QUESTIONS

True or False
For each of the following statements, circle the T or the F to indicate whether the statement is
true or false.
T F

1. In a centralized accounting system for branches, the branch accounting records

are maintained by the home office. (T)

T F

2. Both the Home Office ledger account and the Investment in Branch account are
displayed in the combined financial statements for the home office and the
branch. (F)

T F

3. The combined net income for the home office and branches would be the same
when the home office bills merchandise to branches at home office cost as when
the home office bills branches at amounts above home office cost. (T)

T F

4. In most cases, a branch is operated more as a cost center than as a profit center.
(F)

T F

5. A branch imprest cash fund is displayed under the heading Investments in the
combined balance sheet of the home office and the branch. (F)

T F

6. The Investment in Branch ledger account is displayed as a noncurrent asset in the

separate balance sheet of the home office, and the Home Office account is
displayed as a long-term liability in the separate balance sheet of the branch. (F)

T F

7. The fiscal year for the home office must coincide with the fiscal year for the
branch to facilitate the preparation of combined financial statements. (T)

T F

8. A net loss reported by a branch is recorded by the home office by a debit to the
Investment in Branch ledger account. (F)

T F

9. If branch trade accounts receivable are carried in the home office accounting
records, doubtful accounts expense of the branch is recorded by the home office
by a debit to Branch Loss and a credit to Investment in Branch. (F)

T F

10. If merchandise is billed to a branch at a price above home office cost, the net
income reported to the home office by the branch is overstated. (F)

T F

11. Separate financial statements for an enterprises home office and branches
generally are prepared for use by creditors and government agencies. (F)

T F

12. In a working paper for combined financial statements of a home office and
branches, the balance of the Shipments to Branch ledger account is eliminated
against the balance of the Home Office account. (F)

T F

13. In a separate balance sheet for a home office, the balance of the Allowance for
Overvaluation of Inventories: Branch ledger account is deducted from the balance
of the Investment in Branch ledger account. (T)

T F

14. The beginning inventories of a branch are reduced to home office cost in the
working paper for combined financial statements by a debit to Allowance for
Overvaluation of Inventories: Branch and a credit to beginning inventories when
the periodic inventory system is used. (T)

T F

15. The perpetual inventory system is impractical for a home office with many
branches. (F)

T F

16. If a remittance of cash by a branch has not been recorded by the home office, the
balance of the branchs Home Office ledger account exceeds the balance of the
home offices Investment in Branch account. (F)

T F

17. Freight costs on merchandise shipments from Cody Branch to Dana Branch in
excess of normal freight costs from the home office to Dana Branch should be
recognized as operating expenses of Dana Branch. (F)

T F

18. If a new branch is expected to be profitable starting with the second year of
operations, a loss incurred by the new branch in the first year should be deferred
and recognized as expense over a period of three to five years. (F)

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QUESTIONS
True or False
For each of the following statements, circle the T or the F to indicate whether the statement is
true or false.
T F

1. Business combinations provide a method for achieving rapid growth in assets and
sales. (T)

T F

2. In a statutory merger, a new corporation is formed to issue its common stock for
the common stock of two or more existing corporations, which then are
liquidated. (F)

T F

3. A combinee is a corporation that acquires all or part of the common stock of

another corporation. (F)

T F

4. The exchange ratio expresses the relationship of the number of shares of the
combinors common stock exchanged for outstanding common stock of the
combinee. (T)

T F

5. Purchase accounting must be used for all business combinations.(T)

T F

6. Goodwill in a business combination is valued at an amount representing the

capitalized value of the average excess earnings of the combinee. (F)

T F

7. Legal fees incurred for the SEC registration statement covering shares of
common stock issued in a business combination are included in cost of the
combinee. (F)

T F

8. Goodwill recognized in a business combination is entered in the accounting

records of the combinee. (F)

T F

9. Out-of-pocket costs of a business combination are recognized as expenses. (F)