Question 1

A tax advantage of business combination can occur when the existing owner of a company sells out and receives:​

Accepted Answer

A) ​cash to defer the taxable gain as a "tax-free reorganization." 
B) ​stock to defer the taxable gain as a "tax-free reorganization." 
C) ​cash to create a taxable gain. 
D) ​stock to create a taxable gain. 
A) ​cash to defer the taxable gain as a "tax-free reorganization." 
B) ​stock to defer the taxable gain as a "tax-free reorganization." 
C) ​cash to create a taxable gain. 
D) ​stock to create a taxable gain. B

Question 2

One large bank's acquisition of another bank would be an example of a:​

Accepted Answer

A) ​market extension merger. 
B) ​conglomerate merger. 
C) ​product extension merger. 
D) ​horizontal merger. 
A) ​market extension merger. 
B) ​conglomerate merger. 
C) ​product extension merger. 
D) ​horizontal merger. D

Question 3

Which of the following income factors should not be considered in expected future income when estimating the value of goodwill?​

Accepted Answer

A) ​sales for the period 
B) ​income tax expense 
C) ​extraordinary items 
D) ​cost of goods sold 
A) ​sales for the period 
B) ​income tax expense 
C) ​extraordinary items 
D) ​cost of goods sold C

Question 4

Polk issues common stock to acquire all the assets of the Sam Company on January 1, 2016.There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 2016 and 2017, additional shares will be issued on January 1, 2018.The impact of issuing the additional shares is to

Accepted Answer

A) ​increase the price assigned to fixed assets. 
B) ​have no effect on asset values, but to reassign the amounts assigned to equity accounts. 
C) ​reduce retained earnings. 
D) ​record additional goodwill. 
A) ​increase the price assigned to fixed assets. 
B) ​have no effect on asset values, but to reassign the amounts assigned to equity accounts. 
C) ​reduce retained earnings. 
D) ​record additional goodwill.

Question 5

On January 1, 2016, Zebb and Nottle Companies had condensed balance sheets as shown below:
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 $\begin{array}{lrr}
&\text { Zebb }&\text { Nottle }\
& \underline{\text { Company }} & \underline{\text { Company }} \
\text { Current Assets } & \$ 1,000,000 & \$ 600,000 \
\text { Plant and Equipment } & \underline{1,500,000} & \underline{800,000}\
&\$2,500,000&\$1,400,000\
\
\text { Current Liabilities } & \$ 200,000 & \$ 100,000 \
\text { Long-Term Debt } & 300,000 & 300,000 \
\text { Common Stock, } \$ 10 \text { par } & 1,400,000 & 400,000 \
\text { Paid-in Capital in Excess of Par } & 0 & 100,000 \
\text { Retained Earnings } &  \underline{600,000} & \underline{500,000} \
& \underline{\$2,500,000} &  \underline{\$ 1,400,000 }
\end{array}$ Required:
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Record the acquisition of Nottle's net assets, the issuance of the stock and/or payment of cash, and payment of the related costs.Assume that Zebb issued 30,000 shares of new common stock with a fair value of $25 per share and paid $500,000 cash for all of the net assets of Nottle.Acquisition costs of $50,000 and stock issuance costs of $20,000 were paid in cash.Current assets had a fair value of $650,000, plant and equipment had a fair value of $900,000, and long-term debt had a fair value of $330,000.
?

Accepted Answer

*alternative treatment: debit Paid-in Ca

Question 6

Which of the following costs of a business combination can be deducted from the value assigned to paid-in capital in excess of par?

Accepted Answer

A) ​Direct and indirect acquisition costs. 
B) ​Direct acquisition costs. 
C) ​Direct acquisition costs and stock issue costs if stock is issued as consideration. 
D) ​Stock issue costs if stock is issued as consideration. 
A) ​Direct and indirect acquisition costs. 
B) ​Direct acquisition costs. 
C) ​Direct acquisition costs and stock issue costs if stock is issued as consideration. 
D) ​Stock issue costs if stock is issued as consideration.

Question 7

Jones Company acquired Jackson Company for $2,000,000 cash.At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively.If Jackson meets specified sales targets, Jones is required to pay an additional $200,000 in cash per the acquisition agreement.Jones estimates the probability of this to be 50%.The direct costs related to the acquisition were $50,000.What was the amount of the goodwill related to the acquisition?​

Accepted Answer

A) ​$900,000 
B) ​$950,000 
C) ​$850,000 
D) ​$750,000 
A) ​$900,000 
B) ​$950,000 
C) ​$850,000 
D) ​$750,000

Question 8

Goodwill results when:​

Accepted Answer

A) ​a controlling interest is acquired. 
B) ​the price of the acquisition exceeds the sum of the fair values of the net identifiable assets acquired. 
C) ​the fair value of net assets acquired exceeds the acquisition price. 
D) ​the price of the acquisition exceeds the book value of an acquired company. 
A) ​a controlling interest is acquired. 
B) ​the price of the acquisition exceeds the sum of the fair values of the net identifiable assets acquired. 
C) ​the fair value of net assets acquired exceeds the acquisition price. 
D) ​the price of the acquisition exceeds the book value of an acquired company.

Question 9

ACME Co.paid $110,000 for the net assets of Comb Corp.At the time of the acquisition the following information was available related to Comb's balance sheet:
$$\begin{array} { l r r } 
& \text { Book Value } & \text { Fair Value } \
\text { Current Assets } & \$ 50,000 & \$ 50,000 \
\text { Building } & 80,000 & 100,000 \
\text { Equipment } & 40,000 & 50,000 \
\text { Liabilities } & 30,000 & 30,000
\end{array}$$ What is the amount recorded by ACME for the Building

Accepted Answer

A) $110,000 
B) $20,000 
C) $80,000 
D) $100,000 
A) $110,000 
B) $20,000 
C) $80,000 
D) $100,000

Question 10

ABC Co.is acquiring XYZ Inc.XYZ has the following intangible assets: 
Patent on a product that is deemed to have no useful life $ \$ 10,000 $.
Customer list with an observable fair value of $ \$ 50,000 $.
A 5-year operating lease with favorable terms having a discounted present value of $ \$ 8,000 $.
Identifiable research and development costs of $ \$ 100,000 $.
 ABC will record how much for acquired Intangible Assets from the purchase of XYZ Inc?

Accepted Answer

A) $168,000 
B) $58,000 
C) $158,000 
D) $150,000 
A) $168,000 
B) $58,000 
C) $158,000 
D) $150,000

Question 11

Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are

Accepted Answer

A) ​recorded as a deferred asset and amortized over a period not to exceed 15 years 
B) ​expensed if immaterial but capitalized and amortized if over 2% of the acquisition price 
C) ​expensed in the period of the purchase 
D) ​included as part of the price paid for the company purchased 
A) ​recorded as a deferred asset and amortized over a period not to exceed 15 years 
B) ​expensed if immaterial but capitalized and amortized if over 2% of the acquisition price 
C) ​expensed in the period of the purchase 
D) ​included as part of the price paid for the company purchased

Question 12

ACME Co.paid $110,000 for the net assets of Comb Corp.At the time of the acquisition the following information was available related to Comb's balance sheet: 
$$\begin{array} { l r r } 
& \text { Book Value } & \text { Fair Value } \
\text { Current Assets } & \$ 50,000 & \$ 50,000 \
\text { Building } & 80,000 & 100,000 \
\text { Equipment } & 40,000 & 50,000 \
\text { Liabilities } & 30,000 & 30,000
\end{array}$$ What is the amount of goodwill or gain related to the acquisition??

Accepted Answer

A) Goodwill of $70,000 
B) Goodwill of $30,000 
C) A gain of $30,000 
D) A gain of $70,000 
A) Goodwill of $70,000 
B) Goodwill of $30,000 
C) A gain of $30,000 
D) A gain of $70,000

Question 13

When measuring the fair value of the acquired company as the price paid by the acquirer, the price calculation needs to consider the following EXCEPT for:​

Accepted Answer

A) ​the estimated value of contingent consideration like assets or stock at a later date if specified events occur like targeted sales or income performance 
B) ​the costs of accomplishing the acquisition, such as accounting and legal fees 
C) ​common agreements like targeted sales or income performance by the acquire company are acceptable for valuation 
D) ​issue costs from the stock of the acquirer may be expensed or they can be deducted from the value assigned to paid-in capital in excess of par only 
A) ​the estimated value of contingent consideration like assets or stock at a later date if specified events occur like targeted sales or income performance 
B) ​the costs of accomplishing the acquisition, such as accounting and legal fees 
C) ​common agreements like targeted sales or income performance by the acquire company are acceptable for valuation 
D) ​issue costs from the stock of the acquirer may be expensed or they can be deducted from the value assigned to paid-in capital in excess of par only

Question 14

Poplar Corp.acquires the net assets of Sapling Company, which has the following balance sheet:
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 $$\begin{array} { l r } 
\text { Accounts Receivable } & \$ 50,000 \
\text { Inventory } & 80,000 \
\text { Equipment, Net } & 50,000 \
\text { Land \& Building, Net } & \$ 120,000 \
\text { Total Assets } & \$ 300,000 \\
\text { Bonds Payable } & \$ 90,000 \
\text { Common Stock } & 100,000 \
\text { Retained Earnings } & \underline { 110,000 } \
\text { Total Liabilities and Stockholders' Equity } & \$ 300,000
\end{array}$$ Fair values on the date of acquisition:
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 $$\begin{array} { l r } 
\text { Accounts receivable } & \$ 50,000 \
\text { Inventory } & 100,000 \
\text { Equipment } & 30,000 \
\text { Land and building } & 180,000 \
\text { Customer list } & 30,000 \
\text { B onds payable } & 100,000 \
\text { Acquisition costs: } & \$ 10,000
\end{array}$$ If Poplar paid $300,000 what journal entries would be recorded by both Poplar Corp.and Sapling Company?
?

Accepted Answer

None

Question 15

On January 1, 2016, Honey Bee Corporation purchased the net assets of Green Hornet Company for $1,500,000.On this date, a condensed balance sheet for Green Hornet showed:
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 $\begin{array}{lrr}
& \text { Book } & \text { Fair } \
& \text { Value } & \text { Value } \
\text { Current Assets } & \$ 500,000 & \$ 800,000 \
\text { Long-Term Investments in Securities } & 200,000 & 150,000 \
\text { Land } & 100,000 & 600,000 \
\text { Buildings (net) } & \underline{700,000} & 900,000\
&\$1,500,000\
\
\text { Current Liabilities } & \$ 300,000 & \$ 300,000 \
\text { Long-Term Debt } & 550,000 & 600,000 \
\text { Common Stock (no-par) } & 300,000 & \
\text { Retained Earnings } & 350,000 & \
& \$ \underline{1,500,000} & 
\end{array}$ Required:
?
Record the entry on Honey Bee's books for the acquisition of Green Hornet's net assets.?

Accepted Answer

None

Question 16

Jones company acquired Jackson Company for $2,000,000 cash.At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively.Jackson also had in-process research and development projects valued at $150,000 and its pension plan's projected benefit obligation exceeded the plan assets by $50,000.What was the amount of the goodwill related to the acquisition?​

Accepted Answer

A) ​$750,000 
B) ​$50,000 
C) ​$250,000 
D) ​$650,000 
A) ​$750,000 
B) ​$50,000 
C) ​$250,000 
D) ​$650,000

Question 17

Balter Inc.acquired Jersey Company on January 1, 2016.When the purchase occurred Jersey Company had the following information related to fixed assets: 
$$\begin{array} { l r } 
\text { Land } & \$ 80,000 \
\text { Building } & 200,000 \
\text { Accumulated Depreciation } & ( 100,000 ) \
\text { Equipment } & 100,000 \
\text { Accumulated Depreciation } & ( 50,000 )
\end{array}$$ The building has a 10-year remaining useful life and the equipment has a 5-year remaining useful life.The fair value of the assets on that date were:

$$\begin{array} { l r } 
\text { Land } & \$ 100,000 \
\text { Building } & 130,000 \
\text { Equipment } & 75,000
\end{array}$$ What is the 2016 depreciation expense Balter will record related to purchasing Jersey Company

Accepted Answer

A) $8,000 
B) $15,000 
C) $28,000 
D) $30,000 
A) $8,000 
B) $15,000 
C) $28,000 
D) $30,000

Question 18

A contingent liability of an acquiree

Accepted Answer

A) ​refers to future consideration due that is part of the acquisition agreement. 
B) ​is recorded when it is probable that future events will confirm its existence. 
C) ​may be recorded beyond the measurement period under certain circumstances. 
D) ​should be recorded even if the amount cannot be reasonably estimated. 
A) ​refers to future consideration due that is part of the acquisition agreement. 
B) ​is recorded when it is probable that future events will confirm its existence. 
C) ​may be recorded beyond the measurement period under certain circumstances. 
D) ​should be recorded even if the amount cannot be reasonably estimated.

Question 19

Orbit Inc.purchased Planet Co.on January 1, 2016.At that time an existing patent having a 5-year life was not recorded as a separately identified intangible asset.At the end of fiscal year 2015, it is determined the patent is valued at $20,000, and goodwill has a book value of $100,000.How should intangible assets be reported at the beginning of fiscal year 2016??

Accepted Answer

A) ?Goodwill $100,000 $\quad $$\quad $Patent $0 
B) ?Goodwill $100,000 $\quad $$\quad $Patent $20,000 
C) ?Goodwill $80,000 $\quad $$\quad $Patent $20,000 
D) ?Goodwill $80,000 $\quad $$\quad $Patent $16,000 
A) ?Goodwill $100,000 $\quad $$\quad $Patent $0 
B) ?Goodwill $100,000 $\quad $$\quad $Patent $20,000 
C) ?Goodwill $80,000 $\quad $$\quad $Patent $20,000 
D) ?Goodwill $80,000 $\quad $$\quad $Patent $16,000

Question 20

A controlling interest in a company implies that the parent company​

Accepted Answer

A) ​owns all of the subsidiary's stock. 
B) ​has acquired a majority of the subsidiary's common stock. 
C) ​has paid cash for a majority of the subsidiary's stock. 
D) ​has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures. 
A) ​owns all of the subsidiary's stock. 
B) ​has acquired a majority of the subsidiary's common stock. 
C) ​has paid cash for a majority of the subsidiary's stock. 
D) ​has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures.

A tax advantage of business combination can occur when the existing owner of a company sells out and receives:

One large bank's acquisition of another bank would be an example of a:

Which of the following income factors should not be considered in expected future income when estimating the value of goodwill?

Which of the following costs of a business combination can be deducted from the value assigned to paid-in capital in excess of par?

Goodwill results when:

Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are

When measuring the fair value of the acquired company as the price paid by the acquirer, the price calculation needs to consider the following EXCEPT for:

A contingent liability of an acquiree

A controlling interest in a company implies that the parent company

Consolidated Statements: Date of Acquisition

Consolidated Statements: Subsequent to Acquisition

Intercompany Transactions: Merchandise, Plant Assets, and Notes

Intercompany Transactions: Bonds and Leases

Cash Flow, Eps, and Taxation

Special Issues in Accounting for an Investment in a Subsidiary

Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

The International Accounting Environment

Foreign Currency Transactions

Translation of Foreign Financial Statements

Interim Reporting and Disclosures About Segments of an Enterprise

Partnerships: Characteristics, Formation, and Accounting for Activities

Partnerships: Ownership Changes and Liquidations

Government and Not for Profit Accounting

Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds

Financial Reporting Issues

Accounting for Private Not-For-Profit Organizations

Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations

Estates and Trusts: Their Nature and the Accountants Role

Debt Restructuring, Corporate Reorganizations, and Liquidations

Derivatives and Related Accounting Issues

Equity Method for Unconsolidated Investments

Variable Interest Entities

Filters

Exam 1: Business Combinations: New Rules for a Long-Standing Business Practice

A tax advantage of business combination can occur when the existing owner of a company sells out and receives:​

One large bank's acquisition of another bank would be an example of a:​

Which of the following income factors should not be considered in expected future income when estimating the value of goodwill?​

Which of the following costs of a business combination can be deducted from the value assigned to paid-in capital in excess of par?

Goodwill results when:​

Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are

When measuring the fair value of the acquired company as the price paid by the acquirer, the price calculation needs to consider the following EXCEPT for:​

A contingent liability of an acquiree

A controlling interest in a company implies that the parent company​

Consolidated Statements: Date of Acquisition

Consolidated Statements: Subsequent to Acquisition

Intercompany Transactions: Merchandise, Plant Assets, and Notes

Intercompany Transactions: Bonds and Leases

Cash Flow, Eps, and Taxation

Special Issues in Accounting for an Investment in a Subsidiary

Subsidiary Equity Transactions, Indirect Subsidiary Ownership, and Subsidiary Ownership of Parent Shares

The International Accounting Environment

Foreign Currency Transactions

Translation of Foreign Financial Statements

Interim Reporting and Disclosures About Segments of an Enterprise

Partnerships: Characteristics, Formation, and Accounting for Activities

Partnerships: Ownership Changes and Liquidations

Government and Not for Profit Accounting

Governmental Accounting: Other Governmental Funds, Proprietary Funds, and Fiduciary Funds

Financial Reporting Issues

Accounting for Private Not-For-Profit Organizations

Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations

Estates and Trusts: Their Nature and the Accountants Role

Debt Restructuring, Corporate Reorganizations, and Liquidations

Derivatives and Related Accounting Issues

Equity Method for Unconsolidated Investments

Variable Interest Entities

Filters

A tax advantage of business combination can occur when the existing owner of a company sells out and receives:

One large bank's acquisition of another bank would be an example of a:

Which of the following income factors should not be considered in expected future income when estimating the value of goodwill?

Goodwill results when:

When measuring the fair value of the acquired company as the price paid by the acquirer, the price calculation needs to consider the following EXCEPT for:

A controlling interest in a company implies that the parent company