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Question;Multiple Choice Questions1. Trading Marketable Securities:A. are considered non-current assets.B. are recorded at amortized cost.C. are marked to the lower of cost or market each accounting period.D. are marked to market each accounting period.2. The classification of marketable equity securities as trading or available-for-sale is determined by:A. management's intent regarding the disposition of the securities.B. when the securities mature.C. whether the current assets are greater or less than the current liabilities.D. whether management wants to mark them to market or not.3. The reclassification of trading securities as available-for-sale would produce the following effect:A. The balance sheet would need to be adjusted to report the securities at fair market value and there would be no effect on the income statement.B. There would be no effect on either the balance sheet or the income statement.C. The balance sheet would need to be adjusted to report the securities at fair market value and unrealized gains or losses on the date of the transfer would be included in net income.D. There would be no effect on the balance sheet and unrealized gains or losses on the date of the transfer would be included in net income.4. The equity method of accounting for investments requires:A. Investment should be marked to market each accounting period.B. Pro-rata share of investee's earnings should be recorded as investment income.C. Company should not have significant influence over investee.D. Goodwill related to purchase of investee stock to be recorded separately on balance sheet.5. Which of the following isincorrect? An analyst should be aware of the following when analyzing a company that has significant investments recorded using the equity method:A. Cash flow received from investee may be substantially different from investment income recorded.B. As investee's liabilities are not recorded on the company's balance sheet, there may be significant off-balance-sheet financing.C. They must mark investment in investee to market even though there may be no ready market in which they can sell their investment.D. Company must record pro rata share of investee's earnings, which may not be well correlated with changes in market value of investee.6. Agwen Corporation owns 25% of the shares of Bronwo Corporation, which traded on the New York Stock Exchange. Which method is Agwenmost likely to use to account for this investment?A. Cost methodB. Market methodC. Equity methodD. Consolidation method7. Compared to the equity method, the cost method of accounting for an investment in a profitable company results in:A. lower earnings, and lower cash flows.B. higher earnings, and higher cash flows.C. lower earnings, and no effect on cash flows.D. higher earnings, and no effect on cash flows. 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 2006.8. Determine the amount Guido Inc. will record asinvestment income in its income statement under the three scenarios: Weiner is considered trading marketable equity security (MES), available for sale (AFS) MES or using cost method.A. Choice AB. Choice BC. Choice CD. Choice D9. Determine the amount Guido Inc. will record as aninvestment 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.A. Choice AB. Choice BC. Choice CD. Choice D10. Company A acquires Company B. In preparing consolidated financial statements, the two recognized accounting methods are:A. Merger accounting and Acquisition accountingB. Consolidation accounting and Acquisition accountingC. Merger accounting and Purchase accountingD. Pooling-of-interests accounting and Purchase accounting11. Company A acquires 40% of Company B in a stock-for-stock exchange. With respect to preparing financial statements, which of the following statements iscorrect?A. Company A will most likely use pooling-of-interest accounting for consolidation purposes.B. Company A will most likely use purchase accounting.C. Company A will most likely use the cost method.D. Company A will most likely use the equity method. Company ABC acquires company XYZ on 12/31/06 in a share-for-share transaction worth $10M. On 12/31/06, XYZ financial statements reported the following:At the time of acquisition, the fair value of XYZ's assets equals its book values, except for plant, property and equipment which has a fair value $2M higher than its book value. Goodwill is expected to be amortized over 10 years, and the average life of depreciable assets is 10 years.12. If ABC uses pooling-of-interests to record the acquisition, the amount of goodwill that will appear on its balance sheet as of 12/31/06 with respect to the acquisition of XYZ will be:A. $0B. $2MC. $4MD. $6M13. If ABC uses purchase accounting to record the acquisition, the amount of goodwill that will appear on its balance sheet as of 12/31/06 with respect to the acquisition of XYZ will be:A. $0B. $2MC. $4MD. $6M14. At the time of acquisition, ABC's 2006 net income will increase by:A. Choice AB. Choice BC. Choice CD. Choice D15. At the time of acquisition, ABC's stockholders' equity will increase by:A. Choice AB. Choice BC. Choice CD. Choice D16.2007 net income of combined companies will:A. be the same regardless of whether pooling-of-interests or purchase accounting is used.B. be higher using purchase accounting.C. be higher using pooling-of-interests accounting.D. none of the above.17. If a company uses pooling-of-interests to account for a merger, which of the following are true?I. Prior year's statements must be restated as if merged companies had always been one company.II. Net income of combined companies will probably be lower than net income of two separate companies added together.III. No goodwill will be recorded.IV. Assets of acquired company will be recorded on acquirer's books at their fair value.A. II, III and IVB. I, II and IIIC. II and IVD. I and III18. If a company uses the purchase method to account for a merger, which of the following is true?I. Prior year's statements must be restated as if merged companies had always been one company.II. Net income of combined companies will probably be lower than net income of two separate companies added together.III. Goodwill is never recorded.IV. Assets of acquired company will be recorded on acquirer's books at their fair value.A. II, III and IVB. I, II and IIIC. II and IVD. I and III Target Company is trading at $20 a share and has 1M shares outstanding. Acquirer Corp. is trading at $50 a share and has 2M shares outstanding. Acquirer offers Target's shareholders of one share of its stock for every two shares of Target Company. For the year ending 12/31/06, Acquirer and Target had earnings of $5M and $2M, respectively. The book value of Target's net assets is $12M and fair value is $15M as of 12/31/06. The book value of Acquirer's net assets is $35M and fair value is $48M as of 12/31/06.19. How many shares outstanding will Acquirer have if they are successful in its acquisition?A. 2MB. 2.4MC. 2.5MD. 3M20. If the acquisition is completed as of 12/31/06, what will the reported earnings per share be for the year ended 12/31/06 assuming pooling- of-interest accounting is used?A. $2.00B. $2.33C. $2.50D. $2.8021. If the acquisition is completed as of 12/31/06, what will the reported earnings per share be for the year ended 12/31/06 assuming purchase accounting is used?A. $2.00B. $2.33C. $2.50D. $2.8022. If the acquisition is completed as of 12/31/06, what will the book value per share be for the year ended 12/31/06 assuming pooling- of-interest accounting is used?A. $24.00B. $20.00C. $18.80D. $15.6723. If the acquisition is completed as of 12/31/06, what will the book value per share be for the year ended 12/31/06 assuming purchase accounting is used?A. $24.00B. $20.00C. $18.80D. $15.6724. Sachen Company uses the local currency for each country in which it operates as its functional currency. When translating statements into U.S. dollars they should use:A. Current Rate MethodB. Temporal MethodC. Remeasurement MethodD. Exchange Rate Method 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 $1,560.25. What would be total liabilities in the consolidated financial statements for the date on which the merger became effective?A. $28,221B. $27,231C. $27,741D. $25,462$23,467 + $3,764 + (.34 x $1,500) = $27,741.26. What would be total assets in the consolidated financial statements for the date on which the merger became effective?A. $50,008B. $49,498C. $41,508D. $44,113$37,234 + $5,379 + $1,500 + [$8,500 ? $1,615 ? $1,500 + (.34 x $1,500)] = $50,008.27. 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?A. $28,221B. $27,231C. $27,741D. $25,462$23,467 + $3,764 = $27,231.28. 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?A. $50,008B. $49,498C. $41,508D. $44,113$37,234 + $5,379 + ($8,500 ? $1,615) = $49,498.29. What would be the net income in the consolidated income statement for year X2?A. $1,461B. $1,560C. $1,450D. $1,611$1,560 - (1,500 / 10) + [.34 x (1,500 / 10)] = $1,461.30. 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?A. $1,461B. $1,560C. $1,012.2D. $730$1,560 - 830 = $730.

 

Paper#49105 | Written in 18-Jul-2015

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