Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 3, Problem 4P
To determine
Identify the appropriate answer for the given statement from the given choices.
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If an entity capitalized transaction costs to a financial asset at fair value through profit or loss, then subsequently adjusted the initial cost to fair value at year-end, what is the overall effect on the current year net income? *
A. Current year net income will be understated
B. Current year net income will be overstated
C. Current year net income will either be overstated or understated, depending on whether the fair value at year end is more than, less than, or equal to the initial cost
D. No effect
Choose the correct. When should a consolidated entity recognize a goodwill impairment loss?a. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.b. Whenever the entity’s fair value declines significantly.c. If the fair value of a reporting unit with goodwill fall below its carrying amount.d. Annually on a systematic and rational basis.
When should a consolidated entity recognize a goodwill impairment loss?
If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.
Whenever the entity’s fair value declines significantly.
If the fair value of a reporting unit with goodwill fall below its carrying amount.
Annually on a systematic and rational basis.
Chapter 3 Solutions
Advanced Accounting
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- Consider the following statements:I. If the financial asset is reclassified from amortized cost to FVOCI, the financial asset is measured at fair value at the reclassification date and a new effective interest rate must be determined based on the new carrying amount or fair value at reclassification date.II. The difference between previous carrying amount and fair value of a financial asset when reclassified from amortized cost to FVPL is recognized in profit or loss.III. The cumulative gain or loss previously recognized in other comprehensive incomeis reclassified to profit or loss at reclassification date when the financial asset is reclassified from FVOCI to FVPL.IV. The original effective rate is not adjust for financial assets that are reclassified from FVPL to FVOCI.State whether the foregoing statements are incorrect.a. I and II are incorrectb. II and III are incorrectc. I and IV are incorrectd. All the statements are incorrectarrow_forwardWhich of the following statements is true regarding goodwill? a.Goodwill is amortized based on the lesser of the useful life or the legal life. b.Goodwill is the exclusive use of a name, term, or symbol used to identify a business or its product. c.If the purchase price of a business exceeds the fair value of its net assets, the excess is recorded as goodwill. d.Goodwill is amortized based on a 10-year period.arrow_forwardDuring the measurement period, which of the following may affect the amount ofgoodwill from business combination? A.New information regarding estimates in the contingent consideration that are not existing atthe date of acquisitionB.Nothing can affect the amount of goodwill.C.New information regarding estimates in the contingent consideration that are existing at thedate of acquisition.D.New information regarding estimates in the contingent considerationarrow_forward
- Choose the correct. FASB ASC 805, “Business Combinations,” provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:a. Recognized as an ordinary gain from a bargain purchase.b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.c. Treated as goodwill and tested for impairment on an annual basis.d. Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific non-current assets of the acquired firm.arrow_forwardGoodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount.b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.c. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.d. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value.arrow_forwardWith respect to goodwill related to acquisition, an impairment is a one-step process considering the entire entity O is a two-step process which analyses each business reporting unit of the entity. will be amortized over the remaining useful life of the asset occurs when asset values are adjusted to fair value in an acquisition. roblems surge onarrow_forward
- An impairment loss for goodwill is calculated as the difference between ________. Group of answer choices the fair value of the reporting unit (including goodwill) and the book value of the reporting unit (including goodwill) the implied fair value of goodwill and its book value the fair value of the reporting unit (including goodwill) and the fair value of its net assets (without goodwill) the book value of the reporting unit (including goodwill) and the book value of its net assets (without goodwill)arrow_forwardTRUE OR FALSE? The prior period will be affected if during the current year the management of an entity decides to classify a non currrent asset as held for sale.arrow_forward9. For an SME, an impairment loss recognized for goodwill a. shall not be reversed in a subsequent period. b. shall be reversed in a subsequent period. c. shall be reversed in a subsequent period, but limited only to the amount of loss previously recognized. d. shall not be reversed in a subsequent period in profit or loss but may be reversed through other comprehensive income.arrow_forward
- Choose the correct.Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount.b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.c. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.d. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value.arrow_forwardIf a seller makes an intra-entity sale of a depreciable asset at a price above book value, the seller’s beginning Retained Earnings is reduced when preparing each subsequent consolidation. Why does the amount of the adjustment change from year to year?arrow_forwardIf the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be A. Allocated to reduce current and long-lived assetsB. Allocated to reduce long-lived assetsC. Allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.D. Allocated goodwillarrow_forward
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