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Test 1 402

Terms in this set (16)

A deduction from the investment account
When an investor uses the equity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as
No change is recorded; the equity method is used from the date of the new acquisition
Hawkins Co has owned 10% if Larker Inc for the past several years. This ownership did not allow Hawkins to have significant influence over Larker. Recently, Hawkins acquired an additional 30% of Larker and now will use the equity method. How will the investor report the change?
Changes in fair value of the investor's ownership shares of the investee
Under fair-value accounting for an equity investment, which of the following affects the income the investor recognizes from its ownership of the investee?
The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses
When an equity method investment account is reduced to a zero balance
No adjustment is necessary
Perez Inc applies the equity method for its 25% investment in Senior Inc. During 2021, Perez sold goods with a 40% gross profit to Senior, which sold all of these goods in 2021. How should Perez report the effect of the intra-entity sale on its 2021 income statement?
Larger firms are less likely to fail
Which of the following does not represent a primary motivation for business combinations?
In form, the companies are separate; in substance, they are one entity
Which of the following is the best theoretical justification for consolidated financial statements?
A business combination in which only one company continues to exist as a legal entity
What is a statutory merger?
An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination
What is goodwill?
Capitalize as an asset
What is the appropriate accounting treatment for the value assigned to in-process R&D acquired in a business combination?
Control over another company
Consolidated financial statements are typically prepared when one company has
When a bargain purchase occurs
When does gain recognition accompany a business combination?
Recorded as an expense in the period the merger takes place
According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be
The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separately identifiable assets acquired and liabilities assumed
An acquired firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?
An investment enables the investor to influence the operating and financial decisions of the investee
The equity method tends to be most appropriate if
The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and liability or additional owners' equity is recognized
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?
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