Question

1. Which of the following statements regarding a bu wing statements regarding a business combination is wrong? B. Costs of registering equity se Osts of registering equity securities to be issued by the acquiring company are not expensed registering equity securities to be issued by the acquiring company do not affect the amount of goodwill to be recorded by the acquiring will to be recorded by the acquiring company. costs related to the business combination are expensed when incurred. company controls the target company through purchasing its ash, the target company makes a journal entry to record the receipt C. Acquisition costs related to the busines D. When the acquiring company controls the target compani common stock with cash, the target company of cash. 2. Which of the following statements is correct? in another company's voting stock is usually A. An investment of 20 to 50 percent in another company's voting sto reported under the cost method. B XX company invests in YY company's common stock invests in YY company's common stock and uses the cost method. Since the investment day, YY pays more dividends than earnings. XX should treat all dividend payment as dividends income. C. Variable interest entities (VIE) often do not have any stockholders. VIES sho consolidated by the Primary Beneficiary that has the power to direct the VIES significant activities. 5. When one company owns more than 50 percent in another company's voting stock, the equity method of accounting may be used in place of the consolidation method when preparing consolidated financial statements.

Answer 1

1. The correct answer is "B" : Costs of registering equity securities does not affect the amount of goodwill is false.

Since costs of registering and issuing equity securities are recognized as a reduction of the otherwise determinable fair value of the securities and hence they do affect the amount of goodwill

2. The correct answer is "B".

Reason : Under cost method, investment is recorded at the historical purchase price unless sold and all the dividends received are treated as normal dividend incomes and can be taxed as such.

Why other options are not correct :

A : It is generally reported under equity method and not cost method.

C : Variable interest entities do have stockholders even though they do not have much powers but they are present.

D : Equity method of accounting is used for investment in associates where investment is from 20% to 50% and not for subisdiaries with investment greater than 50%.