Chapter 16
Multiple Choice
1. Consolidated statements are proper for Neely, Inc., Randle, Inc., and Walker, Inc., if
2. On October 1, Company X acquired for cash all of the outstanding common stock of Company Y.
Both companies have a December 31 year end and have been in business for many years.
Consolidated net income for the year ended December 31 should include net income of
3. Arkin, Inc., owns 90 percent of the outstanding stock of Baldwin Company. Curtis, Inc., owns 10
percent of the outstanding stock of Baldwin Company. On the consolidated financial statements
of Arkin, Curtis should be considered as
4. A sale of goods, denominated in a currency other than the entity’s functional currency, resulted in
a receivable that was fixed in terms of the amount of foreign currency that would be received.
Exchange rates between the functional currency and the currency in which the transaction was
denominated changed. The resulting gain should be include as a (an)
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5. Which of the following is not a consideration in segment reporting for diversified enterprises?
6. Which of the following is the appropriate basis for valuing fixed assets acquired in a business
combination carried out by exchanging cash for common stock?
7. Goodwill represents the excess of the cost of an acquired company over the
8. The theoretically preferred method of presenting noncontrolling interest on a consolidated
balance sheet is
9. Meredith Company and Kyle Company were combined in an acquisition transaction. Meredith
was able to acquire Kyle at a bargain price. The sum of the market or appraised values of
identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to
Meredith. After revaluing noncurrent assets to zero there was still some of the bargain purchase
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amount remaining (formerly termed negative goodwill). Proper accounting treatment by
Meredith is to report the amount as
10. When translating foreign currency financial statements, which of the following accounts would
be translated using current exchange rates?
Property, Plant, and Inventories
Equipment carried at cost
11. In financial reporting for segments of a business enterprise, the operating profit or loss of a
segment should include
Reasonably allocated
Common Traceable
Operating costs operating costs
12. The profitability information that should be reported for each reportable segment of a business
enterprise consists of
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13. A foreign subsidiary’s function currency is its local currency that has not experienced significant
inflation. The weighted average exchange rate for the current year would be the appropriate
exchange rate for translating
Sales to
Wages expense Customers
14. A subsidiary’s functional currency is the local currency that has not experienced significant
inflation. The appropriate exchange rate for translating the depreciation on plant assets in the
income statement of the foreign subsidiary is the
15. In a business combination that is accounted for under the acquisition method, the entity that
obtains control over one or more businesses and establishes the acquisition date that control was
achieved is called the
16. Under the acquisition method for a business combination, the cost incurred to effect the business
combination, such as finders and legal fees are
17. Under which of the theories of equity is a manager’s goals considered as important as those of the
common stockholder.
18. For a business combination, we measure all assets and liabilities of an acquired company at fair
value. Fair value
19. Under the acquisition method of accounting for a business combination, restructuring costs are
20. Under the acquisition method of accounting for a business combination, goodwill is equal to
21. Under the acquisition method of accounting for a business combination, a bargain purchase is
22. The acquisition method of accounting for a business combination is consistent with
23. Under the acquisition method of accounting for a business combination when the parent company
has acquired only 90% of the voting stock of a subsidiary,
24. The noncontrolling interest in a subsidiary is reported in the consolidated balance sheet
Essay
1. List and explain three reasons why businesses combine.
Several factors may cause a business organization to consider combining with another
organization:
2. Discuss the issues that are to be addressed in an acquisition method business combination
effected by an exchange of equity shares.
3. How is the recorded cost determined in an acquisition business combination?
4. What are the two principles that are used to guide the preparation of consolidated financial
statements?
5. Explain the concept of control as it applies to recording consolidated financial statement.
6. Discuss the following two theories of consolidation:
7. Define noncontrolling interest. Historically, how has noncontrolling interest been disclosed on
corporate balance sheets
8. According to SFAS No. 131(FASB ASC 280-10-50-20 to 25), what information should be
disclosed for each operating segment?
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9. How are operating segments defined by SFAS No. 131 (FASB ASC 280-10-50-1)?
10. Discuss the criteria used to determine if an operating segment is a reportable segment.
Reportable segments include those operating segments that meet any of the following quantitative
thresholds:
11. Discuss how foreign currency translation occurs under each of the following methods
12. How does SFAS No. 52 (FASB ASC 830) define functional currency?
13. What are the two situations in which the local currency would not be the functional currency?
14. Discuss the difference between translation and remeasurement.
15. Describe the four general procedures involved in the foreign currency translation process when
the local currency is defined as the functional currency.
16. IFRS No. 10 changes the method of reporting noncontrolling interests from what was previously
required in IAS No.27. How are noncontrolling interest now defined and where are they to be
disclosed?