M ULTIPLE C HOICE Q UESTIONS - Choose the BEST answer for the following question
ID: 2424792 • Letter: M
Question
MULTIPLE CHOICE QUESTIONS - Choose the BEST answer for the following questions.
_____ 1. The difference between implied and book value may be allocated to:
a. any assets or liabilities on S’s books.
b. any assets or liabilities on P’s books.
c. only to S’s land.
d. only to P’s land.
_____ 2. When the partial or complete equity methods are used, where is P’s share of S’s income
recorded in P’s books?
a. Dividend income
b. Equity in S income
c. Investment income
d. It is not recorded
_____ 3. What is the significant difference between the partial equity and the complete equity entries on P’s books?
a. P records only its share of S’s dividends in the partial equity method.
b. P records only its share of S’s dividends in the complete equity method.
c. P records only its share of S’s dividends and reported income in the partial equity method
d. P records only its share of S’s dividends and income in the complete equity method.
_____ 4. When a specific asset has a fair value less than its book value, the allocation of the difference between implied and book value:
a. ignores the asset.
b. writes the asset up by its proportionate share of the difference.
c. decreases the asset by the excess of book value over fair value.
d. decreases P’s cost of investment.
_____ 5. What is the SEC’s position on push down accounting?
a. The SEC requires that push down accounting be used for all business combinations.
b. The SEC requires that push down accounting be used for business combinations where P buys 80 percent or more of S.
c. The SEC requires that push down accounting be used for business combinations where P buys 95 percent or more of S.
d. The SEC is silent as to push down accounting.
MATCHING
Match the terms in the list to the definitions below. Each term may be used only once.
A. Difference between implied and book value F. Complete equity method
B. Excess of fair value over book value G. Allocation of difference
C. Excess of fair value over implied value H. Push down accounting
D. Excess of implied value over fair value I. Cost method
E. Partial equity method J. Goodwill
_____ 1. A technique used to assign the difference between implied and book value to S’s assets and liabilities
_____ 2. What P pays for S’s net assets is more than the fair value of those assets
_____ 3. P records its share of S’s income and dividends on its books
_____ 4. S records the difference between implied and book value on its books
_____ 5. [P’s purchase price divided by its share of S] minus book value of S equity
_____ 6. There is a positive difference between what S has on its books for the value of its assets and the market value of those assets
_____ 7. P records only its share of S’s dividends
_____ 8. P has paid less than fair value for S’s net assets
_____ 9. An account used when the fair value of S’s net assets is less than the cost paid by P
_____10. P records its share of S’s income and dividends, and also an entry to record the amortization and depreciation of the difference between implied and book value.
Explanation / Answer
1)a any assets or liabilties on S' books
2)b)Equity in S income
3)c) P records only its share of S’s dividends and reported income in the partial equity method
4)c-decreases the asset by the excess of book value over fair value
5) a. The SEC requires that push down accounting be used for all business combinations.
Matching
1)G. Allocation of difference
2)D. Excess of implied value over fair value
3)E. Partial equity method
4)H. Push down accounting
5)A. Difference between implied and book value
6)B. Excess of fair value over book value
7) I. Cost method
8)C. Excess of fair value over implied value
9) J. Goodwill
10) F. Complete equity method
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