Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Chapter 01 Intercorporate Acquisitions and Investments in Other Entities

Multiple Choice Questions

1. Assuming no impairment in value prior to transfer, assets transferred b a parent compan to another entit it has created should be recorded b the ne!l created entit at the assets"# A. cost to the parent compan . $. boo% value on the parent compan "s boo%s at the date of transfer. C. fair value at the date of transfer. &. fair value of consideration e'changed b the ne!l created entit .

(. )iven the increased development of comple' business structures, !hich of the follo!ing regulators is responsible for the continued usefulness of accounting reports* A. +ecurities and E'change Commission ,+EC$. .ublic Compan Accounting Oversight $oard ,.CAO$C. /inancial Accounting +tandards $oard ,/A+$&. All of the above

0. A business combination in !hich the acquired compan "s assets and liabilities are combined !ith those of the acquiring compan into a single entit is defined as# A. +toc% acquisition $. 1everaged bu out C. +tatutor 2erger &. 3everse statutor rollup

4. In !hich of the follo!ing situations do accounting standards not require that the financial statements of the parent and subsidiar be consolidated* A. A corporation creates a ne! 100 percent o!ned subsidiar $. A corporation purchases 50 percent of the voting stoc% of another compan C. A corporation has both control and ma6orit o!nership of an unincorporated compan &. A corporation o!ns less-than a controlling interest in an unincorporated compan

1-1

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

In order to reduce the ris% associated !ith a ne! line of business, Conservative Corporation established +pin Compan as a !holl o!ned subsidiar . It transferred assets and accounts pa able to +pin in e'change for its common stoc%. +pin recorded the follo!ing entr !hen the transaction occurred#

7. $ased on the preceding information, !hat number of shares of 89 par value stoc% did +pin issue to Conservative* A. 10,000 $. 9,000 C. :,000 &. (7,000

;. $ased on the preceding information, !hat !as Conservative"s boo% value of assets transferred to +pin Compan * A. 8(40,000 $. 8(;0,000 C. 8((1,000 &. 8(01,000

1-(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

9. $ased on the preceding information, !hat amount did Conservative report as its investment in +pin after the transfer of assets and liabilities* A. 81:1,000 $. 8((1,000 C. 8(;0,000 &. 8(40,000

:. $ased on the preceding information, immediatel after the transfer, A. Conservative"s total assets decreased b 8(0,000. $. Conservative"s total assets decreased b 8(0,000. C. Conservative"s total assets increased b 87;,000. &. Conservative"s total assets remained the same.

&uring its inception, &evon Compan purchased land for 8100,000 and a building for 81:0,000. After e'actl 0 ears, it transferred these assets and cash of 870,000 to a ne!l created subsidiar , 3egan Compan , in e'change for 17,000 shares of 3egan"s 810 par value stoc%. &evon uses straight-line depreciation. <seful life for the building is 00 ears, !ith =ero residual value. An appraisal revealed that the building has a fair value of 8(00,000.

5. $ased on the information provided, at the time of the transfer, 3egan Compan should record# A. $uilding at 81:0,000 and no accumulated depreciation. $. $uilding at 81;(,000 and no accumulated depreciation. C. $uilding at 8(00,000 and accumulated depreciation of 8(4,000. &. $uilding at 81:0,000 and accumulated depreciation of 81:,000.

10. $ased on the information provided, !hat amount !ould be reported b &evon Compan as investment in 3egan Compan common stoc%* A. 801(,000 $. 81:0,000 C. 8000,000 &. 8170,000

1-0

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

11. $ased on the preceding information, 3egan Compan !ill report A. additional paid-in capital of 80. $. additional paid-in capital of 8170,000. C. additional paid-in capital of 81;(,000. &. additional paid-in capital of 81:0,000.

1(. >hich of the follo!ing situations best describes a business combination to be accounted for as a statutor merger* A. $oth companies in a combination continue to operate as separate, but related, legal entities. $. Onl one of the combining companies survives and the other loses its separate identit . C. ?!o companies combine to form a ne! third compan , and the original t!o companies are dissolved. &. One compan transfers assets to another compan it has created.

10. A statutor consolidation is a t pe of business combination in !hich# A. one of the combining companies survives and the other loses its separate identit . $. one compan acquires the voting shares of the other compan and the t!o companies continue to operate as separate legal entities. C. t!o publicl traded companies agree to share a board of directors. &. each of the combining companies is dissolved and the net assets of both companies are transferred to a ne!l created corporation.

3ivendell Corporation and /oster Compan merged as of @anuar 1, (0A5. ?o effect the merger, 3ivendell paid finder"s fees of 840,000, legal fees of 810,000, audit fees related to the stoc% issuance of 810,000, stoc% registration fees of 87,000, and stoc% listing application fees of 84,000.

14. $ased on the preceding information, under the acquisition method, !hat amount relating to the business combination !ould be e'pensed* A. 89(,000 $. 815,000 C. 870,000 &. 8;0,000

1-4

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

17. $ased on the preceding information, under the acquisition method# A. 89(,000 of stoc% issue costs are treated as good!ill. $. 815,000 of stoc% issue costs are treated as a reduction in the issue price. C. 815,000 of stoc% issue costs are e'pensed. &. 89(,000 of stoc% issue costs are e'pensed.

1;. <sing the preceding information, !hat amount !ould have been e'pensed if the purchase method of accounting !as used* A. 80 $. 815,000 C. 870,000 &. 89(,000

19. <sing the preceding information, !hat amount !ould have been e'pensed if the poolingof-interests method of accounting !as used* A. 80 $. 815,000 C. 870,000 &. 89(,000

1:. $urrough Corporation paid 8:0,000 to acquire all of Bel ar Compan "s net assets. Bel ar reported assets !ith a boo% value of 8;0,000 and fair value of 85:,000 and liabilities !ith a boo% value and fair value of 8(0,000 on the date of combination. $urrough also paid 80,000 to a search firm for finder"s fees related to the acquisition. >hat amount !ill be recorded as good!ill b $urrough Corporation !hile recording its investment in Bel ar* A. 80 $. 87,000 C. 8:,000 &. 810,000

.lummet Corporation reported the boo% value of its net assets at 8400,000 !hen Cenith Corporation acquired 100 percent o!nership. ?he fair value of .lummet"s net assets !as determined to be 8710,000 on that date.

1-7

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

15. $ased on the preceding information, !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8770,000 for the acquisition* A. 80 $. 870,000 C. 8170,000 &. 840,000

(0. $ased on the preceding information, !hat amount !ill be recorded b Cenith as its investment in .lummet, if it paid 8700,000 for the acquisition* A. 8;10,000 $. 8400,000 C. 8700,000 &. 8710,000

(1. $ased on the preceding information, !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8700,000 for the acquisition* A. 80 $. 870,000 C. 8170,000 &. 840,000

((. ?he fair value of net identifiable assets of a reporting unit of A Compan is 8000,000. On A Compan "s boo%s, the carr ing value of this reporting unit"s net assets is 8070,000, including 8;0,000 good!ill. If the fair value of the reporting unit is subsequentl 8007,000, !hat amount of good!ill impairment !ill be recogni=ed for this unit* A. 80 $. 810,000 C. 8(7,000 &. 807,000

1-;

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(0. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90,000. ?he carr ing value of the reporting unit"s net assets on D Compan "s boo%s is 80(0,000, including 870,000 good!ill. If the reported good!ill impairment for the unit is 810,000, !hat !ould be the fair value of the reporting unit* A. 80(0,000 $. 8010,000 C. 8(90,000 &. 8(50,000

/ollo!ing its acquisition of the net assets of &an Compan , Empire Compan assigned good!ill of 8;0,000 to one of the reporting divisions. Information for this division follo!s#

(4. $ased on the preceding information, !hat amount of good!ill !ill be reported for this division if its fair value is determined to be 8(00,000* A. 80 $. 8;0,000 C. 800,000 &. 810,000

(7. $ased on the preceding information, !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8157,000* A. 87,000 $. 800,000 C. 8;0,000 &. 877,000

1-9

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(;. $ased on the preceding information, !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8(47,000* A. 80 $. 87,000 C. 8;0,000 &. 877,000

.ublic Equit Corporation acquired 1enore Compan through an e'change of common shares. All of 1enore"s assets and liabilities !ere immediatel transferred to .ublic Equit . .ublic"s common stoc% !as trading at 8(0 per share at the time of e'change. /ollo!ing selected information is also available.

(9. $ased on the preceding information, !hat number of shares !as issued at the time of the e'change* A. 7,000 $. 19,700 C. 1(,700 &. 10,000

(:. $ased on the preceding information, !hat is the par value of .ublic"s common stoc%* A. 810 $. 81 C. 87 &. 84

1-:

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(5. $ased on the preceding information, !hat is the fair value of 1enore"s net assets, if good!ill of 87;,000 is recorded* A. 800;,000 $. 8(44,000 C. 8154,000 &. 8000,000

.ursuing an inorganic gro!th strateg , >ilson Compan acquired Eenus Compan "s net assets and assigned them to four separate reporting divisions. >ilson assigned total good!ill of 8104,000 to the four reporting divisions as given belo!#

00. $ased on the preceding information, !hat amount of good!ill !ill be reported for Alpha at ear-end* A. 80 $. 8(0,000 C. 800,000 &. 810,000

01. $ased on the preceding information, !hat amount of good!ill !ill be reported for $eta at ear-end* A. 80 $. 814,000 C. 804,000 &. 870,000

1-5

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0(. $ased on the preceding information, for )amma# A. no good!ill should be reported at ear-end. $. good!ill impairment of 800,000 should be recogni=ed at ear-end. C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end. &. good!ill of 800,000 should be reported at ear-end.

00. $ased on the preceding information, for &elta# A. no good!ill should be reported at ear-end. $. good!ill impairment of 817,000 should be recogni=ed at ear-end. C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end. &. good!ill of 800,000 should be reported at ear-end.

04. $ased on the preceding information, !hat !ould be the total amount of good!ill that >ilson should report at ear-end* A. 80 $. 8;5,000 C. 895,000 &. 854,000

07. >hich of the follo!ing observations is ,are- consistent !ith the acquisition method of accounting for business combinations* I. E'penses related to the business combination are e'pensed. II. +toc% issue costs are treated as a reduction in the issue price. III. All merger and stoc% issue costs are e'pensed. IE. Fo good!ill is ever recorded. A. III $. IE C. I and II &. I, II, and IE

1-10

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0;. >hich of the follo!ing observations refers to the term differential* A. E'cess of consideration e'changed over fair value of net identifiable assets. $. E'cess of fair value over boo% value of net identifiable assets. C. E'cess of consideration e'changed over boo% value of net identifiable assets. &. E'cess of fair value over historical cost of net identifiable assets.

09. >hich of the follo!ing observations concerning Ggood!illG is FO? correct* A. Once !ritten do!n, it ma be !ritten up for recoveries. $. It must be tested for impairment at least annuall . C. )ood!ill impairment losses are recogni=ed in income from continuing operations or income before e'traordinar gains and losses. &. It must be reported as a separate line item in the balance sheet.

0:. $ig Compan acquired the follo!ing assets and liabilities of 1ittle Compan ,fair values listed belo!- for 8490,000 cash.

Assuming these items are all recorded at their acquisition date fair values, !hat additional item needs to be recorded and ho! !ill it be accounted for in the future* A. 800,000 )ood!ill, capitali=ed and tested for impairment $. 800,000 $argain purchase, recogni=ed in current earnings C. 800,000 $argain purchase, capitali=ed and recogni=ed over time &. 800,000 )ood!ill, capitali=ed and amorti=ed over time

1-11

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

05. .aul Corp. acquired 100 percent of +am Inc."s voting stoc% on @ul 1, (0A1. ?he follo!ing information !as available as of &ecember 01, (0A1#

Bo! much net income should be reported in .aul Corp"s income statement for (0A1* A. 8090,000 $. 89(0,000 C. 8540,000 &. 81,050,000

40. .oint Co. purchased 50H of +harpe Corp."s voting stoc% on @anuar 1, (0A( for 87,7:0,000. .rior to the acquisition, .oint held a 10H equit position in +harpe Compan . On @anuar 1, (0A( .oint"s 10H investment in +harpe has a boo% value of 8040,000 and a fair value of 8;(0,000. On @anuar 1, (0A( .oint records the follo!ing# A. &ebit )ain on revaluation of +harpe"s stoc% 8(:0,000 $. Credit )ain on revaluation of +harpe"s stoc% 8(:0,000 C. Credit Investment in +harpe stoc% 87,:;0,000 &. &ebit Investment in +harpe stoc% 8;,(00,000

41. ?he length of the measurement period allo!ed to value the assets and liabilities in an acquired business combination starts on the date of acquisition and lasts until# A. All necessar information about the facts of the acquisition is obtained $. All necessar information about the facts of the acquisition is obtained, not to e'ceed one month C. All necessar information about the facts of the acquisition is obtained, not to e'ceed one reporting period &. All necessar information about the facts of the acquisition is obtained, not to e'ceed one ear

1-1(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

4(. /A+$ 1413 ,A+C :07- requires contingent consideration in a business combination to be classified as# A. An asset $. A liabilit or equit C. An asset or equit &. An asset or a liabilit

40. /or all acquired contingencies, the acquirer should do all of the follo!ing e'cept# A. .rovide documentation from the acquirer"s attorne regarding pending la!suits and loan guarantees $. .rovide a description of each contingenc C. &isclose the amount recogni=ed at the acquisition date &. &escribe the estimated range of possible undiscounted outcomes of the contingenc

44. /A+$ 1413 ,A+C :07- requires that ongoing research and development pro6ects be treated in all of the follo!ing !a s e'cept# A. 3ecorded at acquisition-date fair values $. Classified as intangible assets having indefinite lives C. E'pensed immediatel &. ?ested for impairment periodicall

1-10

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Essay Questions

47. On @anuar 1, (0A:, Alas%a Corporation acquired 2ercantile Corporation"s net assets b pa ing 81;0,000 cash. $alance sheet data for the t!o companies and fair value information for 2ercantile Corporation immediatel before the business combination are given belo!#

3equired# .repare the 6ournal entr to record the acquisition of 2ercantile Corporation.

1-14

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

4;. On @anuar 1, (0A:, 1ine Corporation acquired all of the common stoc% of +taff Compan for 8000,000. On that date, +taff"s identifiable net assets had a fair value of 8(70,000. ?he assets acquired in the purchase of +taff are considered to be a separate reporting unit of 1ine Corporation. ?he carr ing value of +taff"s investment at &ecember 01, (0A:, is 8010,000. ?he fair value of the net assets ,e'cluding good!ill- at that date is 8((0,000 and the fair value of the reporting unit is determined to be (;0,000. 3equired# 1- E'plain ho! good!ill is tested for impairment for a reporting unit. (- &etermine the amount, if an , of impairment loss to be recogni=ed at &ecember 01, (0A:.

49. +ea1ine Corporation is involved in the distribution of processed marine products. ?he fair values of assets and liabilities held b three reporting units and other information related to the reporting units o!ned b +ea1ine are as follo!s#

3equired# &etermine the amount of good!ill that +ea1ine should report in its current financial statements.

1-17

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Ans!er Ie

Multiple Choice Questions

1. Assuming no impairment in value prior to transfer, assets transferred b a parent compan to another entit it has created should be recorded b the ne!l created entit at the assets"# A. cost to the parent compan . B. boo% value on the parent compan "s boo%s at the date of transfer. C. fair value at the date of transfer. &. fair value of consideration e'changed b the ne!l created entit .

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e,-lain +iffe ent metho+s of b!siness e,-ansion. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions

(. )iven the increased development of comple' business structures, !hich of the follo!ing regulators is responsible for the continued usefulness of accounting reports* A. +ecurities and E'change Commission ,+EC$. .ublic Compan Accounting Oversight $oard ,.CAO$C. /inancial Accounting +tandards $oard ,/A+$D. All of the above

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e,-lain +iffe ent metho+s of b!siness e,-ansion. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions

1-1;

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0. A business combination in !hich the acquired compan "s assets and liabilities are combined !ith those of the acquiring compan into a single entit is defined as# A. +toc% acquisition $. 1everaged bu out C. +tatutor 2erger &. 3everse statutor rollup

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e,-lain +iffe ent metho+s of b!siness e,-ansion. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions

4. In !hich of the follo!ing situations do accounting standards not require that the financial statements of the parent and subsidiar be consolidated* A. A corporation creates a ne! 100 percent o!ned subsidiar $. A corporation purchases 50 percent of the voting stoc% of another compan C. A corporation has both control and ma6orit o!nership of an unincorporated compan D. A corporation o!ns less-than a controlling interest in an unincorporated compan

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e,-lain +iffe ent metho+s of b!siness e,-ansion. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions

1-19

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

In order to reduce the ris% associated !ith a ne! line of business, Conservative Corporation established +pin Compan as a !holl o!ned subsidiar . It transferred assets and accounts pa able to +pin in e'change for its common stoc%. +pin recorded the follo!ing entr !hen the transaction occurred#

7. $ased on the preceding information, !hat number of shares of 89 par value stoc% did +pin issue to Conservative* A. 10,000 $. 9,000 C. :,000 &. (7,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-1:

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

;. $ased on the preceding information, !hat !as Conservative"s boo% value of assets transferred to +pin Compan * A. 8(40,000 $. 8(;0,000 C. 8((1,000 D. 8(01,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(# *n+e stan+ an+ e,-lain +iffe ent metho+s of b!siness e,-ansion. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions

9. $ased on the preceding information, !hat amount did Conservative report as its investment in +pin after the transfer of assets and liabilities* A. 81:1,000 $. 8((1,000 C. 8(;0,000 &. 8(40,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ - e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4

:. $ased on the preceding information, immediatel after the transfer, A. Conservative"s total assets decreased b 8(0,000. B. Conservative"s total assets decreased b 8(0,000. C. Conservative"s total assets increased b 87;,000. &. Conservative"s total assets remained the same.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ - e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4

1-15

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

&uring its inception, &evon Compan purchased land for 8100,000 and a building for 81:0,000. After e'actl 0 ears, it transferred these assets and cash of 870,000 to a ne!l created subsidiar , 3egan Compan , in e'change for 17,000 shares of 3egan"s 810 par value stoc%. &evon uses straight-line depreciation. <seful life for the building is 00 ears, !ith =ero residual value. An appraisal revealed that the building has a fair value of 8(00,000.

5. $ased on the information provided, at the time of the transfer, 3egan Compan should record# A. $uilding at 81:0,000 and no accumulated depreciation. $. $uilding at 81;(,000 and no accumulated depreciation. C. $uilding at 8(00,000 and accumulated depreciation of 8(4,000. D. $uilding at 81:0,000 and accumulated depreciation of 81:,000.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ - e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4

10. $ased on the information provided, !hat amount !ould be reported b &evon Compan as investment in 3egan Compan common stoc%* A. 801(,000 $. 81:0,000 C. 8000,000 &. 8170,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ - e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4

1-(0

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

11. $ased on the preceding information, 3egan Compan !ill report A. additional paid-in capital of 80. $. additional paid-in capital of 8170,000. C. additional paid-in capital of 81;(,000. &. additional paid-in capital of 81:0,000.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ - e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4

1(. >hich of the follo!ing situations best describes a business combination to be accounted for as a statutor merger* A. $oth companies in a combination continue to operate as separate, but related, legal entities. B. Onl one of the combining companies survives and the other loses its separate identit . C. ?!o companies combine to form a ne! third compan , and the original t!o companies are dissolved. &. One compan transfers assets to another compan it has created.

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(5 *n+e stan+ an+ e,-lain the +iffe ences bet3een +iffe ent fo ms of b!siness combinations4

10. A statutor consolidation is a t pe of business combination in !hich# A. one of the combining companies survives and the other loses its separate identit . $. one compan acquires the voting shares of the other compan and the t!o companies continue to operate as separate legal entities. C. t!o publicl traded companies agree to share a board of directors. D. each of the combining companies is dissolved and the net assets of both companies are transferred to a ne!l created corporation.

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(5 *n+e stan+ an+ e,-lain the +iffe ences bet3een +iffe ent fo ms of b!siness combinations4

1-(1

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

3ivendell Corporation and /oster Compan merged as of @anuar 1, (0A5. ?o effect the merger, 3ivendell paid finder"s fees of 840,000, legal fees of 810,000, audit fees related to the stoc% issuance of 810,000, stoc% registration fees of 87,000, and stoc% listing application fees of 84,000.

14. $ased on the preceding information, under the acquisition method, !hat amount relating to the business combination !ould be e'pensed* A. 89(,000 $. 815,000 C. 870,000 &. 8;0,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

17. $ased on the preceding information, under the acquisition method# A. 89(,000 of stoc% issue costs are treated as good!ill. B. 815,000 of stoc% issue costs are treated as a reduction in the issue price. C. 815,000 of stoc% issue costs are e'pensed. &. 89(,000 of stoc% issue costs are e'pensed.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-((

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1;. <sing the preceding information, !hat amount !ould have been e'pensed if the purchase method of accounting !as used* A. 80 $. 815,000 C. 870,000 &. 89(,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ - e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4

19. <sing the preceding information, !hat amount !ould have been e'pensed if the poolingof-interests method of accounting !as used* A. 80 $. 815,000 C. 870,000 D. 89(,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ - e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4

1-(0

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1:. $urrough Corporation paid 8:0,000 to acquire all of Bel ar Compan "s net assets. Bel ar reported assets !ith a boo% value of 8;0,000 and fair value of 85:,000 and liabilities !ith a boo% value and fair value of 8(0,000 on the date of combination. $urrough also paid 80,000 to a search firm for finder"s fees related to the acquisition. >hat amount !ill be recorded as good!ill b $urrough Corporation !hile recording its investment in Bel ar* A. 80 B. 87,000 C. 8:,000 &. 810,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

.lummet Corporation reported the boo% value of its net assets at 8400,000 !hen Cenith Corporation acquired 100 percent o!nership. ?he fair value of .lummet"s net assets !as determined to be 8710,000 on that date.

15. $ased on the preceding information, !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8770,000 for the acquisition* A. 80 $. 870,000 C. 8170,000 D. 840,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-(4

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(0. $ased on the preceding information, !hat amount !ill be recorded b Cenith as its investment in .lummet, if it paid 8700,000 for the acquisition* A. 8;10,000 $. 8400,000 C. 8700,000 D. 8710,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

(1. $ased on the preceding information, !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8700,000 for the acquisition* A. 80 $. 870,000 C. 8170,000 &. 840,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-(7

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

((. ?he fair value of net identifiable assets of a reporting unit of A Compan is 8000,000. On A Compan "s boo%s, the carr ing value of this reporting unit"s net assets is 8070,000, including 8;0,000 good!ill. If the fair value of the reporting unit is subsequentl 8007,000, !hat amount of good!ill impairment !ill be recogni=ed for this unit* A. 80 $. 810,000 C. 8(7,000 &. 807,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

(0. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90,000. ?he carr ing value of the reporting unit"s net assets on D Compan "s boo%s is 80(0,000, including 870,000 good!ill. If the reported good!ill impairment for the unit is 810,000, !hat !ould be the fair value of the reporting unit* A. 80(0,000 B. 8010,000 C. 8(90,000 &. 8(50,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-(;

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/ollo!ing its acquisition of the net assets of &an Compan , Empire Compan assigned good!ill of 8;0,000 to one of the reporting divisions. Information for this division follo!s#

(4. $ased on the preceding information, !hat amount of good!ill !ill be reported for this division if its fair value is determined to be 8(00,000* A. 80 $. 8;0,000 C. 800,000 D. 810,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

(7. $ased on the preceding information, !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8157,000* A. 87,000 $. 800,000 C. 8;0,000 D. 877,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-(9

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(;. $ased on the preceding information, !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8(47,000* A. 80 B. 87,000 C. 8;0,000 &. 877,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

.ublic Equit Corporation acquired 1enore Compan through an e'change of common shares. All of 1enore"s assets and liabilities !ere immediatel transferred to .ublic Equit . .ublic"s common stoc% !as trading at 8(0 per share at the time of e'change. /ollo!ing selected information is also available.

(9. $ased on the preceding information, !hat number of shares !as issued at the time of the e'change* A. 7,000 $. 19,700 C. 1(,700 &. 10,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-(:

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(:. $ased on the preceding information, !hat is the par value of .ublic"s common stoc%* A. 810 $. 81 C. 87 D. 84

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

(5. $ased on the preceding information, !hat is the fair value of 1enore"s net assets, if good!ill of 87;,000 is recorded* A. 800;,000 $. 8(44,000 C. 8154,000 &. 8000,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

.ursuing an inorganic gro!th strateg , >ilson Compan acquired Eenus Compan "s net assets and assigned them to four separate reporting divisions. >ilson assigned total good!ill of 8104,000 to the four reporting divisions as given belo!#

1-(5

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

00. $ased on the preceding information, !hat amount of good!ill !ill be reported for Alpha at ear-end* A. 80 B. 8(0,000 C. 800,000 &. 810,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

01. $ased on the preceding information, !hat amount of good!ill !ill be reported for $eta at ear-end* A. 80 $. 814,000 C. 804,000 &. 870,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

0(. $ased on the preceding information, for )amma# A. no good!ill should be reported at ear-end. $. good!ill impairment of 800,000 should be recogni=ed at ear-end. C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end. &. good!ill of 800,000 should be reported at ear-end.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-00

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

00. $ased on the preceding information, for &elta# A. no good!ill should be reported at ear-end. B. good!ill impairment of 817,000 should be recogni=ed at ear-end. C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end. &. good!ill of 800,000 should be reported at ear-end.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

04. $ased on the preceding information, !hat !ould be the total amount of good!ill that >ilson should report at ear-end* A. 80 B. 8;5,000 C. 895,000 &. 854,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-01

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

07. >hich of the follo!ing observations is ,are- consistent !ith the acquisition method of accounting for business combinations* I. E'penses related to the business combination are e'pensed. II. +toc% issue costs are treated as a reduction in the issue price. III. All merger and stoc% issue costs are e'pensed. IE. Fo good!ill is ever recorded. A. III $. IE C. I and II &. I, II, and IE

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

0;. >hich of the follo!ing observations refers to the term differential* A. E'cess of consideration e'changed over fair value of net identifiable assets. $. E'cess of fair value over boo% value of net identifiable assets. C. E'cess of consideration e'changed over boo% value of net identifiable assets. &. E'cess of fair value over historical cost of net identifiable assets.

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-0(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

09. >hich of the follo!ing observations concerning Ggood!illG is FO? correct* A. Once !ritten do!n, it ma be !ritten up for recoveries. $. It must be tested for impairment at least annuall . C. )ood!ill impairment losses are recogni=ed in income from continuing operations or income before e'traordinar gains and losses. &. It must be reported as a separate line item in the balance sheet.

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

0:. $ig Compan acquired the follo!ing assets and liabilities of 1ittle Compan ,fair values listed belo!- for 8490,000 cash.

Assuming these items are all recorded at their acquisition date fair values, !hat additional item needs to be recorded and ho! !ill it be accounted for in the future* A. 800,000 )ood!ill, capitali=ed and tested for impairment $. 800,000 $argain purchase, recogni=ed in current earnings C. 800,000 $argain purchase, capitali=ed and recogni=ed over time &. 800,000 )ood!ill, capitali=ed and amorti=ed over time

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-00

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

05. .aul Corp. acquired 100 percent of +am Inc."s voting stoc% on @ul 1, (0A1. ?he follo!ing information !as available as of &ecember 01, (0A1#

Bo! much net income should be reported in .aul Corp"s income statement for (0A1* A. 8090,000 $. 89(0,000 C. 8540,000 &. 81,050,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

40. .oint Co. purchased 50H of +harpe Corp."s voting stoc% on @anuar 1, (0A( for 87,7:0,000. .rior to the acquisition, .oint held a 10H equit position in +harpe Compan . On @anuar 1, (0A( .oint"s 10H investment in +harpe has a boo% value of 8040,000 and a fair value of 8;(0,000. On @anuar 1, (0A( .oint records the follo!ing# A. &ebit )ain on revaluation of +harpe"s stoc% 8(:0,000 $. Credit )ain on revaluation of +harpe"s stoc% 8(:0,000 C. Credit Investment in +harpe stoc% 87,:;0,000 &. &ebit Investment in +harpe stoc% 8;,(00,000

AACSB: Reflective Thinking AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4

1-04

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

41. ?he length of the measurement period allo!ed to value the assets and liabilities in an acquired business combination starts on the date of acquisition and lasts until# A. All necessar information about the facts of the acquisition is obtained $. All necessar information about the facts of the acquisition is obtained, not to e'ceed one month C. All necessar information about the facts of the acquisition is obtained, not to e'ceed one reporting period D. All necessar information about the facts of the acquisition is obtained, not to e'ceed one ear

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4

4(. /A+$ 1413 ,A+C :07- requires contingent consideration in a business combination to be classified as# A. An asset B. A liabilit or equit C. An asset or equit &. An asset or a liabilit

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4

40. /or all acquired contingencies, the acquirer should do all of the follo!ing e'cept# A. .rovide documentation from the acquirer"s attorne regarding pending la!suits and loan guarantees $. .rovide a description of each contingenc C. &isclose the amount recogni=ed at the acquisition date &. &escribe the estimated range of possible undiscounted outcomes of the contingenc

AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4

1-07

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

44. /A+$ 1413 ,A+C :07- requires that ongoing research and development pro6ects be treated in all of the follo!ing !a s e'cept# A. 3ecorded at acquisition-date fair values $. Classified as intangible assets having indefinite lives C. E'pensed immediatel &. ?ested for impairment periodicall

AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4

1-0;

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Essay Questions

47. On @anuar 1, (0A:, Alas%a Corporation acquired 2ercantile Corporation"s net assets b pa ing 81;0,000 cash. $alance sheet data for the t!o companies and fair value information for 2ercantile Corporation immediatel before the business combination are given belo!#

3equired# .repare the 6ournal entr to record the acquisition of 2ercantile Corporation.

1-09

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Or if the cash paid is reported net of cash received#

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ - e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4

1-0:

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

4;. On @anuar 1, (0A:, 1ine Corporation acquired all of the common stoc% of +taff Compan for 8000,000. On that date, +taff"s identifiable net assets had a fair value of 8(70,000. ?he assets acquired in the purchase of +taff are considered to be a separate reporting unit of 1ine Corporation. ?he carr ing value of +taff"s investment at &ecember 01, (0A:, is 8010,000. ?he fair value of the net assets ,e'cluding good!ill- at that date is 8((0,000 and the fair value of the reporting unit is determined to be (;0,000. 3equired# 1- E'plain ho! good!ill is tested for impairment for a reporting unit. (- &etermine the amount, if an , of impairment loss to be recogni=ed at &ecember 01, (0A:. 1- ?o test for the impairment of good!ill, the fair value of the reporting unit is compared !ith its carr ing amount. If the fair value of the reporting unit e'ceeds its carr ing amount, the good!ill of that reporting unit is considered unimpaired. On the other hand, if the carr ing amount of the reporting unit e'ceeds its fair value, an impairment of the reporting unit"s good!ill is implied. ?he amount of the reporting unit"s good!ill impairment is measured as the e'cess of the carr ing amount of the unit"s good!ill over the implied value of its good!ill. ?he implied value of its good!ill is determined as the e'cess of the fair value of the reporting unit over the fair value of its net assets e'cluding good!ill. (- ?he 8010,000 carr ing value e'ceeds the 8(;0,000 fair value, impl ing impairment. Implied good!ill J 8(;0,000 - 8((0,000 J 840,000. Impairment loss J 870,000 - 840,000 J 810,000.

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-05

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

49. +ea1ine Corporation is involved in the distribution of processed marine products. ?he fair values of assets and liabilities held b three reporting units and other information related to the reporting units o!ned b +ea1ine are as follo!s#

3equired# &etermine the amount of good!ill that +ea1ine should report in its current financial statements.

?otal )ood!ill reported J 890,000

AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the - esence of a +iffe ential. goo+3ill. o a ba gain -! chase element4

1-40