Multiple Choice Answers

Goodwill represents the excess of the implied value of an acquired company over the
aggregate fair values of identifiable assets less liabilities assumed.
aggregate fair values of tangible assets less liabilities assumed.
aggregate fair values of intangible assets less liabilities assumed.
book value of an acquired company.

The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called:
verification.
translation.
remeasurement.
None of these.

Gains from remeasuring a foreign subsidiary’s financial statements from the local currency, which is not the functional currency, into the parent company’s currency should be reported as a(n):
other comprehensive income item.
extraordinary item (net of tax).
part of continuing operations.
deferred credit.
A component of an enterprise that may earn revenues and incur expenses, and about which management evaluates separate financial information in deciding how to allocate resources and assess performance is a(n)
identifiable segment.
operating segment.
reportable segment.
industry segment.

For interim financial reporting, a company’s income tax provision for the second quarter of 2011 should be determined using the
statutory tax rate for 2011.
effective tax rate expected to be applicable for the full year of 2011 as estimated at the end of the first quarter of 2011.
effective tax rate expected to be applicable for the full year of 2011 as estimated at the end of the second quarter of 2011.
effective tax rate expected to be applicable for the second quarter of 2011.

If a cumulative effect type accounting change is made during the first interim period of a year
no cumulative effect of the change should be included in net income of the period of change.
the cumulative effect of the change on retained earnings at the beginning of the year should be included in net income of the first interim period.
the cumulative effect of the change should be allocated to the current and remaining interim periods of the year.
none of these.

In January 2011, Abel Company paid $200,000 in property taxes on its plant for the calendar year 2011. Also in January 2011, Abel estimated that its year-end bonuses to executives for 2011 would be $800,000. What is the amount of expenses related to these two items that should be reflected in Abel’s quarterly income statement for the three months ended June 30, 2011 (second quarter)?
$ -0-
$250,000
$ 50,000
$200,000.

Carter, Wynn, and Norton are partners in a janitorial service. The business reported net income of $54,000 for 2011. The partnership agreement provides that profits and losses are to be divided equally after Wynn receives a $60,000 salary, Norton receives a $24,000 salary, and each partner receives 10% interest on his beginning capital balance. Beginning capital balances were $40,000 for Carter, $48,000 for Wynn, and $32,000 for Norton. Norton’s share of partnership income for 2011 is:
$68,800
$36,000
$31,200
$27,200

Steve and Robby are partners operating an electronics repair shop. For 2011, net income was $50,000. Steve and Robby have salary allowances of $90,000 and $60,000, respectively, and remaining profits and losses are shared 4:6.
The division of profits would be:
$20,000 and $30,000
$50,000 and $-0-
$30,000 and $20,000
$25,000 and $25,000

When the goodwill method is used and the book value acquired is less than the value of the assets invested, total implied capital is computed by
multiplying the new partner’s capital interest by the capital balances of existing partners.
dividing the total capital balances of existing partners by their collective capital interest.
dividing the new partner’s investment by his (her) capital interest.
dividing the new partner’s investment by the existing partners’ collective capital interest.

The profit and loss sharing ratio should be
in the same ratio as the percentage interest owned by each partner.
based on relative effort contributed to the firm by the partners.
a weighted average of capital and effort contributions.
based on any formula that the partners choose.

Under the Uniform Partnership Act
partnership creditors have first claim (Rank I) against the assets of an insolvent partnership.
personal creditors of an individual partner have first claim (Rank I) against the personal assets of all partners.
partners with credit capital balances share (Rank I) the personal assets of an insolvent partner that has a debit capital balance with personal creditors of that partner.
personal creditors of the partners of an insolvent partnership share partnership assets on a pro rata basis (Rank I) with partnership creditors.

In an advance plan for installment distributions of cash to partners of a liquidating partnership, each partner’s loss absorption potential is computed by
dividing each partner’s capital account balance by the percentage of that partner’s capital account balance to total partners’ capital.
multiplying each partner’s capital account balance by the percentage of that partner’s capital account balance to total partners’ capital.
dividing the total of each partner’s capital account less receivables from the partner plus payables to the partner by the partner’s profit and loss percentage.

The first step in preparing an advance cash distribution plan is to
determine the order in which partners are to participate in cash distributions.
compute the amount of cash each partner is to receive as it becomes available for distribution.
allocate any gains (losses) to the partners in their profit-sharing ratio.
determine the net capital interest of each partner.

Property, plant and equipment are valued at
historical cost under both IFRS and US GAAP.
historical cost or revalued amounts under both IFRS and US GAAP.
revalued amounts under IFRS.
historical cost under US GAAP while IFRS allows the assets to be valued at either historical cost or revalued amounts.

Primer Company acquired an 80% interest in SealCoat Company on January 1, 2010, for $450,000 cash when SealCoat Company had common stock of $250,000 and retained earnings of $250,000. All excess was attributable to plant assets with a 10-year life. SealCoat Company made $50,000 in 2010 and paid no dividends. Primer Company’s separate income in 2010 was $625,000. The controlling interest in consolidated net income for 2010 is:
$675,000.
$665,000.
$660,000.
$625,000.

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?
Amortized as a credit to income over a period not to exceed forty years.
Amortized as a charge to expense over a period not to exceed forty years.
Amortized directly to retained earnings over a period not to exceed forty years.
Recognized as an ordinary gain in the year of acquisition.

The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets
increasing.
decreasing.
remaining unchanged.
increasing, decreasing, or remaining unchanged.

On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.

Assume that P Corporation purchased the additional shares what would be their current percentage ownership on December 31, 2010?
62 1/2%.
75%
79 1/6%
100%

On January 1, 2010, P Corporation purchased 75% of S Corporation for $500,000. S’s stockholders’ equity on that date was equal to $600,000 and S had 40,000 shares issued and outstanding on that date. S Corporation sold an additional 8,000 shares of previously unissued stock on December 31, 2010.
Assume S sold the 8,000 shares to outside interests, P’s percent ownership would be:
56 1/4%
62 1/2%
75%
79 1/6%

The duties of the trustee include:
appointing creditors’ committees in liquidation cases.
approving all payments for debts incurred before the bankruptcy filing.
examining claims and disallowing any that are improper.
calling a meeting of the debtor’s creditors.

When a secured claim is not fully settled by the selling of the underlying collateral, the remaining portion:
of the claim cannot be collected by the creditor.
remains as a secured claim.
is classified as an unsecured priority claim.
is classified as an unsecured nonpriority claim.

An involuntary petition filed by a firm’s creditors whereby there are twelve or more creditors must be signed by at least:
two creditors.
three creditors.
five creditors.
six creditors.

In accounting for research and development costs.
the general rule under both US GAAP and IFRS is that research and development costs should be expensed as incurred .
IFRS generally expenses all research and development costs while US GAAP expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
US GAAP generally expenses all research and development costs while IFRS expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
both US GAAP and IFRS expense research costs as incurred but capitalize development costs once technological and economic feasibility has been demonstrated.

A schedule prepared each time cash is to be distributed is called a(n)
advance cash distribution schedule.
marshaling of assets schedule.
loss absorption potential schedule.
safe payment schedule.

Which of the following statements is true regarding the IASC?
The IASC is a public-sector, not-for-profit organization.
The IASC is accountable to an international securities regulator.
The IASC is a stand-alone, private-sector organization.
The IASC funds the operations of the IASB through filing fees paid to national securities regulators.

From the viewpoint of a U.S. company, a foreign currency transaction is a transaction: measured in a foreign currency.
denominated in a foreign currency.
measured in U.S. currency.
denominated in U.S. currency.

An indirect exchange rate quotation is one in which the exchange rate is quoted:
in terms of how many units of the domestic currency can be converted into one unit of foreign currency.
for the immediate delivery of currencies exchanged.
in terms of how many units of the foreign currency can be converted into one unit of domestic currency.
for the future delivery of currencies exchanged.

The exchange rate quoted for future delivery of foreign currency is the definition of a(n):
direct exchange rate.
indirect exchange rate.
spot rate.
forward exchange rate.

The translation adjustment that results from translating the financial statements of a foreign subsidiary using the current rate method should be:
included as a separate item in the stockholders’ equity section of the balance sheet.
included in the determination of net income for the period it occurs.
deferred and amortized over a period not to exceed forty years.
deferred until a subsequent year when a loss occurs and offset against that loss.