Advanced Accounting 12th Edition Paul M Fischer
William J Taylor Rita H Cheng – Test Bank With
Verified Questions And Answers
Chapter_03_Consolidated_Statements_Subsequent_to_Acquisition
1. The method of accounting for subsidiaries that better reflects the investment
account on parent-only financial statements is the
a. cost method.
b. simple equity method.
c. investment method.
d. sophisticated equity method.
ANSWER: d
RATIONALE: Under the sophisticated equity method the subsidiary income, and theref
the excess fair value over book value of the net assets acquired.
, DIFFICULTY: E
LEARNING OBJECTIV ADAC.FISC.3-1
ES:
2. The method of accounting for subsidiaries that is required for influential
investments is the
a. cost method.
b. simple equity method.
c. investment method.
d. sophisticated equity method.
ANSWER: d
RATIONALE: The sophisticated equity method is required by GAAP for unconsolida
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
3. The method of accounting for subsidiaries where investment income is limited to
dividends received is the
a. cost method.
b. simple equity method.
, c. investment method.
d. sophisticated equity method.
ANSWER: a
RATIONALE: Under the cost method, dividends received from the subs
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
4. Which of the following statements applying to the use of the equity method versus
the cost method is true?
a. A parent company may incur a delay in closing its books while waiting for a subsidiary th
b. If no dividends were paid by the subsidiary, the investment account would have the sam
c. The method used has no impact on consolidated financial statements.
d. An advantage of the equity method is that no amortization of excess adjustments needs
ANSWER: c
RATIONALE: Regardless of the method the parent uses to account for the subsidia
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
, 5. On January 1, 2016, Rabb Corp. purchased 80% of Sunny Corp.’s $10 par common
stock for $975,000. On this date, the carrying amount of Sunny’s net assets was
$1,000,000. The fair values of Sunny’s identifiable assets and liabilities were the
same as their carrying amounts except for plant assets (net), which were $100,000 in
excess of the carrying amount.
In the January 1, 2016, consolidated balance sheet, goodwill should be reported at
.
a. $0
b. $75,750
c. $95,000
d. $118,750
ANSWER: d
RATIONALE: Determination and Distribution of Excess Schedule:
Implied Fair
Fair value of subsidiary $1,218,750
Less book value of interest acquired 1,000,000
Excess of book value over fair value $ 218,750
William J Taylor Rita H Cheng – Test Bank With
Verified Questions And Answers
Chapter_03_Consolidated_Statements_Subsequent_to_Acquisition
1. The method of accounting for subsidiaries that better reflects the investment
account on parent-only financial statements is the
a. cost method.
b. simple equity method.
c. investment method.
d. sophisticated equity method.
ANSWER: d
RATIONALE: Under the sophisticated equity method the subsidiary income, and theref
the excess fair value over book value of the net assets acquired.
, DIFFICULTY: E
LEARNING OBJECTIV ADAC.FISC.3-1
ES:
2. The method of accounting for subsidiaries that is required for influential
investments is the
a. cost method.
b. simple equity method.
c. investment method.
d. sophisticated equity method.
ANSWER: d
RATIONALE: The sophisticated equity method is required by GAAP for unconsolida
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
3. The method of accounting for subsidiaries where investment income is limited to
dividends received is the
a. cost method.
b. simple equity method.
, c. investment method.
d. sophisticated equity method.
ANSWER: a
RATIONALE: Under the cost method, dividends received from the subs
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
4. Which of the following statements applying to the use of the equity method versus
the cost method is true?
a. A parent company may incur a delay in closing its books while waiting for a subsidiary th
b. If no dividends were paid by the subsidiary, the investment account would have the sam
c. The method used has no impact on consolidated financial statements.
d. An advantage of the equity method is that no amortization of excess adjustments needs
ANSWER: c
RATIONALE: Regardless of the method the parent uses to account for the subsidia
DIFFICULTY: E
LEARNING OBJECTIVES: ADAC.FISC.3-1
, 5. On January 1, 2016, Rabb Corp. purchased 80% of Sunny Corp.’s $10 par common
stock for $975,000. On this date, the carrying amount of Sunny’s net assets was
$1,000,000. The fair values of Sunny’s identifiable assets and liabilities were the
same as their carrying amounts except for plant assets (net), which were $100,000 in
excess of the carrying amount.
In the January 1, 2016, consolidated balance sheet, goodwill should be reported at
.
a. $0
b. $75,750
c. $95,000
d. $118,750
ANSWER: d
RATIONALE: Determination and Distribution of Excess Schedule:
Implied Fair
Fair value of subsidiary $1,218,750
Less book value of interest acquired 1,000,000
Excess of book value over fair value $ 218,750
