Question 1

Which of the following statements is true?

Accepted Answer

A) The pooling of interests for business combinations is an alternative to the acquisition method. 
B) The purchase method for business combinations is an alternative to the acquisition method. 
C) Neither the purchase method nor the pooling of interests method is allowed for new business combinations. 
D) Any previous business combination originally accounted for under purchase or pooling of interests accounting method will now be accounted for under the acquisition method of accounting for business combinations. 
E) Companies previously using the purchase or pooling of interests accounting method must report a change in accounting principle when consolidating those subsidiaries with new acquisition combinations. 
A) The pooling of interests for business combinations is an alternative to the acquisition method. 
B) The purchase method for business combinations is an alternative to the acquisition method. 
C) Neither the purchase method nor the pooling of interests method is allowed for new business combinations. 
D) Any previous business combination originally accounted for under purchase or pooling of interests accounting method will now be accounted for under the acquisition method of accounting for business combinations. 
E) Companies previously using the purchase or pooling of interests accounting method must report a change in accounting principle when consolidating those subsidiaries with new acquisition combinations.

Question 2

REFERENCE: 02-02
Prior to being united in a business combination,Botkins Inc.and Volkerson Corp.had the following stockholders' equity figures: $$\begin{array} { l r r r } 
& { \text { Botkins } } & & \text { Volkerson } \
 \text { Common stock (\$1 par value) } & \$ 220,000 & & \$ 54,000 \
\text { Additional paid-in capital } & 110,000 & & 25,000 \
\text { Retained earnings } & 360,000 & & 130,000
\end{array}$$ Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson.
-Assume that Botkins acquired Volkerson on January 1,2017 and that Volkerson maintains a separate corporate existence.At what amount did Botkins record the investment in Volkerson?

Accepted Answer

A) $ 56,000. 
B) $182,000. 
C) $209,000. 
D) $261,000. 
E) $312,000. 
A) $ 56,000. 
B) $182,000. 
C) $209,000. 
D) $261,000. 
E) $312,000.

Question 3

REFERENCE: 02-06
The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets.
   Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid.
-Compute consolidated revenues immediately following the acquisition.

Accepted Answer

A) $3,540. 
B) $2,880. 
C) $1,170. 
D) $1,650. 
E) $4,050. 
A) $3,540. 
B) $2,880. 
C) $1,170. 
D) $1,650. 
E) $4,050.

Question 4

The following are preliminary financial statements for Black Co.and Blue Co.for the year ending December 31,2018,prior to Black's acquisition of Blue Co.
   
On December 31,2018 (subsequent to the preceding statements),Black exchanged 10,000 shares of its $10 par value common stock for all of the outstanding shares of Blue.Black's stock on that date has a fair value of $50 per share.Black was willing to issue 10,000 shares of stock because Blue's land was appraised at $204,000.Black also paid $14,000 to attorneys and accountants who assisted in creating this combination.
Required:
Assuming that these two companies retained their separate legal identities,prepare a consolidation worksheet as of December 31,2018.

Accepted Answer

Bargain Purchase Acq

Question 5

REFERENCE: 02-10
The financial statements for Jode Inc.and Lakely Corp. ,just prior to their combination,for the year ending December 31,2017,follow.Lakely's buildings were undervalued on its financial records by $60,000.
   On December 31,2017,Jode issued 54,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Lakely.Jode's shares had a fair value on that date of $35 per share.Jode paid $34,000 to an investment bank for assisting in the arrangements.Jode also paid $24,000 in stock issuance costs to effect the acquisition of Lakely.Lakely will retain its incorporation.
-Prepare the journal entries to record: (1)the issuance of stock by Jode;and (2)the payment of the combination costs.

Accepted Answer

Entry One - To record the issuance of co

Question 6

REFERENCE: 02-07
Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31,2017,immediately before Boxwood acquired Tranz.Also included are the fair values for Tranz Company's net assets at that date.
   Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31,2017.Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid to effect this acquisition transaction.To settle a difference of opinion regarding Tranz's fair value,Boxwood promises to pay an additional $5.2 (in thousands)to the former owners if Tranz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands).
-Compute consolidated inventory immediately following the acquisition.

Accepted Answer

A) $1,650. 
B) $1,810. 
C) $1,230. 
D) $ 580. 
E) $1,830. 
A) $1,650. 
B) $1,810. 
C) $1,230. 
D) $ 580. 
E) $1,830.

Question 7

Which of the following is a not a reason for a business combination to take place?

Accepted Answer

A) Cost savings through elimination of duplicate facilities. 
B) Quick entry for new and existing products into domestic and foreign markets. 
C) Diversification of business risk. 
D) Vertical integration. 
E) Increase in stock price of the acquired company. 
A) Cost savings through elimination of duplicate facilities. 
B) Quick entry for new and existing products into domestic and foreign markets. 
C) Diversification of business risk. 
D) Vertical integration. 
E) Increase in stock price of the acquired company.

Question 8

How are stock issuance costs accounted for in an acquisition business combination?

Accepted Answer

Stock issuance costs reduce th

Question 9

REFERENCE: 02-05
Carnes has the following account balances as of December 31,2017 before an acquisition transaction takes place.
The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On December 31,2017,Riley Company issues 30,000 shares of its $10 par value ($25 fair value)common stock in exchange for all of the shares of Carnes' common stock.Riley paid $10,000 for costs to issue the new shares of stock.Before the acquisition,Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.
 $$\begin{array} { l r } 
\text { Inventory } & \$ 100,000 \
\text { Land } & 400,000 \
\text { Buildings (net) } & 500,000 \
\text { Common stock (\$10 par) } & 600,000 \
\text { Additional paid-in capital } & 200,000 \
\text { Retained Earnings } & 200,000 \
\text { Revenues } & 450,000 \
\text { Expenses } & 250,000
\end{array}$$
-At the date of acquisition,by how much does Riley's additional paid-in capital increase or decrease?

Accepted Answer

A) $ 0. 
B) $440,000 increase. 
C) $450,000 increase. 
D) $640,000 increase. 
E) $650,000 decrease. 
A) $ 0. 
B) $440,000 increase. 
C) $450,000 increase. 
D) $640,000 increase. 
E) $650,000 decrease.

Question 10

REFERENCE: 02-06
The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets.
   Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid.
-Compute consolidated expenses immediately following the acquisition.

Accepted Answer

A) $2,760. 
B) $2,770. 
C) $2,785. 
D) $3,380. 
E) $3,390. 
A) $2,760. 
B) $2,770. 
C) $2,785. 
D) $3,380. 
E) $3,390.

Question 11

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of $500,000 for all of the outstanding shares of Vicker in an acquisition business combination.What will be the balance in the consolidated Inventory and Land accounts?

Accepted Answer

A) $440,000,$496,000. 
B) $440,000,$520,000. 
C) $425,000,$505,000. 
D) $400,000,$500,000. 
E) $427,000,$510,000. 
A) $440,000,$496,000. 
B) $440,000,$520,000. 
C) $425,000,$505,000. 
D) $400,000,$500,000. 
E) $427,000,$510,000.

Question 12

REFERENCE: 02-07
Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31,2017,immediately before Boxwood acquired Tranz.Also included are the fair values for Tranz Company's net assets at that date.
   Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31,2017.Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid to effect this acquisition transaction.To settle a difference of opinion regarding Tranz's fair value,Boxwood promises to pay an additional $5.2 (in thousands)to the former owners if Tranz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands).
-Compute consolidated buildings (net)immediately following the acquisition.

Accepted Answer

A) $2,450. 
B) $2,340. 
C) $1,800. 
D) $ 650. 
E) $1,690. 
A) $2,450. 
B) $2,340. 
C) $1,800. 
D) $ 650. 
E) $1,690.

Question 13

REFERENCE: 02-07
Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31,2017,immediately before Boxwood acquired Tranz.Also included are the fair values for Tranz Company's net assets at that date.
   Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31,2017.Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid to effect this acquisition transaction.To settle a difference of opinion regarding Tranz's fair value,Boxwood promises to pay an additional $5.2 (in thousands)to the former owners if Tranz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands).
-Compute the investment to be recorded at the date of acquisition.

Accepted Answer

A) $1,750. 
B) $1,755. 
C) $1,725. 
D) $1,760. 
E) $1,765. 
A) $1,750. 
B) $1,755. 
C) $1,725. 
D) $1,760. 
E) $1,765.

Question 14

REFERENCE: 02-03
The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,2018,prior to the business combination whereby Goodwin acquired Corr,are as follows (in thousands): $\begin{array}{lrr}
\text { Revenues } & \$ 2,700 & \$ 600 \
\text { Expenses } & \underline{1,980} & \underline{400} \
\text { Net income } & \$ 720&\$ 200\
\
\text { Retained eamings } 1 / 1 & \$ 2,400 & \$ 400 \
\text { Net income } & 720 & 200 \
\text { Dividends } & (270) & (0) \
\quad \text { Retained eamings, } 12 / 31 & \$ 2,850 & \$ 600\
\
\text { Cash } & \$ 240 & \$ 220 \
\text { Receivables and inv entory } & 1,200 & 340 \
\text { Buildings (net) } & 2,700 & 600 \
\text { Equipment (net) } & 2,100 & \underline{1,200} \
\quad \text { Total assets } & \$ \underline{\underline{6,240}} & \$ \underline{\underline{2,360}} \
\
\text { Liabilities } & \$ 1,500 & \$ 820 \
\text { Common stock } & 1,080 & 400 \
\text { Additional paid-in capital } & 810 & 540 \
\text { Retained earnings } & 2,850 & \underline{600} \
\quad \text { Total liabilities \& stockholders' equity } & \$ \underline{\underline{6,240}} & \$ \underline{\underline{2,360}}
\end{array}$
 On December 31,2018,Goodwin obtained a loan for $600 and used the proceeds,along with the transfer of 30 shares of its $10 par value common stock,in exchange for all of Corr's common stock.At the time of the transaction,Goodwin's common stock had a fair value of $40 per share.
In connection with the business combination,Goodwin paid $25 to a broker for arranging the transaction and $35 in stock issuance costs.At the time of the transaction,Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Assuming that Corr retains a separate corporate existence after this acquisition,at what amount is the investment recorded on Goodwin's books?

Accepted Answer

A) $1,540. 
B) $1,800. 
C) $1,860. 
D) $1,825. 
E) $1,625. 
A) $1,540. 
B) $1,800. 
C) $1,860. 
D) $1,825. 
E) $1,625.

Question 15

REFERENCE: 02-06
The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets.
   Note: Parenthesis indicate a credit balance
Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid.
-Compute consolidated inventory at the date of the acquisition.

Accepted Answer

A) $1,650. 
B) $1,810. 
C) $1,230. 
D) $ 580. 
E) $1,830. 
A) $1,650. 
B) $1,810. 
C) $1,230. 
D) $ 580. 
E) $1,830.

Question 16

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting,which of the following should the acquirer consider when determining fair value?

Accepted Answer

A) Only assets received by the acquirer. 
B) Only consideration transferred by the acquirer. 
C) The consideration transferred by the acquirer plus the fair value of assets received less liabilities assumed. 
D) The par value of stock transferred by the acquirer,and the book value of identifiable assets transferred by the entity acquired. 
E) The book value of identifiable assets transferred to the acquirer as part of the business combination less any liabilities assumed. 
A) Only assets received by the acquirer. 
B) Only consideration transferred by the acquirer. 
C) The consideration transferred by the acquirer plus the fair value of assets received less liabilities assumed. 
D) The par value of stock transferred by the acquirer,and the book value of identifiable assets transferred by the entity acquired. 
E) The book value of identifiable assets transferred to the acquirer as part of the business combination less any liabilities assumed.

Which of the following statements is true?

Which of the following is a not a reason for a business combination to take place?

How are stock issuance costs accounted for in an acquisition business combination?

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting,which of the following should the acquirer consider when determining fair value?

The Equity Method of Accounting for Investments

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, part I

Accounting for State and Local Governments, part II

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Exam 2: Consolidation of Financial Information

Which of the following statements is true?

Which of the following is a not a reason for a business combination to take place?

How are stock issuance costs accounted for in an acquisition business combination?

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting,which of the following should the acquirer consider when determining fair value?

The Equity Method of Accounting for Investments

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, part I

Accounting for State and Local Governments, part II

Filters