In reference to the determination of goodwill impairment, which of the following statements is correct? Answer The goodwill impairment test under FASB 142 is a three-step process. If the reporting units fair value exceeds its carrying value, goodwill is unimpaired. Under FASB 142 firms must first compare carrying values (book values) at the firm level. All of the above are correct. Which one of the following items, originally recorded in the Investment in Falcon Co. account under the equity method, would not be systematically charged to income on a periodic basis? Answer Amortization expense of goodwill. Depreciation expense on the excess fair value attributed to machinery. Amortization expense on the excess fair value attributed to lease agreements. Interest expense on the excess fair value attributed to long-term bonds payable. Swan Corporation uses the fair value method of accounting for its investment in Pond Company. Which one of the following events would affect the Investment in Pond Co. account? Answer An increase in the investees share price from last period Investee losses Investee dividend payments all of the above would affect the Investment in Pond Co. account The income from an equity investee is reported on one line of the investor companys income statement except when Answer the cost method is used. the investee has extraordinary or other below the line items the investor company is amortizing cost-book value differentials. the investor company changes from the cost to the equity method. Pelican Corporation acquired a 30% interest in Crustacean Incorporated at book value several years ago. Crustacean declared $100,000 dividends in 2005 and reported its income for the year as follows: Income from continuing operations $700,000 Loss on discontinued division (100,000) Net income $600,000 Pelican'W s Investment in Crustacean account for 2003 should increase by Answer $ 150,000 $ 160,000 $ 180,000 $ 210,000 Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then dissolved. Paris had no liabilities. The fair values of Paris assets were $2,500,000. Paris s only non-current assets were land and equipment with fair values of $160,000 and $640,000, respectively. At what value will the equipment be recorded by Raphael? Answer $640,000 $240,000 $400,000 $0 In recording acquisition costs, which of following procedures is correct? Answer Registration costs are expensed, and not charged against the fair value of the securities issued. costs are charged against the fair value of the securities issued. Consulting fees are expensed. None of the above procedures is correct. Muttonbird Inc. has 90% ownership of Beach Company, but should exclude Beach under FASB 94 if Answer Beach is in a regulated industry. Muttonbird uses the equity method for Beach. Muttonbird expects to sell Beach within a year. Beach is in a foreign country and records its books in a foreign currency. On June 1, 2005, Gull Company acquired 100% of the stock of Scrap Inc. On this date, Gull had Retained Earnings of $200,000 and Scrap had Retained Earnings of $100,000. On December 31, 2005, Gull had Retained Earnings of $240,000 and Scrap had Retained Earnings of $120,000. The amount of Retained Earnings that appeared in the December 31, 2005 consolidated balance sheet was: Answer $240,000. $260,000. $300,000. $360,000. On July 1, 2005, when Worm Company s total stockholders equity was $180,000, Bird Corporation purchased 7,000 shares of Worm s common stock at $30 per share. Worm Company had 10,000 shares of common stock outstanding both before and after the purchase by Bird, and the book value of Worm s net assets on July 1, 2005 was equal to the fair value. On a consolidated balance sheet prepared at July 1, 2005, goodwill would be Answer $30,000. $40,000. $50,000. $120,000