ACG 5226
Advacned Accounting
Midterms Exam Review (Qns & Ans)
2025
1. Which of the following methods is used to account for
investments in subsidiaries under the equity method?
- A. Consolidation method
- B. Equity method
- C. Cost method
- D. Acquisition method
ANS: B. Equity method
©/2025
, Rationale: The equity method is used to account for
investments in subsidiaries where the investor has significant
influence but not control, typically ownership of 20-50%.
2. What is the primary purpose of an impairment test for
goodwill?
- A. To allocate goodwill to reporting units
- B. To determine if goodwill should be amortized
- C. To assess if goodwill's carrying amount exceeds its fair
value
- D. To reclassify goodwill as a current asset
ANS: C. To assess if goodwill's carrying amount exceeds its
fair value
Rationale: An impairment test for goodwill assesses whether
the carrying amount of goodwill exceeds its fair value, indicating
a potential impairment loss.
Fill-in-the-Blank Questions
3. The __________ method is used to eliminate intercompany
transactions and balances in consolidated financial statements.
©/2025
, ANS: Elimination
Rationale: The elimination method is used to remove
intercompany transactions and balances from consolidated
financial statements to avoid double-counting.
4. Under the __________ method, a parent company recognizes
its share of a subsidiary's net income or loss.
ANS: Equity
Rationale: Under the equity method, a parent company
recognizes its share of a subsidiary's net income or loss in its
financial statements.
True/False Questions
5. True or False: All business combinations must be accounted
for using the acquisition method.
ANS: True
Rationale: Current accounting standards require that all
business combinations be accounted for using the acquisition
method, which involves recognizing identifiable assets and
liabilities at fair value.
©/2025
Advacned Accounting
Midterms Exam Review (Qns & Ans)
2025
1. Which of the following methods is used to account for
investments in subsidiaries under the equity method?
- A. Consolidation method
- B. Equity method
- C. Cost method
- D. Acquisition method
ANS: B. Equity method
©/2025
, Rationale: The equity method is used to account for
investments in subsidiaries where the investor has significant
influence but not control, typically ownership of 20-50%.
2. What is the primary purpose of an impairment test for
goodwill?
- A. To allocate goodwill to reporting units
- B. To determine if goodwill should be amortized
- C. To assess if goodwill's carrying amount exceeds its fair
value
- D. To reclassify goodwill as a current asset
ANS: C. To assess if goodwill's carrying amount exceeds its
fair value
Rationale: An impairment test for goodwill assesses whether
the carrying amount of goodwill exceeds its fair value, indicating
a potential impairment loss.
Fill-in-the-Blank Questions
3. The __________ method is used to eliminate intercompany
transactions and balances in consolidated financial statements.
©/2025
, ANS: Elimination
Rationale: The elimination method is used to remove
intercompany transactions and balances from consolidated
financial statements to avoid double-counting.
4. Under the __________ method, a parent company recognizes
its share of a subsidiary's net income or loss.
ANS: Equity
Rationale: Under the equity method, a parent company
recognizes its share of a subsidiary's net income or loss in its
financial statements.
True/False Questions
5. True or False: All business combinations must be accounted
for using the acquisition method.
ANS: True
Rationale: Current accounting standards require that all
business combinations be accounted for using the acquisition
method, which involves recognizing identifiable assets and
liabilities at fair value.
©/2025
