Q1. Which of the following statement is true with respect to acquisition of net assets?

1. If the acquired net assets qualify as a business as defined in ASC Master Glossary, the acquired assets should be reported at their fair values in accordance with ASC 820, no matter how much the acquirer paid for them.
2. If the acquired net assets do NOT qualify as a business as defined in ASC Master Glossary, the acquired assets should be reported at their fair values in accordance with ASC 820, no matter how much the acquirer paid for them.
3. If the acquired net assets qualify as a business as defined in ASC Master Glossary, the acquired assets should be reported based on the actual total price the acquirer paid.
4. If the acquired net assets do NOT qualify as a business as defined in ASC Master Glossary, the acquirer report goodwill if the acquirer paid more than the total fair value of the assets.

Q2. Which of the following can NOT be used to justify an investor company's ability to significantly influence an investee?

1. Material inter-company transactions with investee.
2. Significant investment in investees corporate bonds.
3. The investor appoints personnel of the investee.
4. The investee technologically depends on the investor.

Q3. Which of the following statements is NOT correct regarding an investor companys accounting for its investment in another company?

1. The difference between the cost method and the market method is that the latter includes adjustments to investment balance based on the most recent fair values.
2. Dividends received from the investee company are only recorded under the equity method.
3. The difference between the basic equity method and the fully adjusted equity method is how we treat AAP and intercompany transactions.
4. The equity method does not require market to market for the investment balance.

Q4. When an investor is deemed to have "control" over an investee, GAAP requires presentation of consolidated financial statements. Which of the following would NOT be considered an indicator of control?

1. The investor has majority voting interest in the investee.
2. The investor owns 40% of the investee's stock and the rest is owned by the investee's founder.
3. The investor owns 50% of the investee's stock and the rest is owned by a large number of small investors.
4. Instead of owning stock, a company licenses technology to another company in an agreement allowing the licensor to appoint a majority of the licensee's board of directors.

Q5. On January 1, 2014, Purple Inc. and Yellow Inc. merged into a new company, Gray Inc.. Which of the following terms or conditions of the transaction suggests that Yellow Inc. is the acquiring company for accounting purpose?

1. Yellow Inc.s CEO joined Gray Inc. as a senior vice president for marketing.
2. Before the acquisition, Purple had 15,000 shares outstanding and Yellow had 10,000 shares outstanding. Purple issued 20,000 additional shares to Yellows shareholders for the merge. Each share of Purple and Yellow can be exchanged for one share of Gray.
3. After the acquisition, 5 out of 12 members of the board of directors of the new company are from Yellow Inc.s previous board of directors.
4. The new company was named after the founder of Yellow Inc.

Q6. Which of the following statements is correct about accounting for a business combination?

1. If the acquisition price is lower than the book value of acquired equity, acquisition price is used to report the subsidiarys net assets on consolidated balance sheet.
2. If the acquisition price is lower than the book value of acquired equity, subsidiarys original book values are used to report its net assets on consolidated balance sheet.
3. If the acquisition cost is lower than the fair value of the acquired equity, a bargain purchase gain is recorded.
4. If the acquisition cost is lower than the book value of the acquired equity, a bargain purchase gain is recorded.

Q7. On January 1, 2019, Windy Meadows Corp. acquired a 10% interest in Jones Enterprises for $20,000. The stock has a readily determinable fair value, so the investor measures the Equity Investment at fair value with all unrealized gains and losses flowing through net income. On December 31, 2019 the fair value of the 10% common stock investment is $24,000.

On April 1, 2020, Windy Meadows acquired an additional 20% Jones's common stock for $52,000 and gains the ability to exert significant influence over its investment and will begin to use the equity method for its investment.

What is the amount of the unrealized holding gain or loss that would be required on April 1, 2020 to appropriately transition to the equity method?

A. $-0-

B. $ 2,000

C. $ 6,000

D. $12,000

Q8. Purple Corporation currently has only one reporting unit and reports goodwill of $50,000 for this unit. Given the following information, what is the impairment of goodwill Purple needs to record under the current GAAP?

Fair value of Carrying value of Fair value of identifiable

reporting unit reporting unit net assets of reporting unit

$800,000 $850,000 $780,000

1. $0.
2. $20,000
3. $30,000
4. $50,000

Q9. Purple Corporation currently has only one reporting unit and reports goodwill of $40,000 for this unit. Given the following information, what is the impairment of goodwill Purple needs to record under the new GAAP effective in December 2019?

Fair value of Carrying value of Fair value of identifiable

reporting unit reporting unit net assets of reporting unit

$800,000 $850,000 $780,000

5. $0.
6. $20,000
7. $40,000
8. $50,000