WALL STREET PREP ADVANCED
ACCOUNTING EXAM REVIEW TESTED
QUESTIONS ACCURATE SOLUTIONS
◉ In a business combination when each combining firm remains a
legally incorporated separate entity Answer: -the acquiring firm
does not physically record the acquired firm's separate assets and
liabilities.
-the parent company employs consolidated worksheet entries to
help prepare a set of consolidated financial statements.
*With separate incorporation, an investment account records the
combination.
*The investment account is typically recorded at the consideration
transferred. In a bargain purchase, the investment is recorded at the
net fair value of the assets acquired and liabilities assumed.
◉ Before preparation of a consolidated worksheet, an acquisition-
date fair value allocation schedule is typically prepared. What is the
purpose of the acquisition-date fair value allocation schedule?
Answer: -The schedule allocates the consideration transferred
among the individual assets acquired and liabilities assumed in the
business combination.
-The schedule provides supporting calculations that identify fair
value adjustments required in consolidation.
,-The schedule computes the allocated value assigned to goodwill or a
bargain purchase gain.
*Fair values are the focus of the schedule as per GAAP.
◉ The second column of figures on the consolidated worksheet
includes the subsidiary's assets and liabilities at their __________
values. Answer: book or carrying
◉ Costs incurred to register and issue securities in connection with
a business combination are recorded as Answer: a reduction of
additional paid-in capital.
◉ Consolidation entry S brings subsidiary stockholders' equity
account balances to zero because Answer: they represent ownership
interests held by the parent and thus are not outstanding equity.
*The parent only records an investment account to record the
combination and does not combine the stockholders' equity
accounts.
*A consolidated worksheet is only needed when the subsidiary is a
separate legal entity.
◉ When a business combination is accompanied by contingent
consideration to be paid by the parent upon completion of specified
performance metrics, the journal entry to record the combination
,includes Answer: -a liability for the fair value of the contingent
consideration.
-the fair value of the contingent consideration in the investment
account as part of the overall consideration transferred.
*The valuation principle for all elements of a business combination
is acquisition-date fair value.
◉ Even though measurement of an intangible asset (e.g., unpatented
technology or customer relationships) may lack precision,
recognition of the identified intangible may result in greater
Answer: faithful representation
*less goodwill results when more identified intangibles are
recognized
*if an intangible asset is unrecognized, goodwill increases, thus
leaving total assets unchanged.
◉ The acquisition-date fair value allocation schedule helps to
prepare the worksheet entries to adjust the subsidiary's assets from
book value to ___________ value. Answer: fair
◉ Preexisting goodwill on a newly acquired subsidiary's books is
Answer: -essentially ignored in the allocation of the consideration
transferred to the subsidiary's assets and liabilities.
, -not considered an identifiable asset by the parent.
◉ Which of the following are included in the first two columns of the
consolidated worksheet as of the acquisition date? Answer: -Any
contingent performance liability that may have accompanied the
combination.
-An investment account in the parent's financial statement column.
◉ In consolidation entry S, the "S" refers to Answer: Subsidiary
stockholders' equity
◉ Why is the in-process research and development (IPR&D) of an
acquired subsidiary recognized as an asset? Answer: The IPR&D has
an acquisition-date fair value.
*the IPR&D assets is considered to have an indefinite life and is
subject to impairment testing, not amortization.
◉ The goal of the FASB/IASB joint project on accounting for
business combinations was to Answer: to develop a standard that
includes a common set of principles to produce decision-useful
information and minimizing exceptions to those principles.
◉ intangible assets Answer: -lack physical substance.
-are required to meet specific criteria to qualify for recognition in a
business combination.
ACCOUNTING EXAM REVIEW TESTED
QUESTIONS ACCURATE SOLUTIONS
◉ In a business combination when each combining firm remains a
legally incorporated separate entity Answer: -the acquiring firm
does not physically record the acquired firm's separate assets and
liabilities.
-the parent company employs consolidated worksheet entries to
help prepare a set of consolidated financial statements.
*With separate incorporation, an investment account records the
combination.
*The investment account is typically recorded at the consideration
transferred. In a bargain purchase, the investment is recorded at the
net fair value of the assets acquired and liabilities assumed.
◉ Before preparation of a consolidated worksheet, an acquisition-
date fair value allocation schedule is typically prepared. What is the
purpose of the acquisition-date fair value allocation schedule?
Answer: -The schedule allocates the consideration transferred
among the individual assets acquired and liabilities assumed in the
business combination.
-The schedule provides supporting calculations that identify fair
value adjustments required in consolidation.
,-The schedule computes the allocated value assigned to goodwill or a
bargain purchase gain.
*Fair values are the focus of the schedule as per GAAP.
◉ The second column of figures on the consolidated worksheet
includes the subsidiary's assets and liabilities at their __________
values. Answer: book or carrying
◉ Costs incurred to register and issue securities in connection with
a business combination are recorded as Answer: a reduction of
additional paid-in capital.
◉ Consolidation entry S brings subsidiary stockholders' equity
account balances to zero because Answer: they represent ownership
interests held by the parent and thus are not outstanding equity.
*The parent only records an investment account to record the
combination and does not combine the stockholders' equity
accounts.
*A consolidated worksheet is only needed when the subsidiary is a
separate legal entity.
◉ When a business combination is accompanied by contingent
consideration to be paid by the parent upon completion of specified
performance metrics, the journal entry to record the combination
,includes Answer: -a liability for the fair value of the contingent
consideration.
-the fair value of the contingent consideration in the investment
account as part of the overall consideration transferred.
*The valuation principle for all elements of a business combination
is acquisition-date fair value.
◉ Even though measurement of an intangible asset (e.g., unpatented
technology or customer relationships) may lack precision,
recognition of the identified intangible may result in greater
Answer: faithful representation
*less goodwill results when more identified intangibles are
recognized
*if an intangible asset is unrecognized, goodwill increases, thus
leaving total assets unchanged.
◉ The acquisition-date fair value allocation schedule helps to
prepare the worksheet entries to adjust the subsidiary's assets from
book value to ___________ value. Answer: fair
◉ Preexisting goodwill on a newly acquired subsidiary's books is
Answer: -essentially ignored in the allocation of the consideration
transferred to the subsidiary's assets and liabilities.
, -not considered an identifiable asset by the parent.
◉ Which of the following are included in the first two columns of the
consolidated worksheet as of the acquisition date? Answer: -Any
contingent performance liability that may have accompanied the
combination.
-An investment account in the parent's financial statement column.
◉ In consolidation entry S, the "S" refers to Answer: Subsidiary
stockholders' equity
◉ Why is the in-process research and development (IPR&D) of an
acquired subsidiary recognized as an asset? Answer: The IPR&D has
an acquisition-date fair value.
*the IPR&D assets is considered to have an indefinite life and is
subject to impairment testing, not amortization.
◉ The goal of the FASB/IASB joint project on accounting for
business combinations was to Answer: to develop a standard that
includes a common set of principles to produce decision-useful
information and minimizing exceptions to those principles.
◉ intangible assets Answer: -lack physical substance.
-are required to meet specific criteria to qualify for recognition in a
business combination.