69 test bank for survey of accounting 4th edition

69 Test Bank for Survey of Accounting 4th Edition by
Edmonds Multiple Choice Questions
Norris Company experienced the following transactions during
2013, its first year in operation. 1. Issued $6,000 of common stock
to stockholders; 2. Provided $2,300 of services on account; 3.
Paid $1,600 cash for operating expenses; 4. Collected $1,900 of
cash from accounts receivable; 5. Paid a $100 cash dividend to
stockholders. The amount of net cash flow from operating
activities shown on Norris Company's 2013 statement of cash
flows is
1.
2.
3.
4.

A. $200.
B. $300.
C. $700.
D. $600.

Which of the following would cause net income on the accrual
basis to be different than (either higher or lower than) "cash
provided by operating activities" on the statement of cash flows?
1.
2.
3.
4.

A. Purchased supplies for cash.
B. Purchased land for cash.
C. Invested cash in an interest earning account.

D. All of these are correct.

The purpose of the accrual basis of accounting is to:
1.
2.
3.
4.

A. Report revenue when received.
B. Match revenues and expenses in the proper period.
C. Report expenses when cash disbursements are made.
D. Improve the company's earnings per share.

The following accounts and balances were drawn from the
records of Hoover Company on December 31, 2013: Cash:
$1,000; Dividends: 500; Land: 800; Accounts payable: 450;
Account receivable: $850; Common stock: 975; Revenue: 800;
Expense: 550. The amount of net income shown on the
December 31, 2013 income statement would amount to:
1.
2.
3.
4.

A. $550.
B. $800.
C. $50.
D. $250.

Which of the following accounts is not closed at the end of an

accounting cycle?


1.
2.
3.
4.

A. Liabilities
B. Revenues
C. Dividends
D. Expenses

Norris Company experienced the following transactions during
2013, its first year in operation. 1. Issued $6,000 of common stock
to stockholders; 2. Provided $2,300 of services on account; 3.
Paid $1,600 cash for operating expenses; 4. Collected $1,900 of
cash from accounts receivable; 5. Paid a $100 cash dividend to
stockholders. The amount of retained earnings appearing on
Norris Company's December 31, 2013 balance sheet is:
1.
2.
3.
4.

A. $500.
B. $600.
C. $700.
D. $6,600.

Norris Company experienced the following transactions during
2013, its first year in operation. 1. Issued $6,000 of common stock
to stockholders; 2. Provided $2,300 of services on account; 3.
Paid $1,600 cash for operating expenses; 4. Collected $1,900 of
cash from accounts receivable; 5. Paid a $100 cash dividend to
stockholders. The amount of net income recognized on Norris
Company's 2013 income statement is:
1.
2.
3.
4.

A. $500.
B. $400.
C. $700.
D. $600.

The balance in a revenue account at the beginning of an
accounting period will always be
1.
2.
3.
4.

A. equal to the amount of retained earnings for the previous period.
B. last period's ending balance.
C. higher than the previous periods beginning balance.
D. zero.

Purchasing prepaid rent is classified as a(n):

1.
2.
3.
4.

A. asset source transaction.
B. asset use transaction.
C. asset exchange transaction.
D. claims exchange transaction.

If retained earnings decreased during the year, and no dividends
were paid, which of the following must be true?


1.
2.
3.
4.

A. Expenses for the year exceeded revenues
B. The company did not have enough cash to pay its expenses
C. Total equity decreased
D. Liabilities increased during the year

Expenses that are matched with the period in which they are
incurred are frequently called:
1.
2.
3.
4.

A. market expenses
B. matching expenses
C. period costs
D. working costs

Tocca Co. collected a $5,000 cash advance from a customer on
November 1, 2013 for work to be performed over a six-month
period beginning on that date. If the year-end adjustment is
properly recorded, what will be the effect on Tocca's 2013
financial statements?
1.
2.
3.
4.

A. Increase assets and increase liabilities
B. Increase assets and increase revenues
C. Decrease liabilities and increase revenues
D. No effect

Earning revenue on account would be classified as a/an:
1.
2.
3.
4.

A. claims exchange transaction.
B. asset source transaction.
C. asset use transaction.

D. asset exchange transaction.

James Company paid $1,800 for one year's rent in advance
beginning on October 1, 2013. James's 2013 income statement
would report rent expense, and its statement of cash flows would
report cash outflow for rent, respectively, of
1.
2.
3.
4.

A. $1,800; $1,800
B. $450; $1,800
C. $450; $450
D. $300; $1,800

Recognition of revenue may be accompanied by which of the
following?
1.
2.
3.
4.

A. A decrease in a liability.
B. An increase in a liability.
C. An increase in assets.
D. A decrease in a liability and an increase in assets.


Revenue on account amounted to $4,000. Cash collections of

accounts receivable amounted to $2,300. Expenses for the period
were $2,100. The company paid dividends of $450. Net income
for the period was
1.
2.
3.
4.

A. $200.
B. $1,450.
C. $1,850.
D. $1,900.

Which of the following is an asset exchange transaction?
1.
2.
3.

A. Issued common stock.
B. Accrued salary expense at the end of the accounting period.
C. Recognized revenue earned on a contract where the cash had been
collected at an earlier date.
4. D. Collected cash on accounts receivable

Which of the following correctly states the proper order of the
accounting cycle?
1.

A. Record transactions, adjust accounts, prepare statements, close
temporary accounts.

2. B. Adjust accounts, record transactions, close temporary accounts, prepare
statements.
3. C. Prepare statements, record transactions, close temporary accounts,
adjust accounts.
4. D. Adjust accounts, prepare statements, record transactions, close
temporary accounts.

The entry to recognize work completed on unearned revenue
involves which of the following?
1.
2.
3.
4.

A. An increase in assets and a decrease in liabilities
B. An increase in liabilities and a decrease in equity
C. A decrease in assets and a decrease in liabilities
D. A decrease in liabilities and an increase in equity

Franklin Trash Removal Company received a cash advance of
$9,000 on December 1, 2013 to provide services during the
months of December, January, and February. The year-end
adjustment to recognize the partial expiration of the contract will
1.
2.
3.
4.

A. increase equity by $3,000
B. increase assets by $3,000

C. increase liabilities by $3,000
D. Increase Equity by $3,000 and assets by $3,000.


The accounting principle that guides accountants, when faced
with a recognition dilemma, to choose the alternative that
produces the lowest net income is referred to as
1.
2.
3.
4.

A. the matching principle.
B. internal control.
C. conservatism.
D. materiality.

Which of the following is an asset source transaction?
1.
2.
3.
4.

A. Issued common stock.
B. Paid a cash dividend to stockholders.
C. Received a payment on accounts receivable.
D. Accrued salary expense.

Which of the following is a claims exchange transaction?
1.

2.
3.
4.

A. Purchased machine for cash.
B. Issued common stock.
C. Invested cash in an interest earning account.
D. Recognized revenue earned on a contract where the cash had been
collected at an earlier date.

Revenue on account amounted to $3,000. Cash collections of
accounts receivable amounted to $2,700. Cash paid for expenses
was $2,500. The amount of employee salaries accrued at the end
of the year was $300. Cash flow from operating activities was
1.
2.
3.
4.

A. $200.
B. $300.
C. $500.
D. None of these.

Ruiz Company provided services for $15,000 cash during the
2013 accounting period. Ruiz incurred $12,000 expenses on
account during 2013, and by the end of the year, $3,000 of that
amount had been paid with cash. Assuming that these are the
only accounting events that affected Ruiz during 2013.
1.

2.
3.
4.

A. The amount of net income shown on the income statement is $3,000.
B. The amount of net income shown on the income statement is $9,000.
C. The amount of net loss shown on the income statement is $3,000.
D. The amount of net cash flow from operating activities shown on the
statement of cash flows is $6,000.

The matching concept refers to the "matching" of:
1.

A. expenses and liabilities


2.
3.
4.

B. expenses and revenues
C. assets and equity
D. assets and liabilities

Which of the following financial statement elements is closed at
the end of an accounting cycle?
1.
2.
3.
4.

A. Liabilities
B. Common stock
C. Assets
D. Revenues

Mackie Company provided $25,500 of services on account, and
collected $18,000 from customers during the year. The company
also incurred $17,000 of expenses on account, and paid $15,400
against its payables. As a result of these events.
1.
2.
3.
4.

A. total assets would increase
B. total liabilities would increase
C. total equity would increase
D. all of these are correct

Which of the following statements is true in regard to accrual
accounting?
1.
2.
3.
4.

A. Revenue is recorded only when cash is received.
B. Expenses are recorded when they are incurred.
C. Revenue is recorded in the period when it is earned.

D. Expenses are recorded when they are incurred and revenue is recorded
in the period when it is earned.

Prior to closing, XYZ Company's accounting records showed the
following balances: Retained earnings: %5,600; Service revenue:
7,250; Interest revenue: 600; Salaries expense: 4,100; Operating
expense: 1,150; Interest expense: 300; Dividends: 900. After
closing, XYZ's retained earnings balance would be
1.
2.
3.
4.

A. $5,600.
B. $7,000.
C. $7,900.
D. None of these.

Bledsoe Company received $15,000 cash from the issue of stock
on January 1, 2013. During 2013 Bledsoe earned $8,500 of
revenue on account. The company collected $6,000 cash from
accounts receivable and paid $5,400 cash for operating
expenses. Based on this information alone, during 2013.
1.

A. Total assets increased by $24,100.


2.
3.

4.

B. Total assets increased by $600.
C. Total assets increased by $18,100.
D. Total assets did not change.

Norris Company experienced the following transactions during
2013, its first year in operation. 1. Issued $6,000 of common stock
to stockholders; 2. Provided $2,300 of services on account; 3.
Paid $1,600 cash for operating expenses; 4. Collected $1,900 of
cash from accounts receivable; 5. Paid a $100 cash dividend to
stockholders. The total amount of assets shown on Norris
Company's December 31, 2013 balance sheet is:
1.
2.
3.
4.

A. $6,200.
B. $6,600.
C. $6,700.
D. None of these.

Which of the following accounts would not appear on a balance
sheet?
1.
2.
3.
4.

A. Unearned Revenue.
B. Salaries Payable.
C. Interest Revenue.
D. Retained Earnings.

On December 31, 2013, Farrell Co. owed $1,500 in salaries to
employees who had worked during December but would be paid
in January. If the year-end adjustment is properly recorded on
December 31, 2013, what will be the effect of the accrual on the
following items for Farrell?
1.
2.
3.
4.

A. Net income: No effect; Cash flow from operating activities: No effect
B. Net income: Decrease; Cash flow from operating activities: No effect
C. Net income: Increase; Cash flow from operating activities: Decrease
D. Net income: No effect; Cash flow from operating activities: Decrease

The following account balances were drawn from the 2013
financial statements of Gunn Company. Cash: $4,400; Accounts
receivable: $1,500; Land: $8,000. Accounts payable: $1,250;
Common stock: ?; Retained earnings, Jan. 1: $2,700; Revenue:
$9,500; Expenses: $7,250. Based on the above information, what
is the balance of Common Stock for Gunn Company?
1.
2.
3.
4.

A. $9,950
B. $7,700
C. $450
D. $10,400


Which of the following events would not require an end-of-year
adjusting entry?
1.
2.
3.
4.

A. Purchasing supplies for cash
B. Providing services on account
C. Purchasing a 12-month insurance policy on July 1
D. All of these would require an end-of-year adjustment

In uncertain circumstances, the conservatism principle guides
accountants to
1.
2.
3.
4.

A. accelerate revenue recognition and delay expense recognition.
B. accelerate expense recognition and delay revenue recognition.
C. recognize expense of prepaid items when payment is made.
D. maximize reported net income.

Olaf Company began 2013 with $600 in its supplies account.
During the year, the company purchased $1,700 of supplies on
account. The company paid $1,500 on accounts payable by year
end. On December 31, 2013, Olaf counted $700 of supplies on
hand. Olaf's financial statements for 2013 would show:
1.
2.
3.
4.

A. $800 of supplies; $100 of supplies expense
B. $700 of supplies; $1,600 of supplies expense
C. $700 of supplies; $1,000 of supplies expense
D. $800 of supplies; $1,700 of supplies expense

Gonzales Company collected $18,000 on September 1, 2013
from a customer for services to be provided over a one-year
period beginning on that date. How much revenue would
Gonzales Company report related to this contract on its income
statement for the year ended December 31, 2013? How much
would it report as cash flows from operating activities for 2013?
1.
2.
3.
4.

A. $6,000; $6,000
B. $6,000; $18,000
C. $18,000; $18,000

D. $0; $18,000

Which of the following transactions does not involve an accrual?
1.
2.
3.
4.

A. Recording interest earned that will be received in the next period.
B. Recording operating expense incurred but not yet paid.
C. Recording salary expense incurred but not yet paid.
D. Recording the pre-payment of two years' worth of insurance.

The following accounts and balances were drawn from the
records of Hoover Company on December 31, 2013: Cash:


$1,000; Dividends: 500; Land: 800; Accounts payable: 450;
Account receivable: $850; Common stock: 975; Revenue: 800;
Expense: 550. Total assets on the December 31, 2013 balance
sheet would amount to:
1.
2.
3.
4.

A. $3,150.
B. $3,450.
C. $1,800.
D. $2,650.

The recognition of an expense may be accompanied by which of
the following?
1.
2.
3.
4.

A. An increase in assets
B. A decrease in liabilities
C. A decrease in revenue
D. An increase in liabilities

The following accounts and balances were drawn from the
records of Hoover Company on December 31, 2013: Cash:
$1,000; Dividends: 500; Land: 800; Accounts payable: 450;
Account receivable: $850; Common stock: 975; Revenue: 800;
Expense: 550. The amount of retained earnings as of January 1,
2014 was:
1.
2.
3.
4.

A. $1,475.
B. $1,800.
C. $975.
D. $1,225.

The results of the matching process are best reported on which

financial statement?
1.
2.
3.
4.

A. Balance sheet
B. Income statement
C. Statement of changes in stockholders' equity
D. Statement of cash flows

Which of the following is an asset use transaction?
1.
2.
3.
4.

A. Purchased machine for cash.
B. Recorded supplies expense at the end of the period.
C. Invested cash in an interest earning account.
D. Accrued salary expense.


24 Free Test Bank for Fundamentals of Advanced
Accounting 6th Edition by Hoyle Multiple Choice
Questions
What is the primary accounting difference between accounting for
when the subsidiary is dissolved and when the subsidiary retains
its incorporation?
1.

2.
3.
4.
5.

A. If the subsidiary is dissolved, it will not be operated as a separate
division.
B. If the subsidiary is dissolved, assets and liabilities are consolidated at
their book values.
C. If the subsidiary retains its incorporation, there will be no goodwill
associated with the acquisition.
D. If the subsidiary retains its incorporation, assets and liabilities are
consolidated at their book values.
E. If the subsidiary retains its incorporation, the consolidation is not formally
recorded in the accounting records of the acquiring company.

According to GAAP, the pooling of interest method for business
combinations
1.
2.
3.
4.

A. Is preferred to the purchase method.
B. Is allowed for all new acquisitions.
C. Is no longer allowed for business combinations after June 30, 2001.
D. Is no longer allowed for business combinations after December 31,
2001.
5. E. Is only allowed for large corporate mergers like Exxon and Mobil.

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
pre-2009 purchase transaction?
1.
2.
3.
4.
5.

A. Direct combination costs: Increase investment; Stock insurance costs:
decrease investment
B. Direct combination costs: Increase investment; Stock insurance costs:
decrease paid-in capital
C. Direct combination costs: Increase investment; Stock insurance costs:
increase expenses
D. Direct combination costs: Decrease paid-in capital; Stock insurance
costs: increase investment
E. Direct combination costs: Increase expenses; Stock insurance costs:
decrease investment


How are stock issuance costs and direct combination costs
treated in a business combination which is accounted for as an
acquisition when the subsidiary will retain its incorporation?
1.
2.
3.
4.
5.

A. Stock issuance costs are a part of the acquisition costs, and the direct
combination costs are expensed.
B. Direct combination costs are a part of the acquisition costs, and the
stock issuance costs are a reduction to additional paid-in capital.
C. Direct combination costs are expensed and stock issuance costs are a
reduction to additional paid-in capital.
D. Both are treated as part of the acquisition consideration transferred.
E. Both are treated as a reduction to additional paid-in capital.

Which of the following is a not a reason for a business
combination to take place?
1.
2.

A. Cost savings through elimination of duplicate facilities.
B. Quick entry for new and existing products into domestic and foreign
markets.
3. C. Diversification of business risk.
4. D. Vertical integration.
5. E. Increase in stock price of the acquired company.

In a transaction accounted for using the acquisition method where
consideration transferred is less than fair value of net assets
acquired, which statement is true?
1.
2.
3.
4.

A. Negative goodwill is recorded.
B. A deferred credit is recorded.
C. A gain on bargain purchase is recorded.
D. Long-term assets of the acquired company are reduced in proportion to
their fair values. Any excess is recorded as a deferred credit.
5. E. Long-term assets and liabilities of the acquired company are reduced in
proportion to their fair values. Any excess is recorded as an extraordinary
gain.

Which one of the following is a characteristic of a business
combination accounted for as an acquisition?
1.
2.

A. The combination must involve the exchange of equity securities only.
B. The transaction establishes an acquisition fair value basis for the
company being acquired.
3. C. The two companies may be about the same size, and it is difficult to
determine the acquired company and the acquiring company.
4. D. The transaction may be considered to be the uniting of the ownership
interests of the companies involved.
5. E. The acquired subsidiary must be smaller in size than the acquiring
parent.


Chapel Hill Company had common stock of $350,000 and
retained earnings of $490,000. Blue Town Inc. had common stock
of $700,000 and retained earnings of $980,000. On January 1,
2013, Blue Town issued 34,000 shares of common stock with a
$12 par value and a $35 fair value for all of Chapel Hill

Company's outstanding common stock. This combination was
accounted for as an acquisition. Immediately after the
combination, what was the total consolidated net assets?
1.
2.
3.
4.
5.

A. $2,520,000.
B. $1,190,000.
C. $1,680,000.
D. $2,870,000.
E. $2,030,000.

How are direct and indirect costs accounted for when applying the
acquisition method for a business combination?
1.
2.

A. Direct costs: Expensed; Indirect costs: Expensed
B. Direct costs: Increase investment account; Indirect costs: Decrease
additional paid-in capital
3. C. Direct costs: Expensed; Indirect costs: Decrease additional paid-in
capital
4. D. Direct costs: Increase investment account; Indirect costs: Expensed
5. E. Direct costs: Increase investment account; Indirect costs: Increase
investment account

In an acquisition where control is achieved, how would the land

accounts of the parent and the land accounts of the subsidiary be
combined?
1.
2.
3.
4.
5.

A. Parent: Book value, Subsidiary: Book value
B. Parent: Book value, Subsidiary: Fair value
C. Parent: Fair value, Subsidiary: Fair value
D. Parent: Fair value, Subsidiary: Book value
E. Parent: Cost, Subsidiary: Cost

An example of a difference in types of business combination is:
1.

A. A statutory merger can only be effected by an asset acquisition while a
statutory consolidation can only be effected by a capital stock acquisition.
2. B. A statutory merger can only be effected by a capital stock acquisition
while a statutory consolidation can only be effected by an asset acquisition.
3. C. A statutory merger requires dissolution of the acquired company while a
statutory consolidation does not require dissolution.
4. D. A statutory consolidation requires dissolution of the acquired company
while a statutory merger does not require dissolution.


5.

E. Both a statutory merger and a statutory consolidation can only be

effected by an asset acquisition but only a statutory consolidation requires
dissolution of the acquired company.

Which of the following statements is true regarding a statutory
merger?
1.
2.
3.
4.
5.

A. The original companies dissolve while remaining as separate divisions of
a newly created company.
B. Both companies remain in existence as legal corporations with one
corporation now a subsidiary of the acquiring company.
C. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
D. The acquiring company acquires the stock of the acquired company as
an investment.
E. A statutory merger is no longer a legal option.

Which of the following statements is true regarding a statutory
consolidation?
1.
2.
3.
4.
5.

A. The original companies dissolve while remaining as separate divisions of

a newly created company.
B. Both companies remain in existence as legal corporations with one
corporation now a subsidiary of the acquiring company.
C. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
D. The acquiring company acquires the stock of the acquired company as
an investment.
E. A statutory consolidation is no longer a legal option.

Prior to being united in a business combination, Botkins Inc. and
Volkerson Corp. had the following stockholders' equity figures:
Common stock ($1 par value): $220,000 (Botkins), $54,000
(Volkerson). Additional paid-in capital: 110,000 (Botkins), 25,000
(Volkerson). Retained earnings: 360,000 (Botkins), 130,000
(Volkerson). Botkins issued 56,000 new shares of its common
stock valued at $3.25 per share for all of the outstanding stock of
Volkerson. Assume that Botkins acquired Volkerson on January 1,
2012.
1.
2.
3.
4.
5.

A. $56,000.
B. $182,000.
C. $209,000.
D. $261,000.
E. $312,000.

Which of the following statements is true?


1.
2.
3.
4.

5.

A. The pooling of interests for business combinations is an alternative to the
acquisition method.
B. The purchase method for business combinations is an alternative to the
acquisition method.
C. Neither the purchase method nor the pooling of interests method is
allowed for new business combinations.
D. Any previous business combination originally accounted for under
purchase or pooling of interests accounting method will now be accounted
for under the acquisition method of accounting for business combinations.
E. Companies previously using the purchase or pooling of interests
accounting method must report a change in accounting principle when
consolidating those subsidiaries with new acquisition combinations.

Which of the following statements is true regarding the acquisition
method of accounting for a business combination?
1.
2.
3.

A. Net assets of the acquired company are reported at their fair values.

B. Net assets of the acquired company are reported at their book values.
C. Any goodwill associated with the acquisition is reported as a
development cost.
4. D. The acquisition can only be effected by a mutual exchange of voting
common stock.
5. E. Indirect costs of the combination reduce additional paid-in capital.

Prior to being united in a business combination, Botkins Inc. and
Volkerson Corp. had the following stockholders' equity figures:
Common stock ($1 par value): $220,000 (Botkins), $54,000
(Volkerson). Additional paid-in capital: 110,000 (Botkins), 25,000
(Volkerson). Retained earnings: 360,000 (Botkins), 130,000
(Volkerson). Botkins issued 56,000 new shares of its common
stock valued at $3.25 per share for all of the outstanding stock of
Volkerson. Assume that Botkins acquired Volkerson on January 1,
2012.
1.
2.
3.
4.
5.

A. $456,000.
B. $402,000.
C. $274,000.
D. $276,000.
E. $330,000.

Which one of the following is a characteristic of a business
combination that is accounted for as an acquisition?

1.

A. Fair value only for items received by the acquirer can enter into the
determination of the acquirer's accounting valuation of the acquired
company.


2.

B. Fair value only for the consideration transferred by the acquirer can enter
into the determination of the acquirer's accounting valuation of the acquired
company.
3. C. Fair value for the consideration transferred by the acquirer as well as the
fair value of items received by the acquirer can enter into the determination
of the acquirer's accounting valuation of the acquired company.
4. D. Fair value for only consideration transferred and identifiable assets
received by the acquirer can enter into the determination of the acquirer's
accounting valuation of the acquired company.
5. E. Only fair value of identifiable assets received enters into the
determination of the acquirer's accounting valuation of the acquired
company.

Lisa Co. paid cash for all of the voting common stock of Victoria
Corp. Victoria will continue to exist as a separate corporation.
Entries for the consolidation of Lisa and Victoria would be
recorded in
1.
2.
3.
4.

5.

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.

A statutory merger is a(n)
1.
2.
3.
4.
5.

A. business combination in which only one of the two companies continues
to exist as a legal corporation.
B. business combination in which both companies continue to exist.
C. acquisition of a competitor.
D. acquisition of a supplier or a customer.
E. legal proposal to acquire outstanding shares of the target's stock.

Using the acquisition method for a business combination, goodwill
is generally defined as:
1.
2.
3.
4.
5.

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 value at the beginning of
the year.
D. Cost of the investment less the subsidiary's fair value at acquisition date.
E. is no longer allowed under federal law.

Acquired in-process research and development is considered as
1.
2.
3.

A. a definite-lived asset subject to amortization.
B. a definite-lived asset subject to testing for impairment.
C. an indefinite-lived asset subject to amortization.


4.
5.

D. an indefinite-lived asset subject to testing for impairment.
E. a research and development expense at the date of acquisition.

In a transaction accounted for using the acquisition method where
consideration transferred exceeds book value of the acquired
company, which statement is true for the acquiring company with
regard to its investment?
1.

A. Net assets of the acquired company are revalued to their fair values and
any excess of consideration transferred over fair value of net assets
acquired is allocated to goodwill.
2. B. Net assets of the acquired company are maintained at book value and
any excess of consideration transferred over book value of net assets
acquired is allocated to goodwill.
3. C. Acquired assets are revalued to their fair values. Acquired liabilities are
maintained at book values. Any excess is allocated to goodwill.
4. D. Acquired long-term assets are revalued to their fair values. Any excess is
allocated to goodwill.

At the date of an acquisition which is not a bargain purchase, the
acquisition method
1.
2.
3.
4.
5.

A. consolidates the subsidiary's assets at fair 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 value.
D. consolidates current assets and liabilities at book value, long-term
assets and liabilities at fair value.
E. consolidates the subsidiary's assets at book value and the liabilities at
fair value.