Question 1

How are direct combination costs accounted for in an acquisition transaction?

Accepted Answer

In an acquisition, d

Question 2

Figure:
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands):   On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Compute the consolidated liabilities at December 31, 20X1.

Accepted Answer

A)  $1,500. 
B)  $2,100. 
C)  $2,320. 
D)  $2,920. 
E)  $2,885. 
A)  $1,500. 
B)  $2,100. 
C)  $2,320. 
D)  $2,920. 
E)  $2,885.

Question 3

Figure:
Carnes has the following account balances as of May 1, 2010 before an acquisition transaction takes place. $$\begin{array} { l r } 
\text { Inventory } & \$ 100,000 \
\text { Land } & 400,000 \
\text { Buildings (net) } & 500,000 \
\text { Common stock ( } \$ 10 \text { par) } & 600,000 \
\text { Additional paid-in capital } & 200,000 \
\text { Retained Earnings } & 200,000 \
\text { Revenues } & 450,000 \
\text { Expenses } & 250,000
\end{array}$$ The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2010, 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.
-On May 1, 2010, what value is assigned to Riley's investment account?

Accepted Answer

A)  $150,000. 
B)  $300,000. 
C)  $750,000. 
D)  $760,000. 
E)  $1,350,000. 
A)  $150,000. 
B)  $300,000. 
C)  $750,000. 
D)  $760,000. 
E)  $1,350,000.

Question 4

Figure:
On January 1, 20X1, the Moody company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: $\begin{array}{lrr}&\text { Moody }&\text { Osorio }\
\text { Cash } & \$ 180 & \$ 40 \
\text { Receivables } & 810 & 180 \
\text { Inventories } & 1,080 & 280 \
\text { Land } & 600 & 360 \
\text { Buildings (net) } & 1,260 & 440 \
\text { Equipment (net) } & 480 & 100\
\text { Accounts payable } & (450) &(80)\
\text { Long-term liabilities } & (1,290)&(400) \
\text { Common stock }(\$ 1 \text { par })&(330)\\text { Common stock }(\$ 20 \text { par }) & & (240) \
\text { Additional paid-in capital } & (1,080)& (340) \
\text { Retained earnings } & (1,260) & (340)
\end{array}$ Note: Parentheses indicate a credit balance.
In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.
-What amount was recorded as goodwill arising from this acquisition?

Accepted Answer

A)  $230. 
B)  $120. 
C)  $520. 
D)  None. There is a gain on bargain purchase of $230. 
E)  None. There is a gain on bargain purchase of $265. 
A)  $230. 
B)  $120. 
C)  $520. 
D)  None. There is a gain on bargain purchase of $230. 
E)  None. There is a gain on bargain purchase of $265.

Question 5

Figure:
Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: $\begin{array}{lrrr}&\text { Bullen } & \text { Vicker } & \text { Vicker } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/X1 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000\\text { Buildings (net) } & 480,000 & 240,000 & 270,000 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,000 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$
-Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition, Bullen paid $35,000 to a group of attorneys for their work in arranging the combination to be accounted for as an acquisition. What will be the balance in consolidated goodwill?

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $35,000. 
D)  $55,000. 
A)  $0. 
B)  $20,000. 
C)  $35,000. 
D)  $55,000.

Question 6

Which one of the following is a characteristic of a business combination accounted for as an acquisition?

Accepted Answer

A)  The combination must involve the exchange of equity securities only. 
B)  The transaction establishes an acquisition fair value basis for the company being acquired. 
C)  The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company. 
D)  The transaction may be considered to be the uniting of the ownership interests of the companies involved. 
E)  The acquired subsidiary must be smaller in size than the acquiring parent. 
A)  The combination must involve the exchange of equity securities only. 
B)  The transaction establishes an acquisition fair value basis for the company being acquired. 
C)  The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company. 
D)  The transaction may be considered to be the uniting of the ownership interests of the companies involved. 
E)  The acquired subsidiary must be smaller in size than the acquiring parent.

Question 7

Figure:
Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: $\begin{array}{lrrr}&\text { Bullen } & \text { Vicker } & \text { Vicker } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/X1 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000\\text { Buildings (net) } & 480,000 & 240,000 & 270,000 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,000 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$
-Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding stock of Vicker. What is the consolidated Land as a result of this acquisition transaction?

Accepted Answer

A)  $460,000. 
B)  $510,000. 
C)  $500,000. 
D)  $520,000. 
E)  $490,000. 
A)  $460,000. 
B)  $510,000. 
C)  $500,000. 
D)  $520,000. 
E)  $490,000.

Question 8

Figure:
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands):   On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Compute the consolidated expenses for 20X1.

Accepted Answer

A)  $1,980. 
B)  $2,005. 
C)  $2,040. 
D)  $2,380. 
E)  $2,405. 
A)  $1,980. 
B)  $2,005. 
C)  $2,040. 
D)  $2,380. 
E)  $2,405.

Question 9

Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent company's trial balance as a separate account?

Accepted Answer

While the Goodwill does not appear on th

Question 10

Figure:
On January 1, 20X1, the Moody company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: $\begin{array}{lrr}&\text { Moody }&\text { Osorio }\
\text { Cash } & \$ 180 & \$ 40 \
\text { Receivables } & 810 & 180 \
\text { Inventories } & 1,080 & 280 \
\text { Land } & 600 & 360 \
\text { Buildings (net) } & 1,260 & 440 \
\text { Equipment (net) } & 480 & 100\
\text { Accounts payable } & (450) &(80)\
\text { Long-term liabilities } & (1,290)&(400) \
\text { Common stock }(\$ 1 \text { par })&(330)\\text { Common stock }(\$ 20 \text { par }) & & (240) \
\text { Additional paid-in capital } & (1,080)& (340) \
\text { Retained earnings } & (1,260) & (340)
\end{array}$ Note: Parentheses indicate a credit balance.
In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.
-Compute the amount of consolidated cash after recording the acquisition transaction.

Accepted Answer

A)  $220. 
B)  $185. 
C)  $200. 
D)  $205. 
E)  $215. 
A)  $220. 
B)  $185. 
C)  $200. 
D)  $205. 
E)  $215.

Question 11

What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?

Accepted Answer

When the subsidiary is dissolved, the ac

Question 12

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

Accepted Answer

A)  Negative goodwill is recorded. 
B)  A deferred credit is recorded. 
C)  A gain on bargain purchase is recorded. 
D)  Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit. 
E)  Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain. 
A)  Negative goodwill is recorded. 
B)  A deferred credit is recorded. 
C)  A gain on bargain purchase is recorded. 
D)  Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit. 
E)  Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain.

Question 13

According to GAAP, the pooling of interest method for business combinations

Accepted Answer

A)  Is preferred to the purchase method. 
B)  Is allowed for all new acquisitions. 
C)  Is no longer allowed for business combinations after June 30, 2001. 
D)  Is no longer allowed for business combinations after December 31, 2001. 
E)  Is only allowed for large corporate mergers like Exxon and Mobil. 
A)  Is preferred to the purchase method. 
B)  Is allowed for all new acquisitions. 
C)  Is no longer allowed for business combinations after June 30, 2001. 
D)  Is no longer allowed for business combinations after December 31, 2001. 
E)  Is only allowed for large corporate mergers like Exxon and Mobil.

Question 14

Figure:
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands):   On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Compute the consolidated buildings (net) account at December 31, 20X1.

Accepted Answer

A)  $2,700. 
B)  $3,370. 
C)  $3,300. 
D)  $3,260. 
E)  $3,340. 
A)  $2,700. 
B)  $3,370. 
C)  $3,300. 
D)  $3,260. 
E)  $3,340.

Question 15

An example of a difference in types of business combination is:

Accepted Answer

A)  A statutory merger can only be effected by an asset acquisition while a statutory consolidation can only be effected by a capital stock acquisition. 
B)  A statutory merger can only be effected by a capital stock acquisition while a statutory consolidation can only be effected by an asset acquisition. 
C)  Both a statutory merger and a statutory consolidation requires dissolution of at least one company. 
D)  A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution. 
E)  Both a statutory merger and a statutory consolidation can only be effected by an asset acquisition but only a statutory consolidation requires dissolution of the acquired company. 
A)  A statutory merger can only be effected by an asset acquisition while a statutory consolidation can only be effected by a capital stock acquisition. 
B)  A statutory merger can only be effected by a capital stock acquisition while a statutory consolidation can only be effected by an asset acquisition. 
C)  Both a statutory merger and a statutory consolidation requires dissolution of at least one company. 
D)  A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution. 
E)  Both a statutory merger and a statutory consolidation can only be effected by an asset acquisition but only a statutory consolidation requires dissolution of the acquired company.

Question 16

Figure:
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date.   Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2010. 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 to effect this acquisition transaction. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz'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 date of acquisition.

Accepted Answer

A)  $1,750. 
B)  $1,755. 
C)  $1,755.2. 
D)  $1,760. 
E)  $1,765. 
A)  $1,750. 
B)  $1,755. 
C)  $1,755.2. 
D)  $1,760. 
E)  $1,765.

Question 17

Figure:
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, immediately before Atwood acquired Franz. Also included are the fair values for Franz Company's net assets at that date.   Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2010. 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 to effect this acquisition transaction. To settle a difference of opinion regarding Franz's fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franz'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 at date of 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 18

Figure:
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands):   On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Compute the consolidated cash account at December 31, 20X1.

Accepted Answer

A)  $460. 
B)  $425. 
C)  $400. 
D)  $435. 
E)  $240. 
A)  $460. 
B)  $425. 
C)  $400. 
D)  $435. 
E)  $240.

Question 19

How is contingent consideration accounted for in an acquisition business combination transaction?

Accepted Answer

The fair value approach of the acquisiti

Question 20

Figure:
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands):   On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560.
-Compute the consideration transferred for this acquisition at December 31, 20X1.

Accepted Answer

A)  $900. 
B)  $1,165. 
C)  $1,200. 
D)  $1,765. 
E)  $1,800. 
A)  $900. 
B)  $1,165. 
C)  $1,200. 
D)  $1,765. 
E)  $1,800.

How are direct combination costs accounted for in an acquisition transaction?

Which one of the following is a characteristic of a business combination accounted for as an acquisition?

Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent company's trial balance as a separate account?

What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

According to GAAP, the pooling of interest method for business combinations

An example of a difference in types of business combination is:

How is contingent consideration accounted for in an acquisition business combination transaction?

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 Flo

Consolidated Financial Statements - Ownership Patterns and Income

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters

Exam 2: Consolidation of Financial Information

How are direct combination costs accounted for in an acquisition transaction?

Which one of the following is a characteristic of a business combination accounted for as an acquisition?

Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent company's trial balance as a separate account?

What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

According to GAAP, the pooling of interest method for business combinations

An example of a difference in types of business combination is:

How is contingent consideration accounted for in an acquisition business combination transaction?

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 Flo

Consolidated Financial Statements - Ownership Patterns and Income

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters