Question 1: On April 1, 20X2, Jack company paid $800,000 for all of Ann Corporationâ??s issued and outstanding common stock. Ann's recorded assets and liabilities on April 1, 20X2, were as follows:
Cash $ 80,000
Inventory 240,000
Prop & Equip (net of Accum Depre of $320,000) 480,000
Liabilities-----------------------------------------------------(180,000)
On April 1, 20X2, Ann's inventory was determined to have a fair value of $190,000 and that the property and equipment had a fair value of $560,000. What is the amount of goodwill resulting from the business combination?
a. $0
b. $50,000
c. $150,000
d. $180,000
Question 2. Twill company has a reporting unit with the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit's net assets on Twillâ??s books is $575,000, which includes $90,000 of goodwill. The fair value of the reporting unit is $560,000. Twill should report impairment of goodwill of:
a. $60,000
b. $30,000
c. $15,000
d. $0
Question 3. Companies often acquire ownership in other companies using a variety of ownership arrangements. Equity-method reporting should be used by the investor whenever:
a. The investor purchases voting common stock of the investee.
b. The investor has significant influence over the operating and financing decisions of the investee.
c. The investor purchases goods and services from the investee.
d. The carrying value of the investment is less than the market value of the investeeâ??s shares held by the investor.
Question 4. Ownership of 51 percent of the outstanding voting stock of a company would usually result in:
a. The use of the cost method.
b. The use of the lower-of-cost-or-market method.
c. A pooling of interests.
d. A consolidation.
Question 5. Consolidated financial statements are typically prepared when one company has:
a. Accounted for its investment in another company by the equity method.
b. Accounted for its investment in another company by the cost m
c. Significant influence over the operating and financial policies of another company.
d. The controlling financial interest in another company.