chap002 - Multiple Choice Questions 1. At the date of an...

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Multiple Choice Questions 1. At the date of an acquisition which is not a bargain purchase , the purchase method A) consolidates the subsidiary's assets at fair market value and the liabilities at book value. B) consolidates all subsidiary assets and liabilities at book value. C) consolidates all subsidiary assets and liabilities at fair market value. D) consolidates current assets and liabilities at book value, long-term assets and liabilities at fair market value. E) consolidates the subsidiary's assets at book value and the liabilities at fair market value. Answer: C Difficulty: Easy 2. In a purchase where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined? Parent Subsidiary A) BV BV B) BV FMV C) FMV FMV D) FMV BV E) Cost Cost Answer: B Difficulty: Medium 3. Dombers Co. and Munn Corp. engaged in a business combination. In accounting for the combination, goodwill of $400,000 was recognized. What is the maximum period over which the goodwill can be amortized? A) 0 years B) 10 years C) 20 years D) 30 years E) 40 years Answer: A Difficulty: Easy
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4. Medium Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Journal entries for the consolidation of Lisa and Victoria would be recorded in A) a worksheet. B) Lisa's general journal. C) Victoria's general journal. D) Victoria's secret consolidation journal. E) the general journals of both companies. Answer: A Difficulty: Medium 5. Goodwill is generally defined as: A) Cost of the investment less the subsidiary's book value at the beginning of the year. B) Cost of the investment less the subsidiary's book value at the acquisition date. C) Cost of the investment less the subsidiary's Fair Market Value at the beginning of the year. D) Cost of the investment less the subsidiary's Fair Market Value at acquisition date. E) is no longer allowed under federal law. Answer: D Difficulty: Medium 6. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in a Purchase transaction? Direct Combination Costs Stock Issuance Costs A) Increase Investment Decrease Investment B) Increase Investment Decrease Paid-In Capital C) Increase Investment Increase Expenses D) Decrease Paid-In Capital Increase Investment E) Increase Expenses Decrease Investment Answer: B Difficulty: Medium
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7. On July 1, 2002, Big acquires 100% of Little. Both companies have a fiscal year end of 12/31/02. At 12/31/02, how much of the fair market value adjustment associated with inventory should be amortized? A) 100% of the FMV adjustment.
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This note was uploaded on 02/15/2012 for the course ACCOUNTING 101 taught by Professor Mrhot during the Spring '11 term at Clarion.

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chap002 - Multiple Choice Questions 1. At the date of an...

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