Question 1

_____ In a purchase business combination, which of the following types of consideration would not result in an increase to the cost of the investment?

Accepted Answer

The answer of _____ In a purchase business combination, which...

Question 2

Pyna acquired 100% of Syna's outstanding common stock on 6/1/06 for $690,000 cash. Selected information for Syna as of the acquisition date follows:
  Required:
a. Prepare the entry to record the combination.
b. Prepare an analysis of the investment account by components.
c. Prepare all consolidation entries as of 6/1/06.

Accepted Answer

The answer of Pyna acquired 100% of Syna's outstanding common...

Question 3

Acquired research and development costs in process must be expensed at the business combination date.

Accepted Answer

A) True 
 B)False

Question 4

_____ In purchase accounting, goodwill exists in which of the following circumstances?

Accepted Answer

A)  Cost exceeds book value. 
B)  Current value exceeds book value. 
C)  Cost exceeds current value. 
D)  Current value is below book value. 
E)  None of the above.

Question 5

The overhead costs of an internal acquisitions department are charged to ___________________________ when incurred.

Accepted Answer

The answer of The overhead costs of an internal acquisitions...

Question 6

When control over a company has been achieved after having had ownership in the 20-50% range, the ____________________________________ method must be used in analyzing the total cost of the investment.

Accepted Answer

The answer of When control over a company has been...

Question 7

In purchase accounting, all out-of-pocket costs incurred as a result of a business combination can be added to the cost of the acquisition.

Accepted Answer

A) True 
 B)False

Question 8

To achieve push-down accounting for income tax-reporting purposes, the parent would make a(n) ________________________________________.

Accepted Answer

The answer of To achieve push-down accounting for income tax-reporting...

Question 9

_____ On 1/5/05, Pazco acquired 100% of Sazco's common stock at a purchase price that resulted in $60 million of goodwill. At 12/31/06 (two years later), management concluded that the goodwill of $60 million (a material amount) was unrecoverable. For the past two years, Sazco reported losses. How should the $60 million be reported in the 2006 financial statements?

Accepted Answer

A)  As an asset that will continue to be amortized to the income statement (unless the subsidiary is sold). 
B)  As a prior period correction (reducing beginning retained earnings). 
C)  As an extraordinary item in the income statement. 
D)  As a separate line item in the income statement that is not designated as being an extraordinary item. 
E)  As a separate item in stockholders' equity labeled Unrealized Loss on Securities Investment.

Question 10

Bargain purchase elements need not be extinguished in the required allocation procedure.

Accepted Answer

A) True 
 B)False

Question 11

When control over a company has been achieved and the 20-50% ownership range was bypassed, the method of analyzing the total cost of the investment that can be used in only this situation is the __________________________ method.

Accepted Answer

The answer of When control over a company has been...

Question 12

Under FAS 109, deferred income taxes need not be recorded at the combination date on goodwill.

Accepted Answer

A) True 
 B)False

Question 13

_____ In a business combination, acquired research and development costs in process must be

Accepted Answer

A)  Expensed at the business combination date. 
B)  Capitalized as an intangible asset to be subsequently amortized. 
C)  Capitalized as an intangible asset to be subject to subsequent impairment testing. 
D)  Capitalized as an an intangible asset if deemed separable. 
E)  None of the above.

Question 14

_____ In a business combination, intangible assets other than goodwill must be capitalized as assets apart from goodwill only if they

Accepted Answer

A)  Have indefinite useful economic lives. 
B)  Do not have definite useful economic lives. 
C)  Are separable. 
D)  Have indefinite useful economic lives and are separable. 
E)  None of the above.

Question 15

Intangible assets other than goodwill that are both (1) recognized as assets apart from goodwill in a business combination and (2) required to be subsequently amortized to earnings, are not subject to impairment testing.

Accepted Answer

A) True 
 B)False

Question 16

The step-by-step method can be used only if the parent did not have an ownership interest of less than 20%.

Accepted Answer

A) True 
 B)False

Question 17

_____ In a business combination to be accounted for as a purchase, which of the following choices is correct concerning how the combination is structured?

Accepted Answer

The answer of _____ In a business combination to be...

Question 18

The issue of recording deferred income taxes at the combination date applies only to purchase business combinations that are nontaxable for income tax-reporting purposes.

Accepted Answer

A) True 
 B)False

Question 19

If the date of latest purchase method is used, the equity method of accounting could be subsequently used.

Accepted Answer

A) True 
 B)False

Question 20

In purchase accounting, contingent consideration based on security prices to be maintained results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.

Accepted Answer

A) True 
 B)False

Exam 5: The Purchase Method: at Date of Acquisition-100 Ownership

_____ In a purchase business combination, which of the following types of consideration would not result in an increase to the cost of the investment?

Acquired research and development costs in process must be expensed at the business combination date.

_____ In purchase accounting, goodwill exists in which of the following circumstances?

The overhead costs of an internal acquisitions department are charged to ___________________________ when incurred.

When control over a company has been achieved after having had ownership in the 20-50% range, the ____________________________________ method must be used in analyzing the total cost of the investment.

In purchase accounting, all out-of-pocket costs incurred as a result of a business combination can be added to the cost of the acquisition.

To achieve push-down accounting for income tax-reporting purposes, the parent would make a(n) ________________________________________.

Bargain purchase elements need not be extinguished in the required allocation procedure.

When control over a company has been achieved and the 20-50% ownership range was bypassed, the method of analyzing the total cost of the investment that can be used in only this situation is the __________________________ method.

Under FAS 109, deferred income taxes need not be recorded at the combination date on goodwill.

_____ In a business combination, acquired research and development costs in process must be

_____ In a business combination, intangible assets other than goodwill must be capitalized as assets apart from goodwill only if they

Intangible assets other than goodwill that are both (1) recognized as assets apart from goodwill in a business combination and (2) required to be subsequently amortized to earnings, are not subject to impairment testing.

The step-by-step method can be used only if the parent did not have an ownership interest of less than 20%.

_____ In a business combination to be accounted for as a purchase, which of the following choices is correct concerning how the combination is structured?

The issue of recording deferred income taxes at the combination date applies only to purchase business combinations that are nontaxable for income tax-reporting purposes.

If the date of latest purchase method is used, the equity method of accounting could be subsequently used.

In purchase accounting, contingent consideration based on security prices to be maintained results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.