ACC 501 Test 1 2026- Questions with Complete
Solutions
Which of the following is false regarding contingent consideration in business
combinations?
a. Contingent consideration payable in cash is reported under liabilities.
b. Contingent consideration payable in stock shares is reported under stockholders' equity.
c. Contingent consideration is recorded because of its substantial probability of eventual
payment.
d. The contingent consideration fair value is recognized as part of the acquisition
regardless of whether eventual payment is based on future performance of the target firm
or future stock price of the acquirer.
e. Contingent consideration is reflected in the acquirer's balance sheet at the present value
of the potential expected future payment.
c. Contingent consideration is recorded because of its substantial probability of eventual
payment.
Which one of the following accounts would not appear in the consolidated financial
statements at the end of the first fiscal period of the combination?
a. Goodwill
b. Equipment
c. Investment in Subsidiary
d. Common Stock
e. APIC
c. Investment in Subsidiary
, When a company applies the initial value method in accounting for its investment in a
subsidiary, and the subsidiary reports income in excess of dividends paid, what entry
would be made for a consolidation worksheet for the second year?
Dr. Investment in Subsidiary
Cr. Retained Earnings
Under the initial value method, when accounting for an investment in a subsidiary:
a. Dividends received by the subsidiary decrease the investment account
b. The investment account is adjusted to fair value at year-end
c. Income reported by the subsidiary increases the investment account
d. The investment account does not change from year to year.
e. Dividends received are ignored.
d. The investment account does not change from year to year.
When is a goodwill impairment loss recognized?
After only definitive quantitative assessments of the fair value of goodwill is completed.
When a parent uses the initial value method throughout the year to account for its 80%
investment in an acquired subsidiary, which of the following statements is true at the date
immediately preceding the date on which adjustments are made on the consolidated
worksheet?
a. Parent company net income equals consolidated net income
b. Parent company retained earnings equals consolidated retained earnings.
c. Parent company total assets equals consolidated total assets
Solutions
Which of the following is false regarding contingent consideration in business
combinations?
a. Contingent consideration payable in cash is reported under liabilities.
b. Contingent consideration payable in stock shares is reported under stockholders' equity.
c. Contingent consideration is recorded because of its substantial probability of eventual
payment.
d. The contingent consideration fair value is recognized as part of the acquisition
regardless of whether eventual payment is based on future performance of the target firm
or future stock price of the acquirer.
e. Contingent consideration is reflected in the acquirer's balance sheet at the present value
of the potential expected future payment.
c. Contingent consideration is recorded because of its substantial probability of eventual
payment.
Which one of the following accounts would not appear in the consolidated financial
statements at the end of the first fiscal period of the combination?
a. Goodwill
b. Equipment
c. Investment in Subsidiary
d. Common Stock
e. APIC
c. Investment in Subsidiary
, When a company applies the initial value method in accounting for its investment in a
subsidiary, and the subsidiary reports income in excess of dividends paid, what entry
would be made for a consolidation worksheet for the second year?
Dr. Investment in Subsidiary
Cr. Retained Earnings
Under the initial value method, when accounting for an investment in a subsidiary:
a. Dividends received by the subsidiary decrease the investment account
b. The investment account is adjusted to fair value at year-end
c. Income reported by the subsidiary increases the investment account
d. The investment account does not change from year to year.
e. Dividends received are ignored.
d. The investment account does not change from year to year.
When is a goodwill impairment loss recognized?
After only definitive quantitative assessments of the fair value of goodwill is completed.
When a parent uses the initial value method throughout the year to account for its 80%
investment in an acquired subsidiary, which of the following statements is true at the date
immediately preceding the date on which adjustments are made on the consolidated
worksheet?
a. Parent company net income equals consolidated net income
b. Parent company retained earnings equals consolidated retained earnings.
c. Parent company total assets equals consolidated total assets
