C. &ntr C%. &ntr %&. &ntr &    Difficulty: Medium  2-1  Chapter 02 - Consolidation of Financial Information (. )isa Co. paid cash for all of the oting common stoc# of *ictoria Corp. *ictoria will continue to e+ist as a separate corporation. &ntries for the consolidation of )isa and *ictoria would be recorded in A.  A wor#sheet$. )isa!s general ournalC. *ictoria!s general ournal%. *ictoria!s secret consolidation ournal&. he general ournals of both companies    Difficulty: Easy  . /sing the purchase method, goodwill is generall defined as A. Cost of the in estment less the subsidiar!s boo# alue at the beginning of the ear $. Cost of the in estment less the subsidiar!s boo# alue at the acquisition dateC. Cost of the in estment less the subsidiar!s Fair *alue at the beginning of the ear  D.  Cost of the in estment less the subsidiar!s Fair *alue at acquisition date&. Is no longer allowed under federal law    Difficulty: Medium  . %irect combination costs and stoc# issuance costs are often incurred in the process of ma#ing a controlling in estment in another compan. ow should those costs be accounted for in a 3urchase transaction' A. &ntr A B.  &ntr $C. &ntr C%. &ntr %&. &ntr &    Difficulty: Medium  2-2  Chapter 02 - Consolidation of Financial Information 4. %irect combination costs and stoc# issuance costs are often incurred in the process of ma#ing a controlling in estment in another compan. ow should those costs be accounted for in an Acquisition transaction' A. &ntr A$. &ntr $C. &ntr C D.  &ntr %&. &ntr &    Difficulty: Medium  5. 6hat is the  primary  accounting difference between accounting for when the subsidiar is dissol ed and when the subsidiar retains its incorporation' A. If the subsidiar is dissol ed, it will not be operated as a separate di ision$. If the subsidiar is dissol ed, assets and liabilities are consolidated at their boo# aluesC. If the subsidiar retains its incorporation, there will be no goodwill associated with the acquisition%. If the subsidiar retains its incorporation, assets and liabilities are consolidated at their boo# alues E.  If the subsidiar retains its incorporation, the consolidation is not formall recorded in the accounting records of the acquiring compan    Difficulty: Medium  7. According to 8FA8 9o. 11, the pooling of interest method for business combinations A. Is preferred to the purchase method$. Is allowed for all new acquisitions C.  Is no longer allowed for business combinations after :une (0, 2001%. Is no longer allowed for business combinations after %ecember (1, 2001&. Is onl allowed for large corporate mergers li#e &++on and ;obil    Difficulty: Easy  2-(  Chapter 02 - Consolidation of Financial Information <. In a pooling of interests, A.  =e enues and e+penses are consolidated for the entire fiscal ear, e en if the combination occurred late in the ear $. >oodwill ma be recogni?edC. Consolidation is accomplished using the fair alues of both companies%. he transactions ma in ol e the e+change of preferred stoc# or debt securities as well as common stoc# &. he transaction is properl regarded as an acquisition of one compan b another     Difficulty: Easy  10. A compan is not required to consolidate a subsidiar in which it holds more than 0@ of the oting stoc# when A. he subsidiar is located in a foreign countr$. he subsidiar in question is a finance subsidiarC. he compan holds more than 0@ but less than 40@ of the subsidiar!s oting stoc# %. he compan holds less than 5@ of the subsidiar!s oting stoc#  E.  he subsidiar is in ban#ruptc    Difficulty: Medium  11. 6hich one of the following is a characteristic of a business combination that should be accounted for as an acquisition ' A. he combination must in ol e the e+change of equit securities onl B.  he transaction establishes an acquisition fair alue basis for the compan being acquiredC. he two companies ma be about the same si?e and it is difficult to determine the acquired compan and the acquiring compan%. he transaction ma be considered to be the uniting of the ownership interests of the companies in ol ed&. he acquired subsidiar must be smaller in si?e than the acquiring parent    Difficulty: Easy  2-
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