ACTG 2010 Chapter 4: ACTG2010 - Chapter 11

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tancod376

1 Dec 2017

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Goodwill is the excess of the price paid for all or part of a company over the fair market value of the identifiable assets less liabilities. It"s only recorded on the financial statements when an entity purchases control of another entity. The extent of influence of one corporation over another determines how the investment is accounted for. If the influence is sufficient that the entity makes the important decisions for the investee (control), that company is called a subsidiary and the financial statements of both entities are aggregated to produce consolidated financial statements. When a company has significant influence over another company equity accounting is used. If the investor can influence decisions but not control them (significant influence), equity accounting is used. Q11-3: when the investing entity controls the other, the investor makes the important decisions for the investee. When there is control, consolidation accounting is used.

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GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

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Unit 6 GAAP Application-Conceptual Framework of Accounting TheConceptual Framework allows for the systematic adaptation ofaccounting standards to a changing business environment. The FASBuses the conceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depre-ciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole propri-etor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability Type your answers ina Word Document, and submit to the Drop Box.

maroonoyster77

Can someone please help me with the following questions so I candouble check my work? No explanation needed just the answer isfine.

8. U.S. GAAP and IFRS require firms to account for minority,active investments, generally those where the investor owns between_____ using the equity method. Under the equity method, theinvestor recognizes as revenue (expense) each period its share ofthe net income (loss) of the investee. The investor recognizesdividends received from the investee as a return (reduction) ofinvestment, not as income.

a.	10% and 50%
b.	20% and 50%
c.	30% and 50%
d.	40% and 60%
e.	50% and 60%

25. Purchaser Corporation acquires 30%of the outstanding voting common shares of the Investee Corporationfor $600,000. Purchaser Corporation acquires the investment inInvestee Corporation by buying previously issued shares of InvesteeCorporation from other investors. When Purchaser Corporationacquired 30% of Investee Corporationâs common shares for $600,000,Investee Corporationâs total shareholdersâ equity was $1.5 million.Purchaser Corporationâs cost exceeds the carrying value of the netassets acquired by $150,000 [ $600,000 - (0.30 x$1,500,000)].

Purchaser Corporation attributes the $150,000 excess purchaseprice as follows: $100,000 to remeasure buildings and equipment tofair value and $50,000 to goodwill. Which of the following is/aretrue?

a.	Purchaser Corporation does not reclassify this excess out of itsInvestment in Stock of Investee Corporation account to Buildingsand Equipment and to Goodwill.
b.	Purchaser Corporation must amortize (or depreciate) any amountattributed to assets with limited lives.
c.	Purchaser Corporation must depreciate the $100,000 attributed tobuildings and equipment over their remaining useful lives.
d.	U.S. GAAP and IFRS do not permit the investor to amortize theexcess purchase price attributed to goodwill and other assets withindefinite lives. Instead, the investor must test the investmentaccount annually for possible impairment.
e.	all of the above

32. Pareto Corporation owns 40% ofSpring Corporation. During Year 3, Spring has net income of$60,000. What entry should Pareto record related to its investmentin Spring during Year 3?

a.	Investment in SpringCorp. 24,000 Equity in Earnings ofAffiliate 24,000
b.	DividendReceivable 24,000 DividendIncome 24,000
c.	InvestmentReceivable 24,000 InvestmentIncome 24,000
d.	Investment in SpringCorp. 24,000 InvestmentIncome 24,000
e.	Investment in SpringCorp. 24,000 Cash 24,000

35. Pense Co. purchased 40% of thestock of Stretch Co. in Year 1 for $100,000. Stretch had net incomein Year 1 of $50,000 and net income in Year 2 of $30,000. Stretchalso paid total dividends of $20,000 in Year 2. On January 1, Year3, Pense Co. sold its investment in Stretch Co. to GE CapitalCorporation (GE) for $130,000. What entry would Pense Co. make torecord the sale of Stretch Co.?

a.	Cash 130,000 Gain onSale 6,000 Investment inStretch 124,000
b.	Cash 130,000 Loss onSale 2,000 Investment inStretch 132,000
c.	Cash 130,000 Loss onSale 10,000 Investment inStretch 140,000
d.	Cash 130,000 Loss onSale 30,000 Investment inStretch 160,000
e.	Cash 130,000 Loss onSale 20,000 Investment inStretch 150,000

55. Intercompany sales

a.	do not need to be eliminated as long as the sales have beencompleted to an outside party.
b.	must be eliminated from both the sales and cost of goods soldaccounts.
c.	do not need to be eliminated if made at arm's length values.
d.	must be eliminated only if not in the ordinary course of tradeor business.
e.	do not need to be eliminated.

54. To avoid double counting P'sinvestment in S, P must eliminate

a.	the investment in S and S's separate company shareholders'equity.
b.	all debt on S's separate company financial statements.
c.	any dividends paid against the cash account.
d.	all intercompany transactions.
e.	all of the above.

58. U.S. GAAP view investments of over50 percent of the voting stock of another company (for the purposeof controlling the other company at the broad policy-making leveland at the day-to-day operational level) as

a.	minority, passive investments.
b.	minority, active investments.
c.	majority, passive investments.
d.	majority, active investments.
e.	marketable securities.

33. If Wabasso Company pays $55,000 individends to its corporate investor Lament Corporation (Lament owns35% of The Wabasso Company), what entry should Lament Corporationrecord when it receives the dividends?

a.	Cash 55,000 DividendIncome 55,000
b.	Cash 55,000 InvestmentIncome 55,000
c.	Cash 55,000 Investment in WabassoCompany 55,000
d.	Cash 55,000 Additional Paid-inCapital 55,000
e.	Cash 55,000 Common Stock- WabassoCompany 55,000

Purchaser Corporation attributes the $150,000 excess purchaseprice as follows: $100,000 to remeasure buildings and equipment tofair value and $50,000 to goodwill. Which of the following is/aretrue?

a.	Purchaser Corporation does not reclassify this excess out of itsInvestment in Stock of Investee Corporation account to Buildingsand Equipment and to Goodwill.
b.	Purchaser Corporation must amortize (or depreciate) any amountattributed to assets with limited lives.
c.	Purchaser Corporation must depreciate the $100,000 attributed tobuildings and equipment over their remaining useful lives.
d.	U.S. GAAP and IFRS do not permit the investor to amortize theexcess purchase price attributed to goodwill and other assets withindefinite lives. Instead, the investor must test the investmentaccount annually for possible impairment.
e.	all of the above

20. Pagoli Corporation acquires 30% ofthe outstanding voting common shares of the Inform Corporation for$600,000. Pagoli Corporation acquires the investment in InformCorporation by buying previously issued shares of InformCorporation from other investors.

Between the time of the acquisition and the end of PagoliCorporationâs next accounting period, Inform Corporation reportsearnings of $80,000; and pays a dividend of $30,000 to holders ofits common stock.

Inform Corporation reports earnings of $100,000 and paysdividends of $40,000 during the subsequent accounting period.

Pagoli Corporationâs Investment in Stock of Inform Corporationaccount now has a balance of:

a.	$609,000
b.	$621,000
c.	$633,000
d.	$642,000
e.	$657,000

ACTG 2010 Chapter 4: ACTG2010 - Chapter 11

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