Q&A Hero

Q: Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31, 2011. Parrot borrowed $2,000,000 to complete this transaction, in addition to the $640,000 cash that they paid directly. The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below. In addition, Sparrow had a patent that had a fair value of $50,000. Book Value Fair Value Cash $120,000 $120,000 Inventories 220,000 250,000 Other current assets 630,000 600,000 Land 270,000 320,000 Plant assets-net 4,650,000 4,600,000 Total Assets $5,890,000 Accounts payable $1,200,000 $1,200,000 Notes payable 2,100,000 2,100,000 Capital stock, $5 par 700,000 Additional paid-in capital 1,400,000 Retained Earnings 490,000 Total Liabilities & Equities $5,890,000 Required: 1. Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow survives as a separate legal entity. 2. Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow will dissolve as a separate legal entity.

Q: Revenue is properly recognized: A.When the customer's order is received. B.Only if the transaction creates an account receivable. C.At the end of the accounting period. D.Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price. E.When cash from a sale is received.

Q: When considering an acquisition, which of the following is NOT a method by which one company may gain control of another company? A) Purchase of the majority of outstanding voting stock of the acquired company. B) Purchase of all assets and liabilities of another company. C) Purchase the assets, but not necessarily the liabilities, of another company previously in bankruptcy. D) All of the above methods result in a company gaining control over another company.

Q: Which of the following accounting principles would require that all goods and services purchased be recorded at cost? A.Going-concern principle. B.Continuing-concern principle. C.Cost principle. D.Business entity principle. E.Consideration principle.

Q: In reference to international accounting for goodwill, U.S. companies have complained that past U.S. accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners. Why? A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules. B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules. C) Previous rules did not permit the recording of goodwill, thus resulting in a lower asset base than international counterparts would recognize. D) All of the above are correct.

Q: If a business is not being sold or closed, the amounts reported in the accounts for assets used in operations are based on costs. This practice is best justified by the: A.Cost principle. B.Going-concern principle. C.Objectivity principle. D.Business entity principle. E.Both A and B.

Q: Goodwill arising from a business combination is A) charged to Retained Earnings after the acquisition is completed. B) amortized over 40 years or its useful life, whichever is longer. C) amortized over 40 years or its useful life, whichever is shorter. D) never amortized.

Q: According to generally accepted accounting principles, a company's balance sheet should show the company's assets at: A.The cash equivalent value of what was given up or received. B.The current market value of the asset received in all cases. C.The cash paid only, even if something other than cash was given in the exchange. D.The best estimate of a certified internal auditor. E.The objective value to external users.

Q: In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs, which of the following is correct? A) Firms are not required to disclose the name of the acquired company. B) Firms are not required to disclose the business purpose for a combination. C) Firms are required to disclose the nature, terms and fair value of consideration transferred in a business combination. D) All of the above are correct.

Q: A partnership: A.Is also called a sole proprietorship. B.Has unlimited liability. C.Has to have a written agreement in order to be legal. D.Is a legal organization separate from its owners. E.Has owners called shareholders.

Q: According to FASB Statement No. 141, liabilities assumed in an acquisition will be valued at the ________. A) estimated fair value B) historical book value C) current replacement cost D) present value using market interest rates

Q: A limited partnership: A.Includes a general partner with unlimited liability. B.Is subject to double taxation. C.Has owners called stockholders. D.Is the same as a corporation. E.May only have two partners.

Q: Use the following information to answer the question(s) below.Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc. and Spot is then dissolved. Polka paid the following costs and expenses related to the business combination:Costs of special shareholders' meetingto vote on the merger $12,000Registering and issuing securities 10,000Accounting and legal fees 18,000Salaries of Polka's employees assignedto the implementation of the merger 27,000Cost of closing duplicate facilities 13,000Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then dissolved. Salt had no liabilities. The fair values of Salt's assets were $3,750,000. Salt's only non-current assets were land and buildings with book values of $100,000 and $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At what value will the buildings be recorded by Pepper?A) $730,000B) $520,000C) $210,000D) $0

Q: Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services? A.Monetary unit principle B.Going-concern principle C.Cost principle D.Business entity principle E.None of these. Since Marian is a sole proprietor, she is not required to separate her personal financial information from the financial information of Mosely Accounting Services.

Q: On December 15, 2007, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2008. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2008 and not 2007? A.Monetary unit principle B.Going-concern principle C.Cost principle D.Business entity principle E.Revenue recognition principle

Q: The Maximum Experience Company acquired a building for $500,000. Maximum Experience had the building appraised, and found that the building was easily worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Maximum Experience use to record the building on its records at $500,000? A.Monetary unit principle B.Going-concern principle C.Cost principle D.Business entity principle E.Revenue recognition principle

Q: The International Accounting Standards Board (IASB) A.Hopes to create harmony among accounting practices of different countries B.Is the government group that establishes reporting requirements for companies that issue stock to the public. C.Has the authority to impose its standards on companies. D.Is the only source of generally accepted accounting principles (GAAP). E.Only applies to companies that are members of the European Union.

Q: With respect to goodwill, an impairment A) will be amortized over the remaining useful life. B) is a two-step process which analyzes each business reporting unit of the entity. C) is a one-step process considering the entire firm. D) occurs when asset values are adjusted to fair value in a purchase.

Q: Under the provisions of FASB Statement No. 141R, in a business combination, when the fair value of identifiable net assets acquired exceeds the investment cost, which of the following statements is correct? A) A gain from a bargain purchase is recognized for the amount that the fair value of the identifiable net assets acquired exceeds the acquisition price. B) The difference is allocated first to reduce proportionately (according to market value) non-current assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit. C) The difference is allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain. D) The difference is allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit.

Q: The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the: A.Revenue recognition principle. B.Going-concern principle. C.Objectivity principle. D.Business entity principle. E.Cost principle.

Q: According to FASB Statement 141R, which one of the following items may not be accounted for as an intangible asset apart from goodwill? A) A production backlog B) A talented employee workforce C) Noncontractual customer relationships D) Employment contracts

Q: The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the: A.Going-concern principle. B.Cost principle. C.Revenue recognition principle. D.Objectivity principle. E.Business entity principle

Q: In a business combination, which of the following will occur? A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition. B) All identifiable assets and liabilities are recorded at book value at the date of acquisition. C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. D) None of the above is correct.

Q: The objectivity principle: A.Means that information is supported by independent, unbiased evidence. B.Means that information can be based on what the preparer thinks is true. C.Means that financial statements should contain information that is optimistic. D.Means that a business may not reorganize revenue until cash is received. E.All of these.

Q: Durer Inc. acquired Sea Corporation in a business combination and Sea Corp went out of existence. Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost. In recording the combination, A) fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp. B) Sea Corp's prior expenses to develop the patent are recorded as an asset by Durer at purchase. C) the patent is recorded as an asset at fair market value. D) the patent's market value increases goodwill.

Q: Generally accepted accounting principles: A.Are based on long used accounting practices. B.Are basic assumptions, concepts, and guidelines in preparing financial statements. C.Are detailed rules used in reporting on business transactions and events. D.Arise from the rulings of authoritative bodies. E.All of these.

Q: The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the: A.Accounting equation. B.Cost principle. C.Going-concern principle. D.Realization principle. E.Business entity principle.

Q: Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of Seurat Company in an all-stock transaction. Picasso paid the investment bankers $35,000 and will treat the investment banker fee as A) an expense for the current year. B) a prior period adjustment to Retained Earnings. C) additional goodwill on the consolidated balance sheet. D) a reduction to additional paid-in capital.

Q: To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: A.Objectivity principle. B.Realization principle. C.Business entity principle. D.Going-concern principle. E.Revenue recognition principle.

Q: Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company. Pitch will treat the $50,000 as A) an expense for the current year. B) a prior period adjustment to retained earnings. C) additional cost to investment of Slope on the consolidated balance sheet. D) a reduction in additional paid-in capital.

Q: If a parcel of land that was originally acquired for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000, the land should be recorded in the purchaser's books at: A.$95,000. B.$137,000. C.$138,500. D.$140,000. E.$150,000.

Q: Historically, much of the controversy concerning accounting requirements for business combinations involved the ________ method. A) purchase B) pooling of interests C) equity D) acquisition

Q: Rules adopted by the accounting profession as guides in measuring, recording, and reporting the financial condition and activities of a business: A.Are comprised of both general and specific principles. B.Are known as generally accepted accounting principles. C.Are abbreviated as GAAP. D.Arise from both long-used practices and from rulings of authoritative groups. E.All of these.

Q: Following the accounting concept of a business combination, a business combination occurs when a company acquires an equity interest in another entity and has A) at least 20% ownership in the entity. B) more than 50% ownership in the entity. C) 100% ownership in the entity. D) control over the entity, irrespective of the percentage owned.

Q: A business merger differs from a business consolidation because A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities. B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities. C) a merger is created when two entities join, but a consolidation is created when more than two entities join. D) a consolidation is created when two entities join, but a merger is created when more than two entities join.

Q: The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the: A.Going-concern principle. B.Business entity principle. C.Objectivity principle. D.Cost Principle. E.Monetary unit principle.

Q: Which of the following is not a reason for a company to expand through a combination, rather than by building new facilities? A) A combination might provide cost advantages. B) A combination might provide fewer operating delays. C) A combination might provide easier access to intangible assets. D) A combination might provide an opportunity to invest in a company without having to take responsibility for its financial results.

Q: The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the: A.Objectivity principle. B.Business entity assumption. C.Going-concern assumption. D.Revenue recognition principle. E.Cost principle.

Q: The private group that currently has the authority to establish generally accepted accounting principles is the: A.APB. B.FASB. C.AAA. D.AICPA. E.SEC.

Q: The committee that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the: A.AICPA. B.FASB. C.CAP. D.SEC. E.IASB.

Q: The rules adopted by the accounting profession as guides in preparing financial statements are: A.Comprised of both general and specific principles. B.Known as generally accepted accounting principles. C.Abbreviated as GAAP. D.Intended to make information in financial statements relevant, reliable, and comparable. E.All of these.

Q: A corporation: A.Is a business legally separate from its owners. B.Is controlled by the FASB. C.Has shareholders who have unlimited liability for the acts of the corporation. D.Is the same as a limited liability partnership. E.All of these.

Q: Businesses can take the following form(s): A.Sole proprietorship. B.Common stock. C.Partnership. D.A and C only. E.All of these.

Q: The accounting guideline that requires financial statement information to be supported by independent, unbiased evidence other than someone's belief or opinion is the: A.Business entity principle. B.Monetary unit principle. C.Going-concern principle. D.Cost principle. E.Objectivity principle.

Q: Ethics: A.Are beliefs that separate right from wrong. B.And law often coincide. C.Help to prevent conflicts of interest. D.Are critical in accounting. E.All of these.

Q: Social responsibility: A.Is a concern for the impact of our actions on society. B.Is a code that helps in dealing with confidential information. C.Is required by the SEC. D.Requires that all businesses conduct social audits. E.All of these.

Q: Ethical behavior requires: A.That auditors' pay not depend on the figures in the client's reports. B.Auditors to invest in businesses they audit. C.Analysts to report information favorable to their companies. D.Managers to use accounting information to benefit themselves. E.All of these.

Q: A Certified Public Accountant A.Must meet education and experience requirements B.Must pass an examination C.Must exhibit ethical character D.May also be a Certified Management Accountant. E.All of these.

Q: Accounting certifications include the: A.Certified Public Accountant. B.Certified Management Accountant. C.Certified Internal Auditor. D.Personal Financial Specialist E.All of these.

Q: Career opportunities in accounting include: A.Budgeting. B.Auditing. C.Cost accounting. D.Internal Auditing. E.All of these.

Q: Career opportunities in accounting include: A.Auditing. B.Management consulting. C.Tax accounting. D.Cost accounting. E.All of these.

Q: External users of accounting information include: A.Shareholders. B.Customers. C.Creditors. D.Government regulators. E.All of these.

Q: The operating functions of a business include: A.Research and development. B.Purchasing. C.Marketing. D.Distribution. E.All of these.

Q: The area of accounting aimed at serving the decision making needs of internal users is: A.Financial accounting. B.Managerial accounting. C.External auditing. D.SEC reporting. E.Bookkeeping.

Q: Internal users of accounting information include: A.Shareholders. B.Managers. C.Lenders. D.Suppliers. E.Customers.

Q: The primary objective of financial accounting is: A.To serve the decision-making needs of internal users. B.To provide financial statements to help external users analyze an organization's activities. C.To monitor and control company activities. D.To provide information on both the costs and benefits of looking after products and services. E.To know what, when, and how much to produce.

Q: Technology A.Has replaced accounting. B.Has not changed the work that accountants do. C.Has closely linked accounting with consulting, planning, and other financial services. D.In accounting has replaced the need for decision makers. E.In accounting is only available to large corporations.

Q: Accounting is an information and measurement system that: A.Identifies business activities. B.Records business activities. C.Communicates business activities. D.Helps people make better decisions. E.All of these.

Q: Chuck Taylor withdrew $6,000 in cash from FastForward. This amount should be included as an expense on the income statement.

Q: Chuck Taylor invested $175,000 cash in FastForward. This amount would be reported in the statement of cash flows under financing activities.

Q: The statement of cash flows reports on cash flows separated into operating, investing, and financing activities over a period of time.

Q: The income statement reports on operating activities at a point in time.

Q: The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

Q: Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner.

Q: Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

Q: Owner's contributions and withdrawals are reported on the income statement.

Q: The balance sheet is based on the accounting equation.

Q: The first section of the income statement reports cash from operations.

Q: The income statement shows the financial position of a business on a specific date.

Q: The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

Q: The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time.

Q: A balance sheet covers a period of time such as a month or year.

Q: An income statement reports on investing and financing activities.

Q: The four basic financial statements include the balance sheet, income statement, statement of owner's equity, and statement of cash flows.

Q: U. S. Government Treasury bonds provide high return and low risk to investors.

Q: The _______________________ identifies cash inflows and outflows over a period of time.

Q: Generally the lower the risk, the lower the return that can be expected.

Q: The _________________ reports on changes in equity over the reporting period.

Q: Risk is the amount of uncertainty about the return we expect to earn.

Q: The _________________________ describes a company's financial position and types and amounts of assets, liabilities, and equity at a point in time.