QUESTION 6

1. Kestral Inc. owns 100% of Mouse Company. In the most recent year, Mouse had net earnings of $60,000 and paid dividends of $8,000. Kestral's accountant mistakenly assumed considerable influence and used the equity method instead of the cost method. What is the impact on the investment account and net earnings, respectively?

   	a.	Understate and overstate.
   	b.	Overstate and understate.
   	c.	Overstate and overstate.
   	d.	Understate and understate.

QUESTION 7

1. The first step in assigning the cost of an acquired company is to determine the fair values of all identifiable assets and liabilities. According to FASB Statement 141, the current replacement costs be the value for which of the following:

   	a.	both raw materials and finished goods inventories.
   	b.	plant and equipment and finished goods inventories.
   	c.	plant and equipment and raw materials inventories.
   	d.	land and plant and equipment.