• ACCT 559 Week 4 | Midterm Exam
Page 1: Multiple Choice Questions
  • (TCO A) All of the following would require use of the equity method for investments except

  • (TCO A) Gaw Company owns 15% of the common stock of Trace Corporation and used the fair-value method to account for this investment. Trace reported net income of $110,000 for 2008 and paid dividends of $60,000 on October 1, 2008. How much income should Gaw recognize on this investment in 2008?
  • (TCO A) Club Co. appropriately uses the equity method to account for its investment in Chip Corp. As of the end of 2008, Chip's common stock had suffered a significant decline in fair value, which is expected to be recovered over the next several months. How should Club account for the decline in value?
  • (TCO A) Which of the following results in a decrease in the Equity in Investee Income account when applying the equity method?
  • (TCO A) On January 1, 2008, Dawson, Incorporated, paid $100,000 for a 30% interest in Sacco Corporation. This investee had assets with a book value of $550,000 and liabilities of $300,000. A patent held by Sacco having a book value of $10,000 was actually worth $40,000 with a six year remaining life. Any goodwill associated with this acquisition is considered to have an indefinite life. During 2008, Sacco reported income of $50,000 and paid dividends of $20,000 while in 2009 it reported income of $75,000 and dividends of $30,000.
  • (TCO B) Which of the following statements is true regarding a statutory merger?
  • (TCO B) In a purchase or acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?
  • (TCO B) Which of the following statements is true regarding a statutory consolidation?
  • (TCO B) Bullen Inc. assumed 100% control over Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts:
  • (TCO B) In a pooling of interests,
  • (TCO C) Which one of the following accounts would not appear on the consolidated financial statements at the end of the first fiscal period of the combination? (TCO C) Under the partial equity method of accounting for an investment,
  • (TCO C) When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidated worksheet?
  • (TCO C) According to SFAS 142, which of the following statements is true?

Page 2: Essay Questions

  • (TCO A) How does the use of the equity method affect the investor's financial statements?
  • (TCO B) Goodwill is often created or purchased, during a business combination. Why doesn't Goodwill show up on the Parent company's trial balance as a separate account?
  • (TCO C) TJV Co. obtained all of the common stock of NTB Co. on January 1, 2009. As of that date, NTB had the following trial balance:

ACCT 559 Week 4 | Midterm Exam

  • Institution(s): DeVry
  • Year Published: 2018-19
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