B - ANS 1. For business combinations involving less than 100 percent ownership, the acquirer
recognizes and measures all of the following at the acquisition date except:
A) identifiable assets acquired, at fair value.
B) liabilities assumed, at book value.
C) non-controlling interest, at fair value.
D) goodwill or a gain from bargain purchase.
E) none of these choices is correct.
C - ANS 2. In measuring non-controlling interest at the date of acquisition, which of the
following would not be indicative of the value attributed to the non-controlling interest?
A) Fair value based on stock trades of the acquired company.
B) Subsidiary cash flows discounted to present value.
C) Book value of subsidiary net assets.
D) Projections of residual income.
E) Consideration transferred by the parent company that implies a total subsidiary value.
C - ANS 3.When a parent uses the equity method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is false before making
adjustments on the consolidated worksheet?
A) Parent company net income equals controlling interest in consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equals consolidated dividends.
E) Goodwill will not be recorded on the parent's books.
D - ANS 4. When a parent uses the initial value method throughout the year to account for its
investment in an acquired subsidiary, which of the following statements is true before making
adjustments on the consolidated worksheet?
A) Parent company net income equals consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equal consolidated dividends.
E) Goodwill needs to be recognized on the parent's books.
, B - ANS 5. When a subsidiary is acquired sometime after the first day of the fiscal year, which
of the following statements is true?
A) Income from subsidiary is not recognized until there is an entire year of consolidated
operations.
B) Income from subsidiary is recognized from date of acquisition to year-end.
C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.
D) No goodwill can be recognized.
E) Income from subsidiary is recognized for the entire year.
C - ANS 6. When a parent uses the acquisition method for business combinations and sells
shares of its subsidiary, which of the following statements is false?
A) If majority control is still maintained, consolidated financial statements are still required.
B) If majority control is not maintained but significant influence exists, the equity method to
account for the investment is still used but consolidated financial statements are not required.
C) If majority control is not maintained but significant influence exists, the equity method is still
used to account for the investment and consolidated financial statements are still required.
D) If majority control is not maintained and significant influence no longer exists, a prospective
change in accounting principle to the fair value method is required.
E) A gain or loss calculation must be prepared if control is lost.
C - ANS 7. Which of the following statements is true regarding the sale of subsidiary shares
when using the acquisition method for accounting for business combinations?
A) If control continues, the difference between selling price and acquisition value is recorded as
a realized gain or loss.
B) If control continues, the difference between selling price and acquisition value is an
unrealized gain or loss.
C) If control continues, the difference between selling price and carrying value is recorded as an
adjustment to additional paid-in capital.
D) If control continues, the difference between selling price and carrying value is recorded as a
realized gain or loss.
E) If control continues, the difference between selling price and carrying value is recorded as an
adjustment to retained earnings.
C - ANS 8.Jax Company uses the acquisition method for accounting for its investment in
Saxton Company. Jax sells some of its shares of Saxton such that neither control nor significant
influence exists. Which of the following statements is true?
A) The difference between selling price and acquisition value is recorded as a realized gain or
loss.
B) The difference between selling price and acquisition value is recorded as an unrealized gain
or loss.
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