Free Test Bank for Advanced Accounting 11th Edition by Fischer Multiple Choice Questions Company B acquired the net assets of Company S in exchange for cash The acquisition price exceeds the fair value of the net assets acquired How should Company B determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Company S? Plant and Equipment Long-Term Debt Fair value S's carrying amount Fair value Fair value S's carrying amount Fair value S's carrying amount S's carrying amount Which of the following income factors should not be considered in expected future income when estimating the value of goodwill? sales for the period income tax expense extraordinary items cost of goods sold Some advantages of obtaining control by acquiring a controlling interest in stock include all but: Negotiations are made directly with the acquiree’s management The legal liability of each corporation is limited to its own assets The cost may be lower since only a controlling interest in the assets, not the total assets, is acquired Tax advantages may result from preservation of the legal entities Cozzi Company is being purchased and has the following balance sheet as of the purchase date: Current assets $200,000 Liabilities $ 90,000; Fixed assets 180,000 Equity 290,000; Total $380,000 Total $380,000; The price paid for Cozzi's net assets is $500,000 The fixed assets have a fair value of $220,000, and the liabilities have a fair value of $110,000; The amount of goodwill to be recorded in the purchase is: $0 $150,000 $170,000 $190,000 A(n) occurs when the management of the target company purchases a controlling interest in that company and the company incurs a significant amount of debt as a result greenmail statutory merger poison pill leveraged buyout Orbit Inc purchased Planet Co on January 1, 20X3 At that time an existing patent having a 5-year estimated life was assigned a provisional value of $10,000 and goodwill was assigned a value of $100,000 By the end of fiscal year 20X3, better information was available that indicated the fair value of the patent was $20,000 How should intangible assets be reported at the beginning of fiscal year 20X4? Goodwill $100,000 Patent $10,000 Goodwill $90,000 Patent $16,000 Goodwill $84,000 Patent $16,000 Goodwill $90,000 Patent $20,000 Orbit Inc purchased Planet Co on January 1, 20X3 At that time an existing patent having a 5-year life was not recorded as a separately identified intangible asset At the end of fiscal year 20X4, it is determined the patent is valued at $20,000, and goodwill has a book value of $100,000 How should intangible assets be reported at the beginning of fiscal year 20X5? Goodwill $100,000 Patent $0 Goodwill $100,000 Patent $20,000 Goodwill $80,000 Patent $20,000 Goodwill $80,000 Patent $16,000 One large Midwestern bank’s acquisition of another midwestern bank would be an example of a: market extension merger conglomerate merger product extension merger horizontal merger An economic advantage of a business combination includes Utilizing duplicative assets Creating separate management teams 3 Shared fixed costs Horizontally combining levels within the marketing chain In performing the impairment test for goodwill, the company had the following 20X6 and 20X7 information available 20X6 20X7 Fair value of the reporting unit $350,000 $400,000; Net book value (including $50,000 goodwill) $360,000 $380,000 Assume that the carrying value of the identifiable assets are a reasonable approximation of their fair values Based upon this information what are the 20X6 and 20X7 adjustment to goodwill, if any? 20X6 ;20X7 no adjustment $20,000 decrease $10,000 increase $20,000 decrease $10,000 decrease $20,000 decrease $10,000 decrease no adjustment Jones company acquired Jackson Company for $2,000,000 cash At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively Jackson also had unrecorded copyrights valued at $150,000 and its direct costs related to the acquisition were $50,000 What was the amount of the goodwill related to the acquisition? $600,000 $650,000 $550,000 $700,000 Crystal Co purchased all of the common stock of Sill Corp on January of the current year Five years prior to the acquisition, Sill Corp had issued 30-year bonds bearing an interest rate of 8% At the time of the acquisition, the prevailing interest rate for similar bonds was 5% These bonds should be included in the consolidated balance sheet at face value at a value higher than Sill’s recorded value due to the change in interest rates at a value lower than Sill’s recorded value due to the change in interest rates at Sill’s recorded value Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5 There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7 The impact of issuing the additional shares is to increase the price assigned to fixed assets have no effect on asset values, but to reassign the amounts assigned to equity accounts reduce retained earnings record additional goodwill A tax advantage of business combination can occur when the existing owner of a company sells out and receives: cash to defer the taxable gain as a "tax-free reorganization." stock to defer the taxable gain as a "tax-free reorganization." cash to create a taxable gain stock to create a taxable gain ACME Co paid $110,000 for the net assets of Comb Corp At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value; Current Assets $50,000 $ 50,000; Building 80,000 100,000; Equipment 40,000 50,000; Liabilities 30,000 30,000 What is the amount of gain or loss on disposal of business should Comb Corp recognize? Gain of $60,000 Gain of $60,000 Loss of $30,000 Loss of $60,000 A contingent liability of an acquiree refers to future consideration due that is part of the acquisition agreement is recorded when it is probable that future events will confirm its existence may be recorded beyond the measurement period under certain circumstances should be recorded even if the amount cannot be reasonably estimated A large nation-wide bank’s acquisition of a major investment advisory firm would be an example of a: market extension merger conglomerate merger product extension merger horizontal merger While performing a goodwill impairment test, the company had the following information: Estimated implied fair value of reporting unit $420,000; Fair value of net assets on date of measurement (without goodwill) $400,000; Existing net book value of reporting unit (without goodwill) $380,000; Book value of goodwill $ 60,000 Based upon this information the proper conclusion is: The company should recognize a goodwill impairment loss of $20,000 Goodwill is not impaired The company should recognize a goodwill impairment loss of $40,000 The company should recognize a goodwill impairment loss of $60,000 Jones company acquired Jackson Company for $2,000,000 cash At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively If Jackson meets specified sales targets, Jones is required to pay an additional $200,000 in cash per the acquisition agreement Jones estimates the probability of this to be 50% The direct costs related to the acquisition were $50,000 What was the amount of the goodwill related to the acquisition? $900,000 $950,000 $850,000 $750,000 Which of the following costs of a business combination can be deducted from the value assigned to paid-in capital in excess of par? Direct and indirect acquisition costs Direct acquisition costs Direct acquisition costs and stock issue costs if stock is issued as consideration Stock issue costs if stock is issued as consideration Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are recorded as a deferred asset and amortized over a period not to exceed 15 years expensed if immaterial but capitalized and amortized if over 2% of the acquisition price expensed in the period of the purchase included as part of the price paid for the company purchased Jones company acquired Jackson Company for $2,000,000 cash At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively Jackson also had in- process research and development projects valued at $150,000 and its pension plan’s projected benefit obligation exceeded the plan assets by $50,000 What was the amount of the goodwill related to the acquisition? $750,000 $50,000 $250,000 $650,000 Goodwill results when: a controlling interest is acquired the price of the acquisition exceeds the sum of the fair values of the net identifiable assets acquired the fair value of net assets acquired exceeds the acquisition price the price of the acquisition exceeds the book value of an acquired company ACME Co paid $110,000 for the net assets of Comb Corp At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value: Current Assets $50,000 $ 50,000; Building 80,000 100,000; Equipment 40,000 50,000; Liabilities 30,000 30,000 What is the amount of goodwill or gain related to the acquisition? Goodwill of $70,000 Goodwill of $30,000 A gain of $30,000 A gain of $70,000 When an acquisition of another company occurs, FASB requires disclosing all of the following except: amounts recorded for each major class of assets and liabilities information concerning contingent consideration including a description of the arrangements and the range of outcomes results of operations for the current period if both companies had remained separate A qualitative description of factors that make up the goodwill recognized A building materials company’s acquisition of a television station would be an example of a: market extension merger conglomerate merger product extension merger horizontal merger A controlling interest in a company implies that the parent company owns all of the subsidiary's stock has acquired a majority of the subsidiary's common stock has paid cash for a majority of the subsidiary's stock has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures ACME Co paid $110,000 for the net assets of Comb Corp At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value: Current Assets $50,000 $ 50,000; Building 80,000 100,000; Equipment 40,000 50,000; Liabilities 30,000 30,000; What is the amount recorded by ACME for the Building? $110,000 $20,000 $80,000 $100,000 When determining the fair values of assets acquired in an acquisition, the highest level of measurement per GAAP is adjusted market value based on prices of similar assets unadjusted market values in an actively traded market based on discounted cash flows the entity’s best estimate of an exit or sale value Total Points: correct out of 46 Test Bank for Fraud Examination 4th Edition by Albrecht Multiple Choice Questions Which of the following is the most common type of occupational fraud? Financial statement fraud Mail fraud Investment fraud Employee embezzlement Which of the following statements is true? Fraud usually results from unintentional errors Fraud is more violent and traumatic than robbery Fraud always involves deception, confidence and trickery Losses from fraud are less than losses from robbery Which of the following is NOT one of the major types of fraud classification schemes? Employee embezzlement Government fraud Investment scams Customer fraud The most common fraud committed on behalf of an organization is: Vendor fraud Employee embezzlement Fraudulent financial reporting Customer fraud Which among the following frauds is most likely to be a civil charge? Racketeering Mail fraud Defamation Perjury Employee embezzlement can be direct or indirect Indirect fraud occurs when: an employee uses company assets to run his/her private business employees establish dummy companies and have their employers pay for goods that are not actually delivered an employee receives a kickback from a vendor an employee steals company cash, inventory, tools, or other assets Which of the following is NOT a primary reason for increased size and number of frauds? The advent of computers Complex accounting systems Increased centralization of businesses The Internet Which of the following statements about criminal and civil cases is correct? The purpose of a criminal case is "to right a wrong", the purpose of civil case is to obtain a remedy Jury must have 12 people in civil cases but in criminal cases may consist of fewer than 12 persons Both criminal cases and civil cases require a fraud perpetrator to go to jail Only one claim at a time in civil cases however in criminal cases, various claims may be joined in one action The elements of fraud include all of the following EXCEPT: a material point is misrepresented the misrepresentation is intentional the misrepresentation is known to the victim the victim must sustain damages Government agencies such as the FBI, FDIC, IRS, or various health agencies publish fraud statistics from time to time Which of the following observations concerning such statistics is true? Generally, their statistics are complete Such information is rarely used They provide only those statistics related to their jurisdiction They usually provide a total picture in the areas for which they have responsibility Fraud in companies such as WorldCom, Enron, Waste Management, Sunbeam, Rite-Aid, Phar-Mor, Parmalat, and ZZZZBest are examples of: Customer fraud Investment scams Vendor fraud Management fraud Fraud statistics come from all of the following sources EXCEPT: Government agencies Researchers Insurance Companies Victims Fraud perpetrator What is required to prove fraud, as opposed to negligence? Gross error Intent Preponderance of the evidence Confession from the perpetrator Generally applicants for CFE certification should have a minimum of a bachelor’s degree or equivalent from an institution of higher learning Alternatively if applicants not have a bachelor’s degree, they may substitute months of fraud-related professional experience for each year of academic study 24 18 15 12 The burden of proof in a criminal case must: be beyond a reasonable doubt be the preponderance of knowledge and power be preponderance of evidence lie with the defendant A company is a victim of a $414 million fraud At that time its profit margin is 10% How much additional revenue should the company generate in order to recover the effect on net income? $41.4 million $414 million $4.14 billion $41.4 billion Which of the following observations concerning occupational fraud is NOT true? It is clandestine It is committed for the purpose of direct or indirect financial benefit to the employee It always involves two or more employees It costs the employing organization assets, revenues, or reserves Scammers often use their victim’s ethnic identity to gain their trust and then steal their life savings This is an example of: vendor fraud affinity fraud embezzlement occupational fraud The following are all elements of Title 26, U.S Code Section 7201 EXCEPT: not reporting bribe income may be grounds for being charged with tax evasion filing income tax that excludes income from fraud may be considered an improper tax filing 3 bribes may be deducted as legitimate business expenses failure to report income from fraud may be grounds for being charged with tax evasion Which of the following frauds is usually the most expensive? Vendor fraud Customer fraud Occupational fraud Financial statement fraud Management fraud is often referred to as: stockholder fraud financial statement fraud affinity fraud investment fraud What is the single most critical element for a fraud to be successful? Criminal intent Confidence Greed Compulsion Which of the following is NOT a characteristic of management fraud? Top management deception Manipulation of financial statements Kickbacks or bribes Pressure to earn year-end bonuses The word "con," which means to deceive, comes from the word: Contract Conserve Confuse Confidence One way that criminal law differs from civil law is that it: provides remedies for violations of private rights must yield a unanimous verdict can have a jury of fewer than 12 persons allows for various claims in one action Fraud has a direct dollar for dollar impact on a company's: Revenues Net income 3 Profit margin Stock price A company was the victim of several frauds that totaled approximately $10 million in one year With a profit margin of 10 percent, and assuming that the company’s product sold for $1,000 per unit, how many additional units must the company sell to compensate for the fraud losses? million 100 million 100,000 10,000 Which of the following is NOT an example of a fraud-fighting career? Working for the criminal investigation division of the IRS Serving as an expert witness Maintaining the security of public records Defending an organization being sued in a civil case Perpetrators of some fraud schemes often target conspiracy theorists, promising access to the “secret” investments used by the Rothschilds or Saudi royalty and offer triple-digit returns Such schemes are best described as: Affinity frauds Ponzi schemes Franchise frauds Prime bank schemes The ACFE includes three major categories of occupational fraud EXCEPT: asset misappropriations corruption fraudulent statements pension fraud Telemarketing fraud usually falls into this category Investment scams Management fraud Vendor fraud Embezzlement The GDP in the economy of Ponziland was $5 billion in the year prior to the frauds (year 1) The economy were growing at percent Frauds during the year reduce aggregate income by $200 million During the year, the economy has: shrunk by percent grown by only percent remained flat grown by percent Who are the primary victims of financial statement fraud? Middle management Organizations that buy goods or services Analysts Stockholders Which of the following is a common example of vendor fraud? Fraud perpetrated through collusion between buyers and vendors Fraud perpetrated by buyers acting alone The perpetrator physically removes the inventory from the business premises A fraud perpetrated through an unintentional mistake Civil claims begin when one party files a complaint against another, usually for the purpose of: penalty imprisonment proving the other party wrong financial restitution In fraud prosecution cases, matter consists of the underlying data and all corroborating information available evidential remedial supplement elementary How is the confidence element established in a Ponzi scheme? By investing in prime bonds By issuing notarized certificates By paying returns to initial investors By returning money to all investors The Anti-Kickback Act of 1986 intends to prevent: bribery, by punishing perpetrators with up to 15 years in prison any scheme to defraud federally insured financial institutions 3 the giving or receiving of any thing of value by a subcontractor to a prime contractor individuals from using insider information to purchase or sell a company's securities To be successful, plaintiffs in civil cases must prove their case by which of the following? Preponderance of evidence Beyond a reasonable doubt To a degree of reasonable mitigation To the standard of prima facie Which legal code makes the bribing of public officials illegal? Title 18, U.S Code Section 201 Title 41, U.S Code Section 51 to 58 Title 18, U.S Code Section 1341 Title 18, U.S Code Section 1344 Given below are the profit margins and fraud related losses of four economies Which economy will have to generate the maximum dollar amount of additional revenues to recover the loss to aggregate income? Economy A 10% $225 million; Economy B 10% $150 million; Economy C 5% $100 million; Economy D 2% $ 50 million Economy A Economy D Economy C Economy B Which one of the following is NOT a characteristic of a criminal proceeding? Deals with offenses against society Consequences include restitution and damage payments Jury of 12 individuals Only one claim may be heard at a time The study conducted by the Association of Certified Fraud Examiners in 2008 estimated that U.S organizations lose _ percent of their annual revenues to fraud 23 17 Which of the following is NOT an element of a Ponzi scheme? Gaining other's confidence Promising abnormally high returns Collected money is invested in government bonds Investment principle is partially used to make payments to previous investors Customer fraud includes all of the following EXCEPT: Get something for nothing Do not pay for goods purchased Fraud perpetrated through collusion between buyers and vendors Deceive organization into giving them something they should not What is the most cost-effective way to minimize the cost of fraud? Prevention Detection Investigation Prosecution ... Horizontally combining levels within the marketing chain In performing the impairment test for goodwill, the company had the following 20X6 and 20X7 information available 20X6 20X7 Fair value of the reporting... entity’s best estimate of an exit or sale value Total Points: correct out of 46 Test Bank for Fraud Examination 4th Edition by Albrecht Multiple Choice Questions Which of the following is the most... recorded for each major class of assets and liabilities information concerning contingent consideration including a description of the arrangements and the range of outcomes results of operations for