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kaplan mt482 unit 5 quiz

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Question;Which of the following is incorrect?An analyst should be;aware of the following when analyzing a company that has significant;investments recorded using the equity method;Cash flow received from investee;may be substantially different from investment income recorded.;As investee's liabilities are not recorded on;the company's balance sheet, there may be significant off-balance-sheet;financing.;They must mark investment in investee to;market even though there may be no ready market in which they can sell their;investment.;Company must record pro rata share of;investee's earnings, which may not be well correlated with changes in market;value of investee.;Question 2. Question;Guido Inc. buys 2,000 shares of Weiner Company for $30 per;share on January 1, 2006. At the end of 2006, Weiner shares are trading at $33;per share. Weiner has a total of 200,000 shares outstanding and reported net;income of $3,000,000 and paid dividends of $1,000,000 for fiscal 2006.;Determine the amount Guido Inc. will record as an investment;on its balance sheet under the three scenarios: Weiner is considered trading;marketable equity security (MES), available for sale (AFS) MES or using cost;method.;Choice A;Choice B;Choice C;Choice D;Question 3. Question;Constant Corp. bought Steady Company on June 30, 2005 in a;pooling-of-interests transaction. Both companies are in stagnant markets.;Steady had total assets of $50,000 and total liabilities of $30,000 with fair;market values of $60,000 and $30,000, respectively. Constant issued 1,000;shares, valued at $45 per share. Both companies operate in tax-free havens and;take a half-year's depreciation in the year acquired using ten-year lives.;Monthly operating results are as follows;Assume revenue and earnings remain same for the next year.;Company is following SFAS 142.;Feedback;It can be either $42,000 or $48,000. Under GAAP for purchase;accounting, there are two alternatives. Although income is always reported from;the acquisition date forward, it is permitted to report 12 months sales of the;acquired company, as long as 12 months expenses are included and;pre-acquisition earnings are backed out. The simpler (and easier for the;reader) approach is to only report post-acquisition (i.e., six months in this;example) sales and expenses.;If accounted for as a purchase, 2005 consolidated earnings;are reported as;$10,700;$11,900;$12,700;$13,200;Question 4. Question;Parent Company Inc. successfully bids for Child Company Inc.;in year X1. Parent Company Inc. has purchased all of Child's shares outstanding;for $8,500. Following are excerpts from both companies' financial statements;for year X1, prior to the acquisition.;Also assume the following information: the acquisition was;accounted for using the purchase method. $1,500 of the excess price relates to;depreciable assets, and those assets have an additional useful life of 10 years;at the time of the acquisition. Parent Company Inc. uses the straight line;depreciation method and has a 34% tax rate. The combined net income for both;companies for year X2 (excluding any expenses that need to be recorded as a;result of the purchase method accounting for the merger) was $1,560.;What would be total assets in the consolidated financial;statements for the date on which the merger became effective, assuming any;excess purchase price relates to goodwill?;$50,008;$49,498;$41,508;$44,113;Question 5. Question;The following information is from L&H's 2004 income;statement;Feedback: Pre-tax income in 2005 is $3,900 ($2,600 x 1.5);an increase of $1,300. Starting with 2004, add back amortization expense no;longer permitted by SFAS 142 (income increases by $2,000) less the impact of;the sales decline of $1,400 (at 50% gross margin = $700 real economic income;decrease).;Based upon your analysis, you reflect that L&H;management;is more than holding its own in a tough;economic environment.;needs to strengthen its marketing.;is achieving growth in its new product line.;has adroitly managed its asset portfolio.;Question 6. Question;Constant Corp. bought Steady Company on June 30, 2005 in a;pooling-of-interests transaction. Both companies are in stagnant markets.;Steady had total assets of $50,000 and total liabilities of $30,000 with fair;market values of $60,000 and $30,000, respectively. Constant issued 1,000;shares, valued at $45 per share. Both companies operate in tax-free havens and;take a half-year's depreciation in the year acquired using ten-year lives.;Monthly operating results are as follows;Assume revenue and earnings remain same for the next year.;Company is following SFAS 142.;Feedback;It can be either $42,000 or $48,000. Under GAAP for purchase;accounting, there are two alternatives. Although income is always reported from;the acquisition date forward, it is permitted to report 12 months sales of the;acquired company, as long as 12 months expenses are included and;pre-acquisition earnings are backed out. The simpler (and easier for the;reader) approach is to only report post-acquisition (i.e., six months in this;example) sales and expenses.;If accounted for as a pooling-of-interests, 2005;consolidated earnings are reported as;$12,000;$13,200;$14,400;It cannot be determined without further;information;Question 7. Question;A U.S. company has a subsidiary located in Great Britain. If;the British pound is the functional currency and is appreciating relative to;the dollar, what will happen to the following ratios after translation?;Choice A;Choice B;Choice C;Choice D;Question 8. Question;Constant Corp. bought Steady Company on June 30, 2005 in a;pooling-of-interests transaction. Both companies are in stagnant markets.;Steady had total assets of $50,000 and total liabilities of $30,000 with fair;market values of $60,000 and $30,000, respectively. Constant issued 1,000;shares, valued at $45 per share. Both companies operate in tax-free havens and;take a half-year's depreciation in the year acquired using ten-year lives.;Monthly operating results are as follows;Assume revenue and earnings remain same for the next year.;Company is following SFAS 142.;It can be either $42,000 or $48,000. Under GAAP for purchase;accounting, there are two alternatives. Although income is always reported from;the acquisition date forward, it is permitted to report 12 months sales of the;acquired company, as long as 12 months expenses are included and;pre-acquisition earnings are backed out. The simpler (and easier for the;reader) approach is to only report post-acquisition (i.e., six months in this;example) sales and expenses.;If accounted for as a purchase, 2006 consolidated earnings;are reported as;$10,700;$13,400;$11,950;$14,400;Question 9. Question;Parent Company Inc. successfully bids for Child Company Inc.;in year X1. Parent Company Inc. has purchased all of Child's shares outstanding;for $8,500. Following are excerpts from both companies' financial statements;for year X1, prior to the acquisition.;Also assume the following information: the acquisition was;accounted for using the purchase method. $1,500 of the excess price relates to;depreciable assets, and those assets have an additional useful life of 10 years;at the time of the acquisition. Parent Company Inc. uses the straight line;depreciation method and has a 34% tax rate. The combined net income for both;companies for year X2 (excluding any expenses that need to be recorded as a;result of the purchase method accounting for the merger) was $1,560.;What would be total liabilities in the consolidated;financial statements for the date on which the merger became effective;assuming any excess purchase price relates to goodwill?;$28,221;$27,231;$27,741;$25,462;Question 10. Question;Parent Company Inc. successfully bids for Child Company Inc.;in year X1. Parent Company Inc. has purchased all of Child's shares outstanding;for $8,500. Following are excerpts from both companies' financial statements;for year X1, prior to the acquisition.;Also assume the following information: the acquisition was;accounted for using the purchase method. $1,500 of the excess price relates to;depreciable assets, and those assets have an additional useful life of 10 years;at the time of the acquisition. Parent Company Inc. uses the straight line;depreciation method and has a 34% tax rate. The combined net income for both;companies for year X2 (excluding any expenses that need to be recorded as a;result of the purchase method accounting for the merger) was $1,560.;What would be the net income in the consolidated income;statement for year X2 assuming any excess purchase price relates to goodwill;and goodwill was found to be impaired by $830?;$1,461;$1,560;$1,012.2

 

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