CA Corporate Accounting 3

Question 1

A parent company owns 80% of a subsidiary. Under the acquisition method, what percentage of the subsidiary's assets and liabilities appears on the consolidated balance sheet?

Accepted Answer

100%

Answer

Under the acquisition method, 100% of the subsidiary's assets and liabilities are consolidated, with a noncontrolling interest recorded for the 20% minority.

Question 2

Goodwill arises in a business combination when the purchase price exceeds the fair value of identifiable net assets. Under US GAAP, how is goodwill subsequently measured?

Accepted Answer

Tested annually for impairment

Answer

ASC 350 requires goodwill to be tested for impairment at least annually rather than amortized.

Question 3

Which of the following intercompany transactions must be eliminated in full during the consolidation process?

Accepted Answer

Sales from the parent to the subsidiary

Answer

Intercompany sales between parent and subsidiary are eliminated in full to avoid double-counting revenue and cost.

Question 4

Under the equity method, an investor owning 30% of an investee records which of the following when the investee earns net income of $200,000?

Accepted Answer

Debit Investment $60,000; Credit Investment Income $60,000

Answer

Under the equity method, the investor recognizes its share of earnings by debiting the Investment account and crediting Investment Income.

Question 5

A corporation has net income of $900,000, preferred dividends of $100,000, and a weighted-average of 400,000 common shares outstanding. What is basic earnings per share?

Accepted Answer

$2.25

Answer

Basic EPS = (Net income – Preferred dividends) ÷ Weighted-average shares = $800,000 ÷ 400,000 = $2.00.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Corporate Accounting 3