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1. The __________ financial statements of the parent present the investment in subsidiary as one line on the balance sheet. Multiple Choice a) separate entity

1. The __________ financial statements of the parent present the investment in subsidiary as one line on the balance sheet.

Multiple Choice

a) separate entity

b) audited

c) consolidated

d) combined

2. What is goodwill?

Multiple Choice

a) The excess of purchase price over the fair value of identifiable assets and liabilities acquired.

b) The excess of purchase price over book value of identifiable net assets acquired.

c) The excess of fair value of net identifiable assets over purchase price.

d) The amortized excess of fair value of assets acquired over their book value.

3. What is the parent company's cost in an acquisition?

Multiple Choice

a) The book value of the shares issued.

b) The cash, debt, or fair value of shares given up.

c) The book value of the identifiable net assets acquired.

d) The fair value of the shares issued.

4. The balance sheets for Pip Ltd. and Squeak Inc. are shown as at January 1, 2019, the day that Pip acquired 100% of the outstanding shares of Squeak. At that date the fair value of the inventory and plant were respectively, $2,000 and $7,000 higher for Pip and $1,000 and $5,000 higher for Squeak, then their carrying amounts.

Pip Ltd. Speak Inc.
Cash & A/R $ 50,000 $ 26,000
Inventory 30,000 7,000
Plant 70,000 30,000
$ 140,000 $ 63,000
Liabilities $ 80,000 $ 33,000
Common shares 25,000 12,500
Retained earnings 35,000 17,500
$ 140,000 $ 63,000

At what amount will the inventory and plant appear on the consolidated balance sheet prepared on January 1, 2019?

Multiple Choice

a) Inventory - $37,000; Plant - $112,000

b) Inventory - $40,000; Plant - $100,000

c) Inventory - $38,000; Plant - $105,000

d) Inventory - $39,000; Plant - $107,000

5. Impairment of goodwill

Multiple Choice

a) is only tested for on the date of acquisition and then again on the date of disposition.

b) is used in addition to the regular amortization of the goodwill.

c) is the only time goodwill from a business combination is expensed since goodwill is not generally amortized.

d) causes the goodwill asset account of the acquirer to be decreased.

6. The acquisition method of accounting for a business combination:

Multiple Choice

a) records the identifiable net assets of the acquired company at their fair market value.

b) records the identifiable net assets of the acquired company at the price paid by the acquiring company and the goodwill at its fair market value.

c) records the identifiable net assets of the acquired company at the price paid by the acquiring company.

d) records the identifiable net assets of the acquired company at their book value.

7. Which of the following statements concerning the preparation of consolidated financial statements is correct?

Multiple Choice

a) Consolidated financial statements replace the financial statements of the parent company.

b) Consolidated financial statements must be prepared if the parent company has control of another company.

c) Consolidated financial statements are prepared in addition to the financial statements of the parent company and subsidiary company and they are distributed to the shareholders of both companies.

d) Consolidated financial statements must be prepared if the parent company owns 51% of another company.

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