Exam 4: Introduction to Business Combinations

Press Company acquired 100% of the outstanding common stock of Stamp Company. Press gave 40,000 shares of its $1 par value common stock as consideration. Stamp's net assets have a book value of $800,000 and a current value of $850,000. (Press's common stock had a market value of $22 per share when the business combination occurred.) Required: Record the entries that would be made on each company's books as a result of this transaction.

In pooling of interests accounting, goodwill is reported, if present.

_____ In a business combination in which the target company's common stock becomes owned by the other company, which of the following always occurs, arises, or results?

_____ A nontaxable transaction usually occurs in

In purchase accounting, an account called Investment in Subsidiary is always used.

In a statutory merger, a new corporation is created-no corporation's legal existence is terminated.

To avoid potential unrecorded liabilities, the acquiring company should acquire assets instead of common stock.

Goodwill can never be charged directly to stockholders' equity.

In purchase accounting, the target company never makes any entries on its books as a result of the combination.

To avoid reporting goodwill, the acquiring company should acquire the target company's assets instead of its common stock.

The only type of business combination currently allowed is called a(n) ________________________________________.

Goodwill is never reported in a pooling of interests.

When common stock is acquired, the target company never makes any entries on its books as a result of the combination.

In pooling of interests accounting (no longer allowed), a nontaxable transaction usually resulted.

In purchase accounting, a parent-subsidiary relationship is always created.

In purchase accounting, the type of consideration given is irrelevant.

A nontaxable business combination has ramifications only to the seller(s) -not to the buyer.

_____ In a business combination in which the assets of the target company are acquired, which of the following cannot occur, arise, or result?

_____ Under purchase accounting, which of the following items must occur:

_____ In purchase accounting, whether to continue with the old basis of accounting or use the new basis of accounting depends on whether