Advanced Accounting 12th Edition Paul M Fischer William J Taylor Rita H Cheng – Test Bank

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 therefor the excess fair value over book value of the net assets acquired. DIFFICULTY: E LEARNING OBJECTIV ES: ADAC.FISC.3 -1 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. sophisticat ed equity method. ANSWER: d RATIONALE: The sophisticated equity method is required by GAAP for unconsolidate DIFFICULTY: E LEARNING OBJECTIVES: ADAC.FISC.3 -1 3. The method of accounting for subsidiaries where investment income is limited to divid ends 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 subsidi 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 that b. If no dividends were paid by the subsidiary, the investment account would have the same 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 to ANSWER: c RATIONALE: Regardless of the method the parent uses to account for the subsidiary 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, 201 6, 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