Question 1

In purchase accounting, the primary consideration given may be either cash or common stock.

Accepted Answer

A) True 
 B)False

Question 2

In purchase accounting, goodwill is reported, if present.

Accepted Answer

A) True 
 B)False

Question 3

The two types of property that may be acquired in a business combination are ____________________________________ and _____________________________________.

Accepted Answer

The answer of The two types of property that may...

Question 4

The term used to refer to a business that was acquired by obtaining its common stock is ________________________________________.

Accepted Answer

The answer of The term used to refer to a...

Question 5

_____ Common stock must be given as consideration in

Accepted Answer

The answer of _____ Common stock must be given as...

Question 6

In a statutory consolidation, the legal existence of the target company is terminated.

Accepted Answer

A) True 
 B)False

Question 7

Pyle Company acquired all the assets of Stack. Pyle gave 10,000 shares of its $10 par value common stock (which had a market value of $25 when the business combination occurred) and $500,000 cash as consideration. For simplicity, assume that Stack's only asset was a commercial office building, which initially cost $900,000, was depreciated $200,000, and had a current value of $950,000. Pyle assumed responsibility for Stack's liabilities of $220,000.
Required:
Record the entries that would be made on each company's books as a result of this transaction.

Accepted Answer

The answer of Pyle Company acquired all the assets of...

Question 8

Goodwill must be capitalized--never to be amortized or written down.

Accepted Answer

A) True 
 B)False

Question 9

To avoid reporting goodwill, the acquiring company should acquire the target company's common stock instead of its assets.

Accepted Answer

A) True 
 B)False

Question 10

_____ A taxable transaction usually occurs in

Accepted Answer

The answer of _____ A taxable transaction usually occurs in
...

Question 11

_____ Goodwill, when properly recognized, must be

Accepted Answer

A)  Amortized only when appropriate. 
B)  Amortized over no more than 40 years in all cases. 
C)  Amortized or written down periodically, at management's discretion. 
D)  Amortized only if management has established a policy of amortizing goodwill. 
E)  None of the above.

Question 12

_____ In all cases in which the target company's assets are acquired,

Accepted Answer

A)  A taxable event has occurred. 
B)  A statutory consolidation will result. 
C)  A parent-subsidiary relationship is formed. 
D)  A pooling of interests results. 
E)  None of the above.

Question 13

A company that has no revenue-producing operations of its own but only investments in subsidiaries is called a(n) _____________________________________.

Accepted Answer

The answer of A company that has no revenue-producing operations...

Question 14

Goodwill must be capitalized and amortized.

Accepted Answer

A) True 
 B)False

Question 15

To avoid changing the basis of accounting for the target company's assets, the acquiring company should acquire common stock instead of assets.

Accepted Answer

A) True 
 B)False

Question 16

_____ A new corporation is created, and the legal existence of each combining company is terminated in a

Accepted Answer

The answer of _____ A new corporation is created, and...

Question 17

In purchase accounting, a nontaxable transaction usually results.

Accepted Answer

A) True 
 B)False

Question 18

_____ Cash must be given as consideration in

Accepted Answer

The answer of _____ Cash must be given as consideration...

Question 19

A taxable business combination has ramifications only to the seller(s)-not to the buyer.

Accepted Answer

A) True 
 B)False

Question 20

A type of business combination in which both combining companies cease their legal existence is called a(n) ________________________________________.

Accepted Answer

The answer of A type of business combination in which...

Exam 4: Introduction to Business Combinations

In purchase accounting, the primary consideration given may be either cash or common stock.

In purchase accounting, goodwill is reported, if present.

The two types of property that may be acquired in a business combination are and _.

The term used to refer to a business that was acquired by obtaining its common stock is ________________________________________.

_____ Common stock must be given as consideration in

In a statutory consolidation, the legal existence of the target company is terminated.

Goodwill must be capitalized--never to be amortized or written down.

To avoid reporting goodwill, the acquiring company should acquire the target company's common stock instead of its assets.

_____ A taxable transaction usually occurs in

_____ Goodwill, when properly recognized, must be

_____ In all cases in which the target company's assets are acquired,

A company that has no revenue-producing operations of its own but only investments in subsidiaries is called a(n) _____________________________________.

Goodwill must be capitalized and amortized.

To avoid changing the basis of accounting for the target company's assets, the acquiring company should acquire common stock instead of assets.

_____ A new corporation is created, and the legal existence of each combining company is terminated in a

In purchase accounting, a nontaxable transaction usually results.

_____ Cash must be given as consideration in

A taxable business combination has ramifications only to the seller(s)-not to the buyer.

A type of business combination in which both combining companies cease their legal existence is called a(n) ________________________________________.