Question 1

Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

Accepted Answer

A) Senior executive's estimates 
B) Financial analyst forecasts 
C) Market value 
D) The present value of future cash flows discounted at the firm's cost of capital 
A) Senior executive's estimates 
B) Financial analyst forecasts 
C) Market value 
D) The present value of future cash flows discounted at the firm's cost of capital

Question 2

The balance sheets of Palisade Company and Salisbury Corporation were as follows on December 31,2010:
   On January 1,2011 Palisade issued 30,000 of its shares with a market value of $40 per share in exchange for all of Salisbury's shares,and Salisbury was dissolved.Palisade paid $20,000 to register and issue the new common shares.It cost Palisade $50,000 in direct combination costs.Book values equal market values except that Salisbury's land is worth $250,000.
Required:
Prepare a Palisade balance sheet after the business combination on January 1,2011.

Accepted Answer

The balance sheet for Palisade Corporati

Question 3

In a business combination,which of the following will occur?

Accepted Answer

A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition. 
B) All identifiable assets and liabilities are recorded at book value at the date of acquisition. 
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. 
D) None of the above is correct. 
A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition. 
B) All identifiable assets and liabilities are recorded at book value at the date of acquisition. 
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired. 
D) None of the above is correct.

Question 4

In reference to international accounting for goodwill,U.S.companies have complained that past U.S.accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners.Why?

Accepted Answer

A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules. 
B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules. 
C) Previous rules did not permit the recording of goodwill,thus resulting in a lower asset base than international counterparts would recognize. 
D) All of the above are correct. 
A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules. 
B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules. 
C) Previous rules did not permit the recording of goodwill,thus resulting in a lower asset base than international counterparts would recognize. 
D) All of the above are correct.

Question 5

At December 31,2011,Pandora Incorporated issued 40,000 shares of its $20 par common stock for all the outstanding shares of the Sophocles Company.In addition,Pandora agreed to pay the owners of Sophocles an additional $200,000 if a specific contract achieved the profit levels that were targeted by the owners of Sophocles in their sale agreement.The fair value of this amount,with an agreed likelihood of occurrence and discounted to present value,is $160,000.In addition,Pandora paid $10,000 in stock issue costs,$40,000 in legal fees,and $48,000 to employees who were dedicated to this acquisition for the last three months of the year.Summarized balance sheet and fair value information for Sophocles immediately prior to the acquisition follows.
   Required:
1.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $35 at the date of acquisition and Sophocles dissolves as a separate legal entity.
2.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $35 at the date of acquisition and Sophocles continues as a separate legal entity.
3.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $25 at the date of acquisition and Sophocles dissolves as a separate legal entity.
4.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $25 at the date of acquisition and Sophocles survives as a separate legal entity.

Accepted Answer

1.At $35 per share,assuming Sophocles di

Question 6

On December 31,2010,Peris Company acquired Shanta Company's outstanding stock by paying $400,000 cash and issuing 10,000 shares of its own $30 par value common stock,when the market price was $32 per share.Peris paid legal and accounting fees amounting to $35,000 in addition to stock issuance costs of $8,000.Shanta is dissolved on the date of the acquisition.Balance sheet information for Peris and Shanta immediately preceding the acquisition is shown below,including fair values for Shanta's assets and liabilities.
   Required: Determine the consolidated balances which Peris would present on their consolidated balance sheet for the following accounts.
Cash
Inventory
Construction Permits
Goodwill
Notes Payable
Common Stock
Additional Paid in Capital
Retained Earnings

Accepted Answer

Cash = $490,000 + $140,000 - $400,000 -

Question 7

Use the following information to answer the question(s)below.
Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc.and Spot is then dissolved.Polka paid the following costs and expenses related to the business combination:
Costs of special shareholders' meeting
  
-In the business combination of Polka and Spot,

Accepted Answer

A) all of the items listed above are treated as expenses. 
B) all of the items listed above except the cost of registering and issuing the securities are included in the purchase price 
C) the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Spot. 
D) only the costs of closing duplicate facilities,the salaries of Polka's employees assigned to the merger,and the costs of the shareholders' meeting would be treated as expenses. 
A) all of the items listed above are treated as expenses. 
B) all of the items listed above except the cost of registering and issuing the securities are included in the purchase price 
C) the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Spot. 
D) only the costs of closing duplicate facilities,the salaries of Polka's employees assigned to the merger,and the costs of the shareholders' meeting would be treated as expenses.

Question 8

Durer Inc.acquired Sea Corporation in a business combination and Sea Corp went out of existence.Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost.In recording the combination,

Accepted Answer

A) fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp. 
B) Sea Corp's prior expenses to develop the patent are recorded as an asset by Durer at purchase. 
C) the patent is recorded as an asset at fair market value. 
D) the patent's market value increases goodwill. 
A) fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp. 
B) Sea Corp's prior expenses to develop the patent are recorded as an asset by Durer at purchase. 
C) the patent is recorded as an asset at fair market value. 
D) the patent's market value increases goodwill.

Question 9

Bigga Corporation purchased the net assets of Petit,Inc.on January 2,2011 for $380,000 cash and also paid $15,000 in direct acquisition costs.Petit,Inc.was dissolved on the date of the acquisition.Petit's balance sheet on January 2,2011 was as follows:
   Fair values agree with book values except for inventory,land,and equipment,which have fair values of $260,000,$35,000 and $35,000,respectively.Petit has patent rights with a fair value of $20,000.
Required:
Prepare Bigga's general journal entry for the cash purchase of Petit's net assets.

Accepted Answer

General journal entr

Question 10

A business merger differs from a business consolidation because

Accepted Answer

A) a merger dissolves all but one of the prior entities,but a consolidation dissolves all of the prior entities. 
B) a consolidation dissolves all but one of the prior entities,but a merger dissolves all of the prior entities. 
C) a merger is created when two entities join,but a consolidation is created when more than two entities join. 
D) a consolidation is created when two entities join,but a merger is created when more than two entities join. 
A) a merger dissolves all but one of the prior entities,but a consolidation dissolves all of the prior entities. 
B) a consolidation dissolves all but one of the prior entities,but a merger dissolves all of the prior entities. 
C) a merger is created when two entities join,but a consolidation is created when more than two entities join. 
D) a consolidation is created when two entities join,but a merger is created when more than two entities join.

Question 11

On June 30,2011,Stampol Company ceased operations and all of their assets and liabilities were purchased by Postoli Incorporated.Postoli paid $40,000 in cash to the owner of Stampol,and signed a five-year note payable to the owners of Stampol in the amount of $200,000.Their closing balance sheets as of June 30,2011 are shown below.In the purchase agreement,both parties noted that Inventory was undervalued on the books by $10,000,and Pistoli would also take possession of a customer list with a fair value of $18,000.Pistoli paid all legal costs of the acquisition,which amounted to $7,000.
   Required:
1.Prepare the journal entry Postoli would record at the date of acquisition.
2.Prepare the journal entry Stampol would record at the date of acquisition.

Accepted Answer

Postoli's journal entry:
 @#IMG-DLM&_TB1535_00 
*C

Question 12

Pali Corporation exchanges 200,000 shares of newly issued $10 par value common stock with a fair market value of $40 per share for all the outstanding $5 par value common stock of Shingle Incorporated,which continues on as a legal entity.Fair value approximated book value for all assets and liabilities of Shingle.Pali paid the following costs and expenses related to the business combination:
   Required: Prepare the journal entries relating to the above acquisition and payments incurred by Pali,assuming all costs were paid in cash.

Accepted Answer

The answer of Pali Corporation exchanges 200,000 shares of newly...

Question 13

When considering an acquisition,which of the following is NOT a method by which one company may gain control of another company?

Accepted Answer

A) Purchase of the majority of outstanding voting stock of the acquired company. 
B) Purchase of all assets and liabilities of another company. 
C) Purchase the assets,but not necessarily the liabilities,of another company previously in bankruptcy. 
D) All of the above methods result in a company gaining control over another company. 
A) Purchase of the majority of outstanding voting stock of the acquired company. 
B) Purchase of all assets and liabilities of another company. 
C) Purchase the assets,but not necessarily the liabilities,of another company previously in bankruptcy. 
D) All of the above methods result in a company gaining control over another company.

Question 14

Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as

Accepted Answer

A) an expense for the current year. 
B) a prior period adjustment to retained earnings. 
C) additional cost to investment of Slope on the consolidated balance sheet. 
D) a reduction in additional paid-in capital. 
A) an expense for the current year. 
B) a prior period adjustment to retained earnings. 
C) additional cost to investment of Slope on the consolidated balance sheet. 
D) a reduction in additional paid-in capital.

Question 15

Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31,2011.Parrot borrowed $2,000,000 to complete this transaction,in addition to the $640,000 cash that they paid directly.The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below.In addition,Sparrow had a patent that had a fair value of $50,000.
   Required:
1.Prepare Parrot's general journal entry for the acquisition of Sparrow,assuming that Sparrow survives as a separate legal entity.
2.Prepare Parrot's general journal entry for the acquisition of Sparrow,assuming that Sparrow will dissolve as a separate legal entity.

Accepted Answer

1.General journal entry recorded by Parr

Question 16

Following the accounting concept of a business combination,a business combination occurs when a company acquires an equity interest in another entity and has

Accepted Answer

A) at least 20% ownership in the entity. 
B) more than 50% ownership in the entity. 
C) 100% ownership in the entity. 
D) control over the entity,irrespective of the percentage owned. 
A) at least 20% ownership in the entity. 
B) more than 50% ownership in the entity. 
C) 100% ownership in the entity. 
D) control over the entity,irrespective of the percentage owned.

Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

In a business combination,which of the following will occur?

In reference to international accounting for goodwill,U.S.companies have complained that past U.S.accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners.Why?

Durer Inc.acquired Sea Corporation in a business combination and Sea Corp went out of existence.Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost.In recording the combination,

A business merger differs from a business consolidation because

When considering an acquisition,which of the following is NOT a method by which one company may gain control of another company?

Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as

Following the accounting concept of a business combination,a business combination occurs when a company acquires an equity interest in another entity and has

Stock Investments Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

Derivatives and Foreign Currency: Concepts and Common Transactions

Accounting for Derivatives and Hedging Activities

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters

Exam 1: Business Combinations

Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

In a business combination,which of the following will occur?

In reference to international accounting for goodwill,U.S.companies have complained that past U.S.accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners.Why?

Durer Inc.acquired Sea Corporation in a business combination and Sea Corp went out of existence.Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost.In recording the combination,

A business merger differs from a business consolidation because

When considering an acquisition,which of the following is NOT a method by which one company may gain control of another company?

Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as

Following the accounting concept of a business combination,a business combination occurs when a company acquires an equity interest in another entity and has

Stock Investments Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

Derivatives and Foreign Currency: Concepts and Common Transactions

Accounting for Derivatives and Hedging Activities

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters