Chapter 02 - Consolidation of Financial InformationChapter 02Consolidation of Financial Information

Multiple Choice Questions 1. At the date of an acquisition which is not a bargain purchase, the acquisition method A. Consolidates the subsidiary's assets at fair value and the liabilities at book valueB. Consolidates all subsidiary assets and liabilities at book valueC. Consolidates all subsidiary assets and liabilities at fair valueD. Consolidates current assets and liabilities at book value, long-term assets and liabilities at fair valueE. Consolidates the subsidiary's assets at book value and the liabilities at fair value Difficulty: Easy 2. In a purchase or acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

A. Entry AB. Entry BC. Entry CD. Entry DE. Entry E Difficulty: Medium 2-1Chapter 02 - Consolidation of Financial Information3. Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in A. A worksheetB. Lisa's general journalC. Victoria's general journalD. Victoria's secret consolidation journalE. The general journals of both companies Difficulty: Easy 4. Using the purchase method, goodwill is generally defined as: A. Cost of the investment less the subsidiary's book value at the beginning of the yearB. Cost of the investment less the subsidiary's book value at the acquisition dateC. Cost of the investment less the subsidiary's Fair Value at the beginning of the yearD. Cost of the investment less the subsidiary's Fair Value at acquisition dateE. Is no longer allowed under federal law Difficulty: Medium 2-2Chapter 02 - Consolidation of Financial Information5. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in a Purchase transaction?

A. Entry AB. Entry BC. Entry CD. Entry DE. Entry E Difficulty: Medium 2-3Chapter 02 - Consolidation of Financial Information6. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in an Acquisition transaction?

A. Entry AB. Entry BC. Entry CD. Entry DE. Entry E Difficulty: Medium 7. What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation? A. If the subsidiary is dissolved, it will not be operated as a separate divisionB. If the subsidiary is dissolved, assets and liabilities are consolidated at their book valuesC. If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisitionD. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book valuesE. If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company Difficulty: Medium 2-4Chapter 02 - Consolidation of Financial Information8. According to SFAS No. 141, the pooling of interest method for business combinations A. Is preferred to the purchase methodB. Is allowed for all new acquisitionsC. Is no longer allowed for business combinations after June 30, 2001D. Is no longer allowed for business combinations after December 31, 2001E. Is only allowed for large corporate mergers like Exxon and Mobil Difficulty: Easy 2-5Chapter 02 - Consolidation of Financial Information9. In a pooling of interests, A. Revenues and expenses are consolidated for the entire fiscal year, even if the combination occurred late in the yearB. Goodwill may be recognizedC. Consolidation is accomplished using the fair values of both companiesD. The transactions may involve the exchange of preferred stock or debt securities as well as common stockE. The transaction is properly regarded as an acquisition of one company by another Difficulty: Easy 10. A company is not required to consolidate a subsidiary in which it holds more than 50% of the voting stock when A. The subsidiary is located in a foreign countryB. The subsidiary in question is a finance subsidiaryC. The company holds more than 50% but less than 60% of the subsidiary's voting stockD. The company holds less than 75% of the subsidiary's voting stockE. The subsidiary is in bankruptcy Difficulty: Medium 11. Which one of the following is a characteristic of a business combination that should be accounted for as an acquisition? A. The combination must involve the exchange of equity securities onlyB. The transaction establishes an acquisition fair value basis for the company being acquiredC. The two companies may be about the same size and it is difficult to determine the acquired company and the acquiring companyD. The transaction may be considered to be the uniting of the ownership interests of the companies involvedE. The acquired subsidiary must be smaller in size than the acquiring parent Difficulty: Easy 2-6Chapter 02 - Consolidation of Financial Information12. Which one of the following is a characteristic of a business combination that should be accounted for as a purchase? A. The combination must involve the exchange of equity securities onlyB. The transaction clearly establishes an acquisition price for the company being acquiredC. The two companies may be about the same size and it is difficult to determine the acquired company and the acquiring companyD. The transaction may be considered to be the uniting of the ownership interests of the companies involvedE. The acquired subsidiary must be smaller in size than the acquiring parent Difficulty: Easy 13. A statutory merger is a(n) A. Business combination in which only one of the two companies continues to exist as a legal corporationB. Business combination in which both companies continues to existC. Acquisition of a competitorD. Acquisition of a supplier or a customerE. Legal proposal to acquire outstanding shares of the target's stock Difficulty: Medium 2-7Chapter 02 - Consolidation of Financial Information14. How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation? A. Stock issuance costs are a part of the acquisition costs and the direct combination costs are expensedB. Direct combination costs are a part of the acquisition costs and the stock issuance costs are a reduction to additional paid-in capitalC. Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capitalD. Both are treated as part of the acquisition priceE. Both are treated as a reduction to additional paid-in capital Difficulty: Medium 2-8Chapter 02 - Consolidation of Financial Information Bullen Inc. assumed 100% control over Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: 15. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock. In this transaction (which is not a pooling of interests), how much goodwill should be recognized? A. $144,000B. $104,000C. $64,000D. $60,000E. $0 Difficulty: Medium 2-9Chapter 02 - Consolidation of Financial Information16. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding stock of Vicker. What is the consolidated Land as a result of this transaction (which is not a pooling of interests)? A. $460,000B. $510,000C. $500,000D. $520,000E. $490,000 Difficulty: Medium 2-10Chapter 02 - Consolidation of Financial Information17. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding shares of Vicker. What will be the consolidated AdditionalPaid-In Capital and Retained Earnings (January 1, 20X1 balances) as a result of this transaction (which is not a pooling of interests)? A. $20,000 and $160,000B. $20,000 and $260,000C. $380,000 and $160,000D. $464,000 and $160,000E. $380,000 and $260,000 Difficulty: Hard 18. Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of$500,000 for all of the outstanding shares of Vicker in a business combination (which is not a pooling of interests). What will be the balance in the consolidated Inventory and Land accounts? A. $440,000, $496,000B. $440,000, $520,000C. $425,000, $505,000D. $402,000, $520,000E. $427,000, $510,000 Difficulty: Hard 2-11Chapter 02 - Consolidation of Financial Information19. Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition, Bullen paid $35,000 to a group of attorneys for their work in arranging the combination to be accounted for as a purchase. What will be the balance in consolidated goodwill? A. $0B. $20,000C. $35,000D. $55,000 Difficulty: Medium 2-12Chapter 02 - Consolidation of Financial Information20. Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition, Bullen paid $35,000 to a group of attorneys for their work in arranging the combination to be accounted for as an acquisition. What will be the balance in consolidated goodwill? A. $0B. $20,000C. $35,000D. $55,000 Difficulty: Medium Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders' equity figures: Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. 21. Assume that Botkins acquired Volkerson as a purchase combination. Immediately afterwards, what are consolidated Additional Paid-In Capital and Retained Earnings, respectively? A. $133,000 and $360,000B. $236,000 and $360,000C. $130,000 and $360,000D. $236,000 and $490,000E. $133,000 and $490,000 Difficulty: Medium 2-13Chapter 02 - Consolidation of Financial Information22. Assume that Botkins and Volkerson were being joined in a pooling of interests and this occurred on January 1, 2000, using the same values given. Immediately afterwards, what is consolidated Additional Paid-In Capital? A. $138,000B. $266,000C. $130,000D. $236,000E. $133,000 Difficulty: Hard 23. Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue Town Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2009, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock. This combination was accounted for as an acquisition. Immediately after the combination, what was the consolidated net assets? A. $2,520,000B. $1,190,000C. $1,680,000D. $2,870,000E. $2,030,000 Difficulty: Medium 24. Which of the following is a not a reason for a business combination to take place? A. Cost savings through elimination of duplicate facilitiesB. Quick entry for new and existing products into domestic and foreign marketsC. Diversification of business riskD. Vertical integrationE. Cost synergies throughout the organizations Difficulty: Easy 2-14Chapter 02 - Consolidation of Financial Information25. Which of the following statements is true regarding a statutory merger? A. The original companies dissolve while remaining as separate divisions of a newly created companyB. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring companyC. The acquired company dissolves as a separate corporation and becomes a division of the acquiring companyD. The acquiring company acquires the stock of the acquired company as an investmentE. A statutory merger is no longer a legal option Difficulty: Medium 26. Which of the following statements is true regarding a statutory consolidation? A. The original companies dissolve while remaining as separate divisions of a newly created companyB. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring companyC. The acquired company dissolves as a separate corporation and becomes a division of the acquiring companyD. The acquiring company acquires the stock of the acquired company as an investmentE. A statutory consolidation is no longer a legal option Difficulty: Medium 2-15Chapter 02 - Consolidation of Financial Information27. In a transaction accounted for using the purchase method where cost exceeds book value, which statement is true for the acquiring company with regard to its investment? A. Net assets of the acquired company are revalued to their fair values and any excess of cost over fair value is allocated to goodwillB. Net assets of the acquired company are maintained at book value and any excess of cost over book value is allocated to goodwillC. Assets are revalued to their fair values. Liabilities are maintained at book values. Any excess is allocated to goodwillD. Long-term assets are revalued to their fair values. Any excess is allocated to goodwill Difficulty: Medium 2-16Chapter 02 - Consolidation of Financial Information28. In a transaction accounted for using the purchase method where cost is less than fair value, which statement is true? A. Negative goodwill is recordedB. A deferred credit is recordedC. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred creditD. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gainE. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain Difficulty: Hard 29. Which of the following statements is true regarding the pooling of interests method of accounting for a business combination? A. Net assets of the acquired company are reported at their book valuesB. Net assets of the acquired company are reported at their fair valuesC. Any goodwill associated with the acquisition has an indefinite lifeD. Subsequent amounts of cost in excess of fair value of net assets are amortized over their useful livesE. Indirect costs reduce additional paid-in capital Difficulty: Medium 2-17Chapter 02 - Consolidation of Financial Information30. Which of the following statements is true? A. Pooling of interests is acceptable provided the twelve criteria required by the APB are metB. Pooling of interests is no longer acceptable for new combinations as stated in SFAS No. 141, "Business Combinations"C. Companies that used pooling of interests method in the past must make a retrospective accounting change in accounting principleD. Companies that used pooling of interests method in the past must make a cumulative effectaccounting change in accounting principleE. Companies that used pooling of interests in the past must make a prospective change in accounting principle Difficulty: Easy 2-18Chapter 02 - Consolidation of Financial Information The financial statements for Goodwin, Inc. and Corr Company for the year ended December 31, 20X1, prior to Goodwin's business combination transaction regarding Corr, follow (in thousands): On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to purchase all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valuedat $560. 2-19Chapter 02 - Consolidation of Financial Information31. If the combination is accounted for as a purchase, at what amount is the investment recorded on Goodwin's books? A. $1,540B. $1,800C. $1,860D. $1,825E. $1,625 Difficulty: Medium 2-20Chapter 02 - Consolidation of Financial Information32. If the combination is accounted for as an acquisition, at what amount is the investment recorded on Goodwin's books? A. $1,540B. $1,800C. $1,860D. $1,825E. $1,625 Difficulty: Medium 33. Compute the consolidated revenues for 20X1. A. $2,700B. $720C. $920D. $3,300E. $1,540 Difficulty: Easy 34. Assuming the combination is accounted for as a purchase, compute the consolidated expenses for 20X1. A. $1,980B. $2,380C. $2,040D. $2,015E. $2,005 Difficulty: Easy 2-21Chapter 02 - Consolidation of Financial Information35. Assuming the combination is accounted for as an acquisition, compute the consolidated expenses for 20X1. A. $1,980B. $2,380C. $2,040D. $2,015E. $2,005 Difficulty: Easy 36. Compute the consolidated cash account at December 31, 20X1. A. $460B. $425C. $400D. $435E. $240 Difficulty: Medium 37. Compute the consolidated buildings (net) account at December 31, 20X1. A. $2,700B. $3,370C. $3,300D. $3,260E. $3,340 Difficulty: Medium 2-22Chapter 02 - Consolidation of Financial Information38. Compute the consolidated equipment (net) account at December 31, 20X1. A. $2,100B. $3,500C. $3,300D. $3,000E. $3,200 Difficulty: Medium 2-23Chapter 02 - Consolidation of Financial Information39. Assuming the combination is accounted for as a purchase, compute the consolidated goodwill account at December 31, 20X1. A. $0B. $100C. $125D. $160E. $45 Difficulty: Medium 40. Assuming the combination is accounted for as an acquisition, compute the consolidated goodwill account at December 31, 20X1. A. $0B. $100C. $125D. $160E. $45 Difficulty: Medium 41. Compute the consolidated common stock account at December 31, 20X1. A. $1,080B. $1,480C. $1,380D. $2,280E. $2,680 Difficulty: Medium 2-24Chapter 02 - Consolidation of Financial Information42. Compute the consolidated additional paid-in capital at December 31, 20X1. A. $810B. $1,350C. $1,675D. $1,910E. $1,875 Difficulty: Medium 2-25Chapter 02 - Consolidation of Financial Information43. Assuming the combination is accounted for as a purchase, compute the consolidated retained earnings at December 31, 20X1. A. $2,850B. $3,450C. $2,400D. $2,800E. $2,810 Difficulty: Medium 44. Assuming the combination is accounted for as an acquisition, compute the consolidated retained earnings at December 31, 20X1. A. $2,800B. $2,825C. $2,850D. $3,425E. $3,450 Difficulty: Medium 2-26Chapter 02 - Consolidation of Financial Information On January 1, 20X1, the Moody company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants and brokers for assistance in bringing about this purchase. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Note: Parentheses indicate a credit balance.In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40 and Buildings by $60. 45. If the transaction is accounted for as a purchase, what amount was recorded as the investment in Osorio? A. $930B. $820C. $800D. $835E. $815 Difficulty: Medium 2-27Chapter 02 - Consolidation of Financial Information46. If the transaction is accounted for as an acquisition, what amount was recorded as the investment in Osorio? A. $930B. $820C. $800D. $835E. $815 Difficulty: Medium 47. Compute the amount of consolidated inventories at date of combination. A. $1,080B. $1,350C. $1,360D. $1,370E. $290 Difficulty: Medium 48. Compute the amount of consolidated buildings (net) at date of combination. A. $1,700B. $1,760C. $1,655D. $1,550E. $1,660 Difficulty: Hard 2-28Chapter 02 - Consolidation of Financial Information49. Compute the amount of consolidated land at date of combination. A. $1,000B. $816C. $940D. $916E. $920 Difficulty: Hard 2-29Chapter 02 - Consolidation of Financial Information50. Compute the amount of consolidated equipment at date of combination. A. $580B. $480C. $559D. $570E. $560 Difficulty: Hard 51. Compute the amount of consolidated common stock at date of acquisition. A. $370B. $570C. $610D. $330E. $530 Difficulty: Medium 52. Compute the amount of consolidated additional paid-in capital at date of combination. A. $1,080B. $1,420C. $1,065D. $1,425E. $1,440 Difficulty: Hard 2-30Chapter 02 - Consolidation of Financial Information53. Compute the amount of consolidated cash after recording the transaction. A. $220B. $185C. $200D. $205E. $215 Difficulty: Medium 2-31Chapter 02 - Consolidation of Financial Information Carnes has the following account balances as of May 1, 2000 before a pooling of interests transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2000, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. 54. On May 1, 2000, what value is assigned to the investment account? A. $300,000B. $750,000C. $800,000D. $1,100,000E. $1,300,000 Difficulty: Medium 55. At the date of pooling, by how much does Riley's retained earnings increase or decrease? A. $200,000 increaseB. $200,000 decreaseC. $700,000 increaseD. $300,000 increaseE. $300,000 decrease Difficulty: Medium 2-32Chapter 02 - Consolidation of Financial Information56. Assume Riley issues 70,000 shares instead of 30,000 at date of acquisition. Riley currently has $40,000 of additional paid-in capital on its books. By how much will Riley's retained earnings increase or decrease as a result of the combination? A. $40,000 increaseB. $200,000 increaseC. $140,000 increaseD. $160,000 increaseE. $40,000 decrease Difficulty: Hard 57. Assume Riley issues 70,000 shares instead of 30,000 at date of pooling. Assume Riley hasno additional paid-in capital on its books. By how much will Riley's retained earnings increase or decrease as a result of the combination? A. $100,000 increaseB. $200,000 increaseC. $100,000 decreaseD. $200,000 decreaseE. No change Difficulty: Hard 2-33Chapter 02 - Consolidation of Financial Information The financial balances for the Atwood Company and the Franz Company as of December 31,20X1, are presented below. Also included are the fair values for Franz Company's net assets. Note: Parenthesis indicate a credit balanceAssume a business combination took place at December 31, 20X1. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. 58. Assuming Atwood accounts for the combination as a purchase, compute the investment tobe recorded at date of acquisition. A. $1,760B. $1,750C. $1,775D. $1,765E. $1,120 Difficulty: Medium 2-34Chapter 02 - Consolidation of Financial Information59. Assuming Atwood accounts for the combination as an acquisition, compute the investment to be recorded at date of acquisition. A. $1,760B. $1,750C. $1,775D. $1,765E. $1,120 Difficulty: Medium 60. Compute consolidated inventory at the date of the business combination. A. $1,650B. $1,810C. $1,230D. $580E. $1,830 Difficulty: Medium 61. Compute consolidated land at the date of the business combination. A. $2,060B. $1,800C. $260D. $2,050E. $2,070 Difficulty: Medium 2-35Chapter 02 - Consolidation of Financial Information62. Compute consolidated buildings (net) at the date of the business combination. A. $2,450B. $2,340C. $1,800D. $650E. $1,690 Difficulty: Medium 2-36Chapter 02 - Consolidation of Financial Information63. Assuming Atwood accounts for the combination as a purchase, compute consolidated goodwill at the date of the combination. A. $360B. $450C. $460D. $440E. $475 Difficulty: Medium 64. Assuming Atwood accounts for the combination as an acquisition, compute consolidated goodwill at the date of the combination. A. $360B. $450C. $460D. $440E. $475 Difficulty: Medium 65. Compute consolidated equipment (net) at the date of the combination. A. $400B. $660C. $1,060D. $1,040E. $1,050 Difficulty: Medium 2-37Chapter 02 - Consolidation of Financial Information66. Assuming the combination is accounted for as a purchase, compute consolidated retained earnings at the date of the combination. A. $1,170B. $1,650C. $1,290D. $1,810E. $3,870 Difficulty: Medium 67. Assuming the combination is accounted for as an acquisition, compute consolidated retained earnings at the date of the combination. A. $1,160B. $1,170C. $1,280D. $1,290E. $1,640 Difficulty: Medium 68. Compute consolidated revenues at the date of the combination. A. $3,540B. $2,880C. $1,170D. $1,650E. $4,050 Difficulty: Medium 2-38Chapter 02 - Consolidation of Financial Information69. Assuming the combination is accounted for as a purchase, compute consolidated expensesat the date of the combination. A. $2,760B. $3,380C. $2,770D. $2,735E. $2,785 Difficulty: Medium 70. Assuming the combination is accounted for as an acquisition, compute consolidated expenses at the date of the combination. A. $2,760B. $2,770C. $2,785D. $3,380E. $3,390 Difficulty: Medium 2-39Chapter 02 - Consolidation of Financial Information Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2009, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date. Note: Parenthesis indicate a credit balanceAssume a business combination took place at December 31, 2009. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Atwood is applying the acquisition method in accounting for Franz. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands). 2-40Chapter 02 - Consolidation of Financial Information71. Compute the investment cost at date of acquisition. A. $1,760B. $1,755C. $1,750D. $1,765E. $1,120 Difficulty: Medium 72. Compute consolidated inventory at date of acquisition. A. $1,650B. $1,810C. $1,230D. $580E. $1,830 Difficulty: Medium 73. Compute consolidated land at date of acquisition. A. $2,060B. $1,800C. $260D. $2,050E. $2,070 Difficulty: Medium 2-41Chapter 02 - Consolidation of Financial Information74. Compute consolidated buildings (net) at date of acquisition. A. $2,450B. $2,340C. $1,800D. $650E. $1,690 Difficulty: Medium 2-42Chapter 02 - Consolidation of Financial Information75. Compute consolidated goodwill at date of acquisition. A. $455B. $460C. $450D. $440E. $465 Difficulty: Medium 76. Compute consolidated equipment at date of acquisition. A. $400B. $660C. $1,060D. $1,040E. $1,050 Difficulty: Medium 77. Compute consolidated retained earnings as a result of this acquisition. A. $1,160B. $1,170C. $1,265D. $1,280E. $1,650 Difficulty: Hard 2-43Chapter 02 - Consolidation of Financial Information78. Compute consolidated revenues at date of acquisition. A. $3,540B. $2,880C. $1,170D. $1,650E. $4,050 Difficulty: Medium 2-44Chapter 02 - Consolidation of Financial Information79. Compute consolidated expenses at date of acquisition. A. $2,760B. $3,380C. $2,770D. $2,735E. $2,785 Difficulty: Medium 80. Compute the consolidated cash upon completion of the acquisition. A. $870B. $1,110C. $1,080D. $1,085E. $635 Difficulty: Medium 2-45Chapter 02 - Consolidation of Financial Information Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 20X1. To obtain these shares, Flynn pays $400 (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local investment firm for arranging the transaction. An additional $10 (in thousands) was paid by Flynn in stock issuance costs.The book values for both Flynn and Macek as of January 1, 20X1 follow. The fair value of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully amortized trademark that still retains a $40 (in thousands) value. The figures below are in thousands. Any related question also is in thousands. 2-46Chapter 02 - Consolidation of Financial Information81. Assuming the combination is accounted for as a purchase, what amount will be reported for goodwill? A. $35B. $5C. $110D. $70E. $150 Difficulty: Hard 82. Assuming the combination is accounted for as an acquisition, what amount will be reported for goodwill? A. $55B. $65C. $70D. $135E. $175 Difficulty: Hard 83. What amount will be reported for consolidated receivables? A. $660B. $640C. $500D. $460E. $480 Difficulty: Medium 2-47Chapter 02 - Consolidation of Financial Information84. What amount will be reported for consolidated inventory? A. $960B. $920C. $700D. $620E. $660 Difficulty: Medium 2-48Chapter 02 - Consolidation of Financial Information85. What amount will be reported for consolidated buildings (net)? A. $1,420B. $1,260C. $1,140D. $1,480E. $1,200 Difficulty: Medium 86. What amount will be reported for consolidated equipment (net)? A. $385B. $335C. $435D. $460E. $360 Difficulty: Medium 87. What amount will be reported for consolidated long-term liabilities? A. $1,480B. $1,440C. $1,180D. $1,100E. $1,520 Difficulty: Medium 2-49Chapter 02 - Consolidation of Financial Information88. What amount will be reported for consolidated common stock? A. $1,200B. $1,280C. $1,400D. $1,480E. $1,390 Difficulty: Medium 2-50Chapter 02 - Consolidation of Financial Information89. Assuming the combination is accounted for as a purchase, what amount will be reported for consolidated retained earnings? A. $1,830B. $1,350C. $1,080D. $1,560E. $1,535 Difficulty: Medium 90. Assuming the combination is accounted for as an acquisition, what amount will be reported for consolidated retained earnings? A. $1,065B. $1,080C. $1,525D. $1,535E. $1,560 Difficulty: Medium 91. What amount will be reported for consolidated additional paid-in capital? A. $165B. $150C. $160D. $175E. $145 Difficulty: Hard 2-51Chapter 02 - Consolidation of Financial Information92. What amount will be reported for consolidated cash after the purchase transaction? A. $900B. $875C. $955D. $980E. $555 Difficulty: Medium 2-52Chapter 02 - Consolidation of Financial Information Chapter 3Consolidations-Subsequent to the Date of AcquisitionMultiple Choice Questions1.Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?A. Goodwill.B. Equipment.C. Investment in Subsidiary.D. Common Stock.E. Additional Paid-In Capital.2.Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?A. initial value or book value.B. initial value, lower-of-cost-or-market-value, or equity.C. initial value, equity, or partial equity.D. initial value, equity, or book value.E. initial value, lower-of-cost-or-market-value, or partial equity.3.Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?A. the amount of consolidated net income.B. total assets on the consolidated balance sheet.C. total liabilities on the consolidated balance sheet.D. the balance in the investment account on the parent's books.E. the amount of consolidated cost of goods sold.4.Under the partial equity method, the parent recognizes income whenA. dividends are received from the investee.B. dividends are declared by the investee.C. the related expense has been incurred.D. the related contract is signed by the subsidiary.E. it is earned by the subsidiary.5.Push-down accounting is concerned with theA. impact of the purchase on the subsidiary's financial statements.B. recognition of goodwill by the parent.C. correct consolidation of the financial statements.D. impact of the purchase on the separate financial statements of the parent.E. recognition of dividends received from the subsidiary.2-53Chapter 02 - Consolidation of Financial Information6.Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method?A. Goodwill, Investment in Tangiers Co., and Retained Earnings.B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.D. Common Stock, Goodwill, and Investment in Tangiers Co.E. Expenses, Goodwill, and Investment in Tangiers Co.7.How does the partial equity method differ from the equity method?A. In the total assets reported on the consolidated balance sheet.B. In the treatment of dividends.C. In the total liabilities reported on the consolidated balance sheet.D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account.E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.8.Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2012, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2012 and $50,000 in 2013 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2012 and $47,000 in 2013 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2013, if the equity method has been applied?A. $286,000.B. $295,000.C. $276,000.D. $344,000.E. $324,000.9.Velway Corp. acquired Joker Inc. on January 1, 2012. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively?A. $400,000 and $900,000B. $400,000 and $970,000C. $470,000 and $900,000D. $470,000 and $970,000E. $470,000 and $1,040,00010.Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2011, at a price in 2-54Chapter 02 - Consolidation of Financial Informationexcess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2013, Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment account as of December 31, 2013?A. $387,000.B. $497,000.C. $508,000.D. $537,000.E. $570,000.11.On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintainedseparate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.The 2012 total amortization of allocations is calculated to beA. $4,000.B. $6,400.C. $(2,400).D. $(1,000).E. $3,800.12.On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintainedseparate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.In Cale's accounting records, what amount would appear on December 31, 2012 for equity in subsidiary earnings?A. $77,000.B. $79,000.C. $125,000.D. $127,000.E. $81,800.13.On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintainedseparate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:2-55Chapter 02 - Consolidation of Financial InformationKaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.What is the balance in Cale's investment in subsidiary account at the end of 2012?A. $1,099,000.B. $1,020,000.C. $1,096,200.D. $1,098,000.E. $1,144,400.14.On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintainedseparate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.At the end of 2012, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. forA. $124,400.B. $126,000.C. $127,000.D. $76,400.E. $0.15.On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintainedseparate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:Kaltop earned net income for 2012 of $126,000 and paid dividends of $48,000 during the year.If Cale Corp. had net income of $444,000 in 2012, exclusive of the investment, what is the amount of consolidated net income?A. $569,000.B. $570,000.C. $571,000.D. $566,400.E. $444,000.16.On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000.How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?A. $190,000.2-56Chapter 02 - Consolidation of Financial InformationB. $360,000.C. $164,000.D. $354,000.E. $150,000.17.On January 1, 2012, Franel Co. acquired all of the common stock of Hurlem Corp. For 2012, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000.How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internalrecordkeeping?A. $170,000.B. $354,000.C. $164,000.D. $6,000.E. $174,000.18.Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.On the consolidated financial statements for 2012, what amount should have been shown for Equity in Subsidiary Earnings?A. $432,000.B. $-0-C. $408,000.D. $120,000.E. $288,000.19.Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.On the consolidated financial statements for 2012, what amount should have been shown for consolidated dividends?A. $900,000.B. $1,020,000.C. $876,000.D. $996,000.E. $948,000.20.Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on 2-57Chapter 02 - Consolidation of Financial InformationJanuary 1, 2012. Janex's reported earnings for 2012 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.What is the amount of consolidated net income for the year 2012?A. $3,180,000.B. $3,612,000.C. $3,300,000.D. $3,588,000.E. $3,420,000.21.Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow.If the partial equity method had been applied, what was 2013 consolidated net income?A. $840,000.B. $768,400.C. $822,000.D. $240,000.E. $600,000.22.Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011,for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow.If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within the records of Jans at the end of 2013?A. $612,100.B. $744,000.C. $774,150.D. $372,000.E. $844,150.23.Red Co. acquired 100% of Green, Inc. on January 1, 2012. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2012. Also, on the date of acquisition, Green had a building 2-58Chapter 02 - Consolidation of Financial Informationwith a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense willbe in the consolidated financial statements for the year ended December 31, 2012 related to the acquisition allocations of Green?A. $43,000.B. $33,000.C. $5,000.D. $15,000.E. 0.24.All of the following are acceptable methods to account for a majority-owned investment in subsidiary exceptA. The equity method.B. The initial value method.C. The partial equity method.D. The fair-value method.E. Book value method.25.Under the equity method of accounting for an investment,A. The investment account remains at initial value.B. Dividends received are recorded as revenue.C. Goodwill is amortized over 20 years.D. Income reported by the subsidiary increases the investment account.E. Dividends received increase the investment account.26.Under the partial equity method of accounting for an investment,A. The investment account remains at initial value.B. Dividends received are recorded as revenue.C. The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account.D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.E. Dividends received increase the investment account.27.Under the initial value method, when accounting for an investment in a subsidiary,A. Dividends received by the subsidiary decrease the investment account.B. The investment account is adjusted to fair value at year-end.C. Income reported by the subsidiary increases the investment account.D. The investment account remains at initial value.E. Dividends received are ignored.28.According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?A. Goodwill recognized in consolidation must be amortized over 20 years.2-59Chapter 02 - Consolidation of Financial InformationB. Goodwill recognized in consolidation must be expensed in the period of acquisition.C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.D. Goodwill recognized in consolidation can never be written off.E. Goodwill recognized in consolidation must be amortized over 40 years.29.When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would bemade for a consolidation worksheet?A. A aboveB. B aboveC. C aboveD. D aboveE. E above30.When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?A. A aboveB. B aboveC. C aboveD. D aboveE. E above31.When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?A. A aboveB. B aboveC. C aboveD. D aboveE. E above32.When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet entry would be made?A. A aboveB. B aboveC. C aboveD. D aboveE. E above33.When consolidating a subsidiary under the equity method, which of the following statements is true?A. Goodwill is never recognized.B. Goodwill required is amortized over 20 years.C. Goodwill may be recorded on the parent company's books.2-60Chapter 02 - Consolidation of Financial InformationD. The value of any goodwill should be tested annually for impairment in value.E. Goodwill should be expensed in the year of acquisition.34.When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?A. All net assets are revalued to fair value and must be amortized over their useful lives.B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives.C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives.D. Only depreciable net assets that have excess fair value over book value must be amortizedover their useful lives.E. Only assets that have excess fair value over book value must be amortized over their useful lives.35.Which of the following statements is false regarding push-down accounting?A. Push-down accounting simplifies the consolidation process.B. Fewer worksheet entries are necessary when push-down accounting is applied.C. Push-down accounting provides better information for internal evaluation.D. Push-down accounting must be applied for all business combinations under a pooling of interests.E. Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and liabilities.36.Which of the following is false regarding contingent consideration in business combinations?A. Contingent consideration payable in cash is reported under liabilities.B. Contingent consideration payable in stock shares is reported under stockholders' equity.C. Contingent consideration is recorded because of its substantial probability of eventual payment.D. The contingent consideration fair value is recognized as part of the acquisition regardless of whether eventual payment is based on future performance of the target firm or future stock price of the acquirer.E. Contingent consideration is reflected in the acquirer's balance sheet at the present value ofthe potential expected future payment.37.Factors that should be considered in determining the useful life of an intangible asset includeA. Legal, regulatory, or contractual provisions.B. The residual value of the asset.C. The entity's expected use of the intangible asset.D. The effects of obsolescence, competition, and technological change.E. All of these choices are used in determining the useful life of an intangible asset.2-61Chapter 02 - Consolidation of Financial Information38.Consolidated net income using the equity method for an acquisition combination is computed as follows:A. Parent company's income from its own operations plus the equity from subsidiary's income recorded by the parent.B. Parent's reported net income.C. Combined revenues less combined expenses less equity in subsidiary's income less amortization of fair-value allocations in excess of book value.D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent.E. All of these.39.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the consideration transferred in excess of book value acquired at January 1, 2012.A. $150.B. $700.C. $2,200.D. $550.E. $2,900.40.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute goodwill, if any, at January 1, 2012.A. $150.B. $250.C. $700.D. $1,200.E. $550.41.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's inventory that would be reported in a January 1, 2012, consolidated balance sheet.A. $800.B. $100.C. $900.D. $150.E. $0.2-62Chapter 02 - Consolidation of Financial Information42.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's buildings that would be reported in a December 31, 2012, consolidated balance sheet.A. $1,560.B. $1,260.C. $1,440.D. $1,160.E. $1,140.43.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's equipment that would be reported in a December 31, 2012, consolidated balance sheet.A. $1,000.B. $1,250.C. $875.D. $1,125.E. $750.44.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of total expenses reported in an income statement for the year ended December 31, 2012, in order to recognize acquisition-date allocations of fair value and book value differences,A. $140.B. $190.C. $260.D. $285.E. $310.45.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2012, consolidated balance sheet.A. $1,800.B. $1,700.C. $1,725.D. $1,675.2-63Chapter 02 - Consolidation of Financial InformationE. $3,500.46.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's buildings that would be reported in a December 31, 2013, consolidated balance sheet.A. $1,620.B. $1,380.C. $1,320.D. $1,080.E. $1,500.47.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's equipment that would be reported in a December 31, 2013, consolidated balance sheet.A. $0.B. $1,000.C. $1,250.D. $1,125.E. $1,200.48.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's land that would be reported in a December 31, 2013, consolidated balance sheet.A. $900.B. $1,300.C. $400.D. $1,450.E. $2,200.49.Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2012, for $3,800 cash. As of that date Hurley has the following trial balance;Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2013, consolidated balance sheet.A. $1,700.B. $1,800.2-64Chapter 02 - Consolidation of Financial InformationC. $1,650.D. $1,750.E. $3,500.50.Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reportednet income of $400 in 2013 and paid dividends of $100.Assume the equity method is applied. How much will Kaye's income increase or decrease as aresult of Fiore's operations?A. $400 increase.B. $300 increase.C. $380 increase.D. $280 increase.E. $480 increase.51.Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reportednet income of $400 in 2013 and paid dividends of $100.Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?A. $400 increase.B. $300 increase.C. $380 increase.D. $280 increase.E. $480 increase.52.Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reportednet income of $400 in 2013 and paid dividends of $100.Assume the initial value method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?A. $400 increase.B. $300 increase.C. $380 increase.D. $100 increase.E. $210 increase.53.Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reportednet income of $400 in 2013 and paid dividends of $100.Assume the partial equity method is used. In the years following acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?A. Entry A.B. Entry B.C. Entry C.D. Entry D.E. Entry E.2-65Chapter 02 - Consolidation of Financial Information54.Kaye Company acquired 100% of Fiore Company on January 1, 2013. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reportednet income of $400 in 2013 and paid dividends of $100.Assume the initial value method is used. In the year subsequent to acquisition, what additionalworksheet entry must be made for consolidation purposes that is not required for the equity method?A. Entry A.B. Entry B.C. Entry C.D. Entry D.E. Entry E.55.Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2013:(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.(2.) To assume Brown's liabilities which have a fair value of $1,500.On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would beA. $18,000.B. $16,500.C. $20,000.D. $18,500.E. $19,500.56.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the book value of Vega at January 1, 2011.A. $997,500.B. $857,500.C. $1,200,000.D. $1,600,000.E. $827,500.57.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was 2-66Chapter 02 - Consolidation of Financial Informationundervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated revenues.A. $1,400,000.B. $800,000.C. $500,000.D. $1,590,375.E. $1,390,375.58.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated total expenses.A. $620,000.B. $280,000.C. $900,000.D. $909,625.E. $299,625.59.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated buildings.A. $1,037,500.B. $1,007,500.C. $1,000,000.D. $1,022,500.E. $1,012,500.60.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year 2-67Chapter 02 - Consolidation of Financial Informationlife. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated equipment.A. $800,000.B. $808,000.C. $840,000.D. $760,000.E. $848,000.61.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated land.A. $220,000.B. $180,000.C. $670,000.D. $630,000.E. $450,000.62.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated trademark.A. $50,000.B. $46,875.C. $0.D. $34,375.E. $37,500.63.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There 2-68Chapter 02 - Consolidation of Financial Informationwas no goodwill associated with this investment.Compute the December 31, 2015, consolidated common stock.A. $450,000.B. $530,000.C. $555,000.D. $635,000.E. $525,000.64.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015, consolidated additional paid-in capital.A. $210,000.B. $75,000.C. $1,102,500.D. $942,500.E. $525,000.65.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2015 consolidated retained earnings.A. $1,645,375.B. $1,350,000.C. $1,565,375.D. $1,840,375.E. $1,265,375.66.Following are selected accounts for Green Corporation and Vega Company as of December 31, 2015. Several of Green's accounts have been omitted.Green acquired 100% of Vega on January 1, 2011, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2011, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There 2-69Chapter 02 - Consolidation of Financial Informationwas no goodwill associated with this investment.Compute the equity in Vega's income to be included in Green's consolidated income statement for 2015.A. $500,000.B. $300,000.C. $190,375.D. $200,000.E. $290,375.67.One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?A. It is the only method allowed by the SEC.B. It is relatively easy to apply.C. It is the only internal reporting method allowed by generally accepted accounting principles.D. Operating results on the parent's financial records reflect consolidated totals.E. When the initial method is used, no worksheet entries are required in the consolidation process.68.One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?A. It is the only method allowed by the SEC.B. It is relatively easy to apply.C. It is the only internal reporting method allowed by generally accepted accounting principles.D. Operating results on the parent's financial records reflect consolidated totals.E. When the equity method is used, no worksheet entries are required in the consolidation process.69.When is a goodwill impairment loss recognized?A. Annually on a systematic and rational basis.B. Never.C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.D. If the fair value of a reporting unit falls below its original acquisition price.E. Whenever the fair value of the entity declines significantly.70.Which of the following will result in the recognition of an impairment loss on goodwill?A. Goodwill amortization is to be recognized annually on a systematic and rational basis.B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.2-70Chapter 02 - Consolidation of Financial InformationC. The fair value of the entity declines significantly.D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition.E. The entity is investigated by the SEC and its reputation has been severely damaged.71.Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fairvalue of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.If Goehler applies the equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?A. $1,080,000.B. $1,104,000.C. $1,100,000.D. $1,468,000.E. $1,475,000.72.Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fairvalue of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.If Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2013?A. $1,080,000.B. $1,104,000.C. $1,100,000.D. $1,468,000.E. $1,475,000.73.Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2012, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2013, Goehler has equipment with a book value of $975,000 but a fairvalue of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.If Goehler applies the initial value method in accounting for Kenneth, what is the consolidatedbalance for the Equipment account as of December 31, 2013?2-71Chapter 02 - Consolidation of Financial InformationA. $1,080,000.B. $1,104,000.C. $1,100,000.D. $1,468,000.E. $1,475,000.74.How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life?A. Equally over 20 years.B. Equally over 40 years.C. Equally over 20 years with an annual impairment review.D. No amortization, but annually reviewed for impairment and adjusted accordingly.E. No amortization over an indefinite period time.75.Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.What will Harrison record as its Investment in Rhine on January 1, 2012?A. $400,000.B. $403,142.C. $406,000.D. $409,142.E. $416,500.76.Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.Assuming Rhine generates cash flow from operations of $27,200 in 2012, how will Harrison record the $16,500 payment of cash on April 15, 2013 in satisfaction of its contingent obligation?A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance obligation $13,358, and Credit Cash $16,500.C. Debit Investment in Subsidiary and Credit Cash $16,500.D. Debit Goodwill and Credit Cash $16,500.E. No entry.77.Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2012 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2013 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates 2-72Chapter 02 - Consolidation of Financial Informationthat there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.When recording consideration transferred for the acquisition of Rhine on January 1, 2012, Harrison will record a contingent performance obligation in the amount of:A. $628.40B. $2,671.60C. $3,142.00D. $13,358.00E. $16,500.0078.Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.What will Beatty record as its Investment in Gataux on January 1, 2012?A. $500,000.B. $503,461.C. $512,000.D. $515,461.E. $526,500.79.Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.Assuming Gataux generates cash flow from operations of $27,200 in 2012, how will Beatty record the $12,000 payment of cash on April 1, 2013 in satisfaction of its contingent obligation?A. Debit Contingent performance obligation $3,461, debit Goodwill $8,539, and Credit Cash$12,000.B. Debit Contingent performance obligation $3,461, debit Loss from revaluation of contingent performance obligation $8,539, and Credit Cash $12,000.C. Debit Goodwill and Credit Cash $12,000.D. Debit Goodwill $27,200, credit Contingent performance obligation $15,200, and Credit Cash $12,000.E. No entry.80.Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses 2-73Chapter 02 - Consolidation of Financial Informationan interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.When recording consideration transferred for the acquisition of Gataux on January 1, 2012, Beatty will record a contingent performance obligation in the amount of:A. $692.20B. $3,040.00C. $3,461.00D. $12,000.00E. $15,200.0081.Prince Company acquires Duchess, Inc. on January 1, 2011. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with abook value of $400,000 and fair value of $500,000.If push-down accounting is used, what amounts in the Building account appear in Duchess' separate balance sheet and in the consolidated balance sheet immediately after acquisition?A. $400,000 and $1,600,000.B. $500,000 and $1,700,000.C. $400,000 and $1,700,000.D. $500,000 and $2,000,000.E. $500,000 and $1,600,000.82.Prince Company acquires Duchess, Inc. on January 1, 2011. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with abook value of $400,000 and fair value of $500,000.If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?A. $400,000 and $1,600,000.B. $500,000 and $1,700,000.C. $400,000 and $1,700,000.D. $500,000 and $2,000,000.E. $500,000 and $1,600,000.83.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2014, assuming the book value of the building at that date is still $200,000?A. $200,000.B. $285,000.C. $290,000.2-74Chapter 02 - Consolidation of Financial InformationD. $295,000.E. $300,000.84.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2014, assuming the book value of the building at that date is still $200,000?A. $200,000.B. $285,000.C. $260,000.D. $268,000.E. $300,000.85.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Equipment in a consolidation at December 31, 2014, assuming the book value of the equipment at that date is still $80,000?A. $70,000.B. $73,500.C. $75,000.D. $76,500.E. $80,000.86.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December31, 2014?A. $(5,000.)B. $80,000.C. $75,000.D. $73,500.E. $(3,500.)87.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building berepresented in a January 2, 2012 consolidation?A. $200,000.B. $225,000.C. $273,000.D. $279,000.E. $300,000.2-75Chapter 02 - Consolidation of Financial Information88.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented in a December 31, 2012 consolidated balance sheet?A. $40,000.B. $50,000.C. $0.D. $10,000.E. $90,000.89.Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2012. At that date, Glen owns only three assets and has no liabilities:If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2012, what amount would be reflected in consolidated net income for 2012 as a result of the acquisition?A. $20,000 under the initial value method.B. $30,000 under the partial equity method.C. $50,000 under the partial equity method.D. $44,500 under the equity method.E. $45,500 regardless of the internal accounting method used.90. According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:A. Goodwill recognized in consolidation may be amortized uniformly and only tested if the amortization method originally chosen is changed.B. Goodwill recognized in consolidation must only be impairment tested prior to disposal of the consolidated unit to eliminate the impairment of goodwill from the gain or loss on the saleof that specific entity.C. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by quantitative assessment of the possible impairment of the fair value of the unit relativeto the book value, and then a qualitative assessment as to why the impairment, if any, occurred for disclosure.D. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative tothe book value, and then quantitative assessments as to how much impairment, if any, occurred for disclosure.E. Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative tothe book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.91.When is a goodwill impairment loss recognized?A. Only after both a quantitative and qualitative assessment of the fair value of goodwill of a2-76Chapter 02 - Consolidation of Financial Informationreporting unit.B. After only definitive quantitative assessments of the fair value of goodwill is completed.C. After only definitive qualitative assessments of the fair value of goodwill is completed.D. If the fair value of a reporting unit falls to zero or below its original acquisition price.E. Never.2-77