1.

In a business combination accounted for as an acquisition, how should the excess of fair value of
identifiable net assets acquired over implied value be treated?
a. Amortized as a credit to income over a period not to exceed forty years
b. Amortized as a charge to expense over a period not to exceed forty years
c. Amortized directly to retained earnings over a period not to exceed forty years
d. Recognized as an ordinary gain in the year of acquisition

2. Goodwill represents the excess of the implied value of an acquired company over the
a. Aggregate fair values of identifiable assets less liabilities assumed
b. Aggregate fair values of tangible assets less liabilities assumed
c. Aggregate fair values of intangible assets less liabilities assumed
d. Book value of an acquired company

3. In preparing consolidated working papers, beginning retained earnings of the parent company will be
adjusted in years subsequent to acquisition with an elimination entry whenever:
a. A non-controlling interest exists
b. It does not reflect the equity method
c. The cost method has been used only
d. The complete equity method is in use

4. Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent
under the
a. Fair value option/model
b. Equity method
c. Cost model and Fair value option/model
d. Cost model

5. What is the effect if an unconsolidated subsidiary is accounted for by the equity method but
consolidated statements are being prepared for the parent company and other subsidiaries?
a. All of the unconsolidated subsidiary’s accounts will be included individually in the
consolidated statements
b. The consolidated retained earnings will not reflect the earnings of the unconsolidated
subsidiary.
c. The consolidated retained earnings will be the same as if the subsidiary had been
included in the consolidation
d. Dividend revenue from the unconsolidated subsidiary will be reflected in consolidated net
income

6. Which of the following statements applying to the uses of the equity method versus the cost method
is true?
a. The equity method is required when one firm owns 20% or more of the common stock of
another firm
b. If no dividends were paid by the subsidiary, the investment account would have the same
balance under both methods
c. The method used has no significance to consolidated statements
d. An advantage of the equity method is that no amortization of excess adjustments needs to be
made on the consolidated worksheet

7. In consolidated financial statements, it is expected that:

 a. Dividends declared equals the sum of the total parent company’s declared dividends and the
total subsidiary’s declared dividends
b. Retained Earnings equals the sum of the controlling interest’s separate retained earnings and
the non-controlling interest’s separate retained earnings
c. Common Stock equals the sum of the parent company’s outstanding shares and the
subsidiary’s outstanding shares
d. Net Income equals the sum of the income distributed to the controlling interest and the
income distributed to the non-controlling interest

8. How is the portion of consolidated earnings to be assigned to non-controlling interest in consolidated

financial statements determined?
a. The net income of the parent is subtracted from the subsidiary’s net income to determine the
non-controlling interest
b. The subsidiary’s net income is extended to the non-controlling interest
c. The amount of the subsidiary’s earnings is multiplied by the non-controlling’s
percentage ownership and is adjusted for the excess cost amortization applicable to the
NCI
d. The amount of consolidated earnings determined on the consolidated working papers is
multiplied by the non-controlling interest percentage at the balance-sheet date

9. Alpha purchased an 80% interest in Beta on June 30, 20X4. Both Alpha’s and Beta’s reporting
period end December 31. Which of the following represents the controlling interest in consolidated
net income for 20X4?
a. 100% of Alpha’s July1-December 31 income plus 80% of Beta’s July 1-December 31 income
b. 100% of Alpha’s July1-December 31 income plus 100% of Beta’s July 1-December 31
income
c. 100% of Alpha’s January1-December 31 income plus 80% of Beta’s July 1-December
31 income
d. 100% of Alpha’s January1-December 31 income plus 80% of Beta’s January 1-December 31
income

10. In a mid-year purchase when the subsidiary’s books are not closed until the end of the year, the
purchase income account contains the parent’s share of the
a. Subsidiary’s income earned for the entire year
b. Subsidiary’s income earned from the beginning of the year to the date of acquisition
c. Subsidiary’s income earned from the date of acquisition to the end of the year
d. Consolidated Net Income