Question 1

At the acquisition date, the contingent consideration is:

Accepted Answer

A) Measured at book value. 
B) Classified either as equity or as a liability. 
C) Classified as equity. 
D) Classified as a liability. 
A) Measured at book value. 
B) Classified either as equity or as a liability. 
C) Classified as equity. 
D) Classified as a liability.

Question 2

Goodwill acquired in a business combination should be tested for impairment once a year.

Accepted Answer

A) True 
 B)False

Question 3

Attridge Ltd. and Ion Ltd. exchanged shares in a business combination. After the share exchange, each company held the same number of voting shares. Which of the following statements is TRUE?

Accepted Answer

A) A number of factors must be considered to determine which company is the acquirer. 
B) There is no acquirer as this is not a proper business combination. 
C) The company with the highest net assets is considered the acquirer. 
D) The companies must ask the courts to decide which company is the acquirer. 
A) A number of factors must be considered to determine which company is the acquirer. 
B) There is no acquirer as this is not a proper business combination. 
C) The company with the highest net assets is considered the acquirer. 
D) The companies must ask the courts to decide which company is the acquirer.

Question 4

Most business combinations are an exchange of equal amounts, given markets in which the parties to the business combinations are informed and willing participants in the transaction. Therefore, the existence of a _____________ is expected to be an unusual or rare event.

Accepted Answer

A) bargain purchase 
B) contingent liability 
C) carryforward 
D) contingent consideration. 
A) bargain purchase 
B) contingent liability 
C) carryforward 
D) contingent consideration.

Question 5

How should the cost of issuing debt (that is subsequently shown at amortized cost)in an acquisition be recognized initially?

Accepted Answer

A) Amortized over the term of the debt. 
B) Deducted from shareholders' equity. 
C) Deducted from the value of the debt. 
D) Expensed. 
A) Amortized over the term of the debt. 
B) Deducted from shareholders' equity. 
C) Deducted from the value of the debt. 
D) Expensed.

Question 6

Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. The liability is initially recognized at book value.

Accepted Answer

A) True 
 B)False

Question 7

Conway Ltd. acquired all the assets and liabilities of Elliott Ltd. by issuing common shares to Elliott. After this transaction, Elliott owned 30% of Conway's outstanding shares. How should Conway record Elliott's assets and liabilities on its books?

Accepted Answer

A) At their fair market value. 
B) At their original cost. 
C) At their net book value. 
D) At their fair market value plus an allocated share of goodwill to each item. 
A) At their fair market value. 
B) At their original cost. 
C) At their net book value. 
D) At their fair market value plus an allocated share of goodwill to each item.

Question 8

There are many forms of business combinations that can occur, such as A acquiring the assets only of B, and B paying off the liabilities and then liquidating.Alternatively, A may acquire all the assets and only some of the liabilities of B, and B pays the remaining liabilities before liquidating. The number of possible arrangements is quite large.
What are the two exceptions where the requirements for accounting for a business combination are not used?

Accepted Answer

There are two exceptions where the requ

Question 9

A business combination could occur without any exchange of ____________ between the entities involved in the exchange.

Accepted Answer

A) assets 
B) assets or equity 
C) liabilities 
D) equity. 
A) assets 
B) assets or equity 
C) liabilities 
D) equity.

Question 10

How should the transaction costs of issuing shares in acquisition be recognized?

Accepted Answer

A) Deducted from shareholders' equity, net of related income tax benefits. 
B) Expensed. 
C) Capitalized as part of the cost of the shares. 
D) Deducted in total from shareholders' equity. 
A) Deducted from shareholders' equity, net of related income tax benefits. 
B) Expensed. 
C) Capitalized as part of the cost of the shares. 
D) Deducted in total from shareholders' equity.

Question 11

Which of the following statements regarding contingent liabilities subsequent to the initial accounting for a business combination is FALSE?

Accepted Answer

A) Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. 
B) The liability is initially recognized at fair value. 
C) Subsequent to acquisition date, the liability is measured as the amount initially recognized less, if appropriate, cumulative amortization recognized. 
D) The liability would be measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. 
A) Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. 
B) The liability is initially recognized at fair value. 
C) Subsequent to acquisition date, the liability is measured as the amount initially recognized less, if appropriate, cumulative amortization recognized. 
D) The liability would be measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

Question 12

Tilman Company paid $360,000 to acquire the net assets of Wilver Company. If the business combination is treated as an acquisition and the fair value of Wilver Company's current assets is $135,000, its plant and equipment is $363,000, and its liabilities are $84,000, Tilman Company's financial statements immediately after the combination will include which additional item due to the acquisition of Wilver Company:

Accepted Answer

A) Negative goodwill of $54,000. 
B) Plant and equipment of $498,000. 
C) Plant and equipment of $414,000. 
D) A gain of $54,000. 
A) Negative goodwill of $54,000. 
B) Plant and equipment of $498,000. 
C) Plant and equipment of $414,000. 
D) A gain of $54,000.

Question 13

The transaction costs of issuing shares in an acquisition are expensed.

Accepted Answer

A) True 
 B)False

Question 14

An acquirer can obtain its controlling interest in the acquiree by acquiring further shares and thereby adding to its previously held equity interest.

Accepted Answer

A) True 
 B)False

Question 15

Accounting fees for an acquisition should be deferred and amortized.

Accepted Answer

A) True 
 B)False

Question 16

Whaley Company assigned goodwill of $60,000 to one of the reporting divisions of Rory company when it initially acquired it. Four years later the following information for this division follows: $\begin{array}{|l|r|r|}\hline&\text { Carrying Amount }&\text { Fair value}\
\hline \text { Cash } & \$ 20,000 & \$ 20,000 \
\hline \text { Inventory } & 35,000 & 40,000 \
\hline \text { Equipment } & 125,000 & 160,000 \
\hline \text { Goodwill } & 60,000 & \
\hline \text { Accounts Payable } & 30,000 & 30,000 \
\hline
\end{array}$ Based on the preceding information, what amount of goodwill will be reported for this division if its fair value of the division is now determined to be $200,000?

Accepted Answer

A) $0 
B) $60,000 
C) $30,000 
D) $10,000 
A) $0 
B) $60,000 
C) $30,000 
D) $10,000

Question 17

The acquisition-related costs associated with a business combination are accounted for as ____________ in the periods in which they are incurred and the services are received.

Accepted Answer

A) liabilities 
B) expenses 
C) equity 
D) goodwill 
A) liabilities 
B) expenses 
C) equity 
D) goodwill

Question 18

A may issue its shares to acquire the shares of B. However, because of the greater number of A shares given to the former B shareholders relative to those held by the shareholders in A before the combination, the former shareholders in B may have the majority of shares in A and be able to determine the operating and financial policies of the combined entities. This is known as a:

Accepted Answer

A) Reverse acquisition. 
B) Goodwill gesture. 
C) Hostile takeover. 
D) Contingent consideration. 
A) Reverse acquisition. 
B) Goodwill gesture. 
C) Hostile takeover. 
D) Contingent consideration.

Question 19

When the future income of the acquiree is regarded as uncertain, the agreement may contain a clause that requires the acquirer to provide additional consideration to the acquiree if the income of the acquiree exceeds a specified amount over some specified period. For example, A may agree to pay $100,000 to acquire B and promise to pay an additional $50,000 in two years if B earns at least $100,000 for the next two years. A is concerned that the owners of B are integral to the success of B and may not stay involved if they receive full payment immediately. This is an example of:

Accepted Answer

A) goodwill. 
B) contingent consideration. 
C) monetary assets. 
D) intangible assets. 
A) goodwill. 
B) contingent consideration. 
C) monetary assets. 
D) intangible assets.

Question 20

The acquirer is usually the entity that has the largest minority voting interest in an entity that has a widely dispersed ownership.

Accepted Answer

A) True 
 B)False

At the acquisition date, the contingent consideration is:

Goodwill acquired in a business combination should be tested for impairment once a year.

Attridge Ltd. and Ion Ltd. exchanged shares in a business combination. After the share exchange, each company held the same number of voting shares. Which of the following statements is TRUE?

Most business combinations are an exchange of equal amounts, given markets in which the parties to the business combinations are informed and willing participants in the transaction. Therefore, the existence of a _____________ is expected to be an unusual or rare event.

How should the cost of issuing debt (that is subsequently shown at amortized cost)in an acquisition be recognized initially?

Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. The liability is initially recognized at book value.

Conway Ltd. acquired all the assets and liabilities of Elliott Ltd. by issuing common shares to Elliott. After this transaction, Elliott owned 30% of Conway's outstanding shares. How should Conway record Elliott's assets and liabilities on its books?

A business combination could occur without any exchange of ____________ between the entities involved in the exchange.

How should the transaction costs of issuing shares in acquisition be recognized?

Which of the following statements regarding contingent liabilities subsequent to the initial accounting for a business combination is FALSE?

The transaction costs of issuing shares in an acquisition are expensed.

An acquirer can obtain its controlling interest in the acquiree by acquiring further shares and thereby adding to its previously held equity interest.

Accounting fees for an acquisition should be deferred and amortized.

The acquisition-related costs associated with a business combination are accounted for as ____________ in the periods in which they are incurred and the services are received.

The acquirer is usually the entity that has the largest minority voting interest in an entity that has a widely dispersed ownership.

Accounting for Investments

Consolidation: Wholly Owned Subsidiaries

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Currency

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters

Exam 2: Business Combinations

At the acquisition date, the contingent consideration is:

Goodwill acquired in a business combination should be tested for impairment once a year.

Attridge Ltd. and Ion Ltd. exchanged shares in a business combination. After the share exchange, each company held the same number of voting shares. Which of the following statements is TRUE?

Most business combinations are an exchange of equal amounts, given markets in which the parties to the business combinations are informed and willing participants in the transaction. Therefore, the existence of a _____________ is expected to be an unusual or rare event.

How should the cost of issuing debt (that is subsequently shown at amortized cost)in an acquisition be recognized initially?

Having recognized any contingent liabilities of the acquiree as liabilities, the acquirer must then determine a subsequent measurement for the liability. The liability is initially recognized at book value.

Conway Ltd. acquired all the assets and liabilities of Elliott Ltd. by issuing common shares to Elliott. After this transaction, Elliott owned 30% of Conway's outstanding shares. How should Conway record Elliott's assets and liabilities on its books?

A business combination could occur without any exchange of ____________ between the entities involved in the exchange.

How should the transaction costs of issuing shares in acquisition be recognized?

Which of the following statements regarding contingent liabilities subsequent to the initial accounting for a business combination is FALSE?

The transaction costs of issuing shares in an acquisition are expensed.

An acquirer can obtain its controlling interest in the acquiree by acquiring further shares and thereby adding to its previously held equity interest.

Accounting fees for an acquisition should be deferred and amortized.

The acquisition-related costs associated with a business combination are accounted for as ____________ in the periods in which they are incurred and the services are received.

The acquirer is usually the entity that has the largest minority voting interest in an entity that has a widely dispersed ownership.

Accounting for Investments

Consolidation: Wholly Owned Subsidiaries

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Currency

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters