Question 1: Whenever an unallocated credit differential exists as the result of a bargain purchase, the FASB requires that the resulting negative goodwill be treated as follows:
a. Recorded as an extraordinary gain in the period of combination
b. Allocated proportionately against the amounts that otherwise would be assigned to all of the acquired assets other than current assets, assets to be disposed of by sale, and deferred tax assets
c. Recorded as revenue in the period of combination
d. Recorded as a liability and amortized over future periods
e. None of the above
Question 2: Which of the following is a reason that the retained earnings of each subsidiary is completely eliminated when the subsidiary is consolidated, assuming the parent uses the equity method on its books?
a. The parent's share of the subsidiary's income since acquisition is already included in the parent's equity-method retained earnings
b. The noncontrolling interest's share of the subsidiary's retained earnings is not included in consolidated retained earnings
c. Retained earnings cannot be purchased, so subsidiary retained earnings at the date of a business combination cannot be included in the retained earnings of the combined company
d. All of the above
e. None of the above