TB Chapter 5 Key

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Chapter 5 Key 1. Intangible assets with definite useful lives should be amortized: A. over their useful lives. B. over the time periods provided under IAS 36 Impairment of Assets which prescribes amortization periods for different classes of assets. C. under the applicable capital cost allowance rates provided by the Canada Revenue Agency. D. over two years. Accessibility: Keyboard Navigation Blooms: Knowledge Difficulty: Easy Gradable: automatic Hilton - Chapter 05 #1 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-03 Testing Goodwill and Other Assets for Impairment Topic: 05-04 Property, Plant, Equipment, and Intangible Assets with Definite Useful Lives 2. Testing intangible assets with indefinite useful lives for impairment: A. occurs every year. B. occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc. C. never occurs because the asset has an indefinite useful life. D. occurs whenever required by the company's auditors. Accessibility: Keyboard Navigation Blooms: Application Difficulty: Easy Gradable: automatic Hilton - Chapter 05 #2 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-03 Testing Goodwill and Other Assets for Impairment Topic: 05-05 Intangible Assets with Indefinite Useful Lives

3. Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives? A. All intangible assets are written down when their carrying values exceed their fair market values. B. With the exception of Goodwill, all intangible assets are written down when their carrying values exceed their fair market values. C. All intangible assets are written down when their carrying values exceed their undiscounted future cash flows. D. The recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount. Accessibility: Keyboard Navigation Blooms: Knowledge Difficulty: Easy Gradable: automatic Hilton - Chapter 05 #3 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-03 Testing Goodwill and Other Assets for Impairment Topic: 05-06 Cash-Generating Units and Goodwill 4. The rationale behind allocating goodwill across a subsidiary's various cash- generating units is: A. that doing so will result in more accurate asset valuations. B. that it is necessary to comply with IASB requirements. C. that doing so would facilitate comparisons between operating segments. D. that the cash-generating units will benefit from the synergies of the combination. Accessibility: Keyboard Navigation Blooms: Application Difficulty: Moderate Gradable: automatic Hilton - Chapter 05 #4 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-03 Testing Goodwill and Other Assets for Impairment Topic: 05-08 Disclosure Requirements

5. An impairment loss can be reversed when: A. there is no indication that the impairment loss no longer exists or has been reduced and there has not been a change in the estimates used to determine the assets recoverable amount. B. with the exception of goodwill, all intangible assets carrying values exceed their fair market values. C. the intangible assets carrying values exceed their undiscounted future cash flows. D. with the exception of goodwill, the recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount then the impairment loss previously recorded is reversed. Accessibility: Keyboard Navigation Blooms: Application Difficulty: Moderate Gradable: automatic Hilton - Chapter 05 #5 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-03 Testing Goodwill and Other Assets for Impairment Topic: 05-07 Reversing an Impairment Loss 6. Under the Cost Method, which of the following statements is TRUE? A. The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment. B. The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary. C. The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary. D. The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary. Accessibility: Keyboard Navigation Blooms: Comprehension Difficulty: Moderate Gradable: automatic Hilton - Chapter 05 #6 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary

7. Under the Equity Method, which of the following statements is TRUE? A. The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment. B. The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary. C. The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary. D. The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary. Accessibility: Keyboard Navigation Blooms: Knowledge Difficulty: Moderate Gradable: automatic Hilton - Chapter 05 #7 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary 8. Consolidated Net Income would be: A. higher if the parent chooses to use Equity Method rather than the Cost Method. B. higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit. C. lower if the parent chooses to use Equity Method rather than the Cost Method. D. the same under both the Cost and Equity Methods. Accessibility: Keyboard Navigation Blooms: Comprehension Difficulty: Easy Gradable: automatic Hilton - Chapter 05 #8 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-01 Methods of Accounting for an Investment in a Subsidiary

9. Consolidated Net Income is equal to: A. the sum of the net incomes of both the parent and its subsidiaries. B. the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends. C. the parent's net income excluding any income arising from its investment in the subsidiary. D. the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill. Accessibility: Keyboard Navigation Blooms: Knowledge Difficulty: Easy Gradable: automatic Hilton - Chapter 05 #9 Learning Objective: 05-01 Perform impairment tests on property, plant, equipment, intangible assets, and goodwill. Topic: 05-02 Consolidated Income and Retained Earnings Statement

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2018. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: Errant Inc. Grub Inc. Grub Inc. (carrying value) (carrying value) (fair value) Cash $120,000 $76,000 $76,000 Accounts Receivable $ 80,000 $40,000 $40,000 Inventory $ 60,000 $34,000 $50,000 Equipment (net) $400,000 $80,000 $70,000 Trademark - $70,000 $84,000 Total Assets $660,000 $300,000 Current Liabilities $180,000 $ 80,000 $80,000 Bonds Payable $320,000 $ 60,000 $64,000 Common Shares $ 90,000 $100,000 Retained Earnings $ 70,000 $ 60,000 Total Liabilities and Equity $660,000 $300,000 The net incomes for Errant and Grub for the year ended December 31, 2018 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2018 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year. Assume that Errant Inc. uses the Equity Method unless stated otherwise. Hilton - Chapter 05

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