Exam 4: Introduction to Business Combinations

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

Goodwill can be amortized or not amortized, depending on management's judgment.

In a statutory merger, the legal existence of the target company is terminated.

_____ Under purchase accounting,

In purchase accounting, a common-stock-for-common-stock exchange must occur.

In a statutory consolidation, a new corporation is created-the legal existence of each combining company is terminated.

FAS 141 does not concern itself with how the target company (or its stockholders) account for the disposal of their interests.

_____ FAS 141 applies to accounting for the transaction by the

In business combinations, buyers are usually motivated more by financial reporting consequences than are sellers.

In purchase accounting, a new basis of accounting is established for the target company's assets.

The type of tax treatment that almost always occurs in a pooling of interests is _______________________________________ treatment.

In business combinations, sellers are usually motivated more by income tax considerations than are buyers.

_____ A change in basis of accounting for assets and liabilities occurs in

In purchase accounting, the primary consideration given must be cash

_____ The target company's outstanding common stock must be acquired in

In business combinations, sellers are usually motivated more by financial reporting consequences than are buyers.

In pooling of interests accounting, a new basis of accounting is established for the assets of the two combining companies.

Goodwill is always reported in purchase accounting.

_____ A new corporation is created, and no corporation's legal existence is terminated in a

Pence Company is considering acquiring the business of Schilling Company. For simplicity, assume that Schilling's only asset is land that has a book value of $400,000 and a current value of $520,000. Schilling's only liability is $80,000 of accounts payable. Assume that Pence intends to give $560,000 cash as consideration. Required: Record the entries that would be made on Pence's books and on Schilling's books under the following assumptions: a. Pence acquires 100% of Schilling's outstanding common stock. b. Pence acquires all the assets of Schilling and assumes responsibility for Schilling's liabilities of $80,000.