Sample Questions
Question 1
Easy
Under U.S. GAAP, a deferred tax liability arises when:
Solution
D is correct.
Under ASC 740-10-25, a deferred tax liability (DTL) arises from taxable temporary differences, which occur when an asset's book carrying amount exceeds its tax basis. When the asset is recovered (through depreciation, sale, or use), the excess book amount over tax basis will result in additional taxable income in future periods.
Under ASC 740-10-25, a deferred tax liability (DTL) arises from taxable temporary differences, which occur when an asset's book carrying amount exceeds its tax basis. When the asset is recovered (through depreciation, sale, or use), the excess book amount over tax basis will result in additional taxable income in future periods.
Question 2
Medium
Under U.S. GAAP, a nonpublic entity that is not an SEC filer must include which of the following in the notes to its financial statements?
Solution
ASC 855-10-50-1 requires an entity that is not an SEC filer to disclose both the date through which subsequent events have been evaluated and that this date is the date the financial statements were available to be issued. An SEC filer is not required to disclose the date because it corresponds to the filing date.
Question 3
Hard
Parent Co. acquires 80% of Sub Co. for $640,000 when Sub's identifiable net assets have a fair value of $700,000 and a book value of $500,000. Under U.S. GAAP, applying the full goodwill method, what is the total goodwill recognized in the consolidated financial statements?
Solution
D is correct.
Full goodwill method (ASC 805): impute the subsidiary's total fair value from the price paid for the controlling interest, then subtract the fair value of identifiable net assets.
| Item | Amount | Why |
|---|---|---|
| Implied total fair value of Sub | $800,000 | $640,000 / 80% |
| Fair value of identifiable net assets | ($700,000) | Given |
| **Total goodwill** | **$100,000** | Recognized in full, including NCI's share |
Full goodwill method (ASC 805): impute the subsidiary's total fair value from the price paid for the controlling interest, then subtract the fair value of identifiable net assets.
| Item | Amount | Why |
|---|---|---|
| Implied total fair value of Sub | $800,000 | $640,000 / 80% |
| Fair value of identifiable net assets | ($700,000) | Given |
| **Total goodwill** | **$100,000** | Recognized in full, including NCI's share |
