Question 1

Assume that Bellington paid cash of $2.8 million.No stock is issued.An additional $50,000 is paid in direct combination costs.
Required:
For Goodwill,determine what balance would be included in a December 1,2017 consolidation.

Accepted Answer

The answer of Assume that Bellington paid cash of $2.8...

Question 2

REFERENCE: 02-09
Salem Co.had the following account balances as of December 1,2017:
 $$\begin{array} { l r } 
\text { Inventory } & \$ 720,000 \
\text { Land } & 600,000\
\text { Buildings - net (valued at } \$ 1,200,000 ) & 1,080,000\
\text { Common stock (\$10 par value) } & 960,000 \
\text { Retained earnings, December 1, 2017 } & 1,320,000 \
\text { Revenues } & 720,000\
\text { Expenses } & 600,000
\end{array}$$ Bellington Inc.transferred $1.7 million in cash and 12,000 shares of its newly issued $30 par value common stock (valued at $90 per share)to acquire all of Salem's outstanding common stock.
-Determine the balance for Goodwill that would be included in a December 1,2017,consolidation.

Accepted Answer

The answer of REFERENCE: 02-09
Salem Co.had the following account balances...

Question 3

According to GAAP,which of the following is true with respect to the pooling of interest method of accounting for business combinations?

Accepted Answer

A) It was the only method used prior to 2002. 
B) It must be used for all new acquisitions. 
C) GAAP allowed its use prior to 2002. 
D) It,or the acquisition method,may be used at the acquirer's discretion. 
E) GAAP requires it to be used instead of the acquisition method for business combinations for which $50 billion or more in consideration is transferred.

Question 4

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.
-Compute the consolidated common stock account at December 31,2018.

Accepted Answer

A) $1,080. 
B) $1,480. 
C) $1,380. 
D) $2,280. 
E) $2,680.

Question 5

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 paid a total of $480,000 in cash for all of the shares of Vicker.In addition,Bullen paid $35,000 for secretarial and management time allocated to the acquisition transaction.What will be the balance in consolidated goodwill?

Accepted Answer

A) $ 0. 
B) $20,000. 
C) $35,000. 
D) $55,000. 
E) $65,000.

Question 6

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method,how should stock issuance costs and direct combination costs be treated?

Accepted Answer

A) Stock issuance costs and direct combination costs are expensed as incurred. 
B) Direct combination costs are ignored,and the stock issuance costs result in a reduction to additional paid-in capital. 
C) Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital. 
D) Both are treated as part of the acquisition consideration transferred. 
E) Both reduce additional paid-in capital.

Question 7

Jernigan Corp.had the following account balances at 12/1/17:
 $$\begin{array} { l r } 
\text { Receivables } & \$ 96,000\
\text { Inventory } & 240,000\
\text { Land } & 720,000\
\text { Building } & 600,000 \
\text { Liabilities } & 480,000 \
\text { Common stock } & 120,000\
\text { Additional paid-in capital } & 120,000 \
\text { Retained earnings, 12/1/1Z } & 840,000\
\text { Revenues } & 360,000\
\text { Expenses } & 264,000
\end{array}$$ 
Several of Jernigan's accounts have fair values that differ from book value.The fair values are: Land - $480,000;Building - $720,000;Inventory - $336,000;and Liabilities - $396,000.
Inglewood Inc.acquired all of the outstanding common shares of Jernigan by issuing 20,000 shares of common stock having a $6 par value per share,but a $66 fair value per share.Stock issuance costs amounted to $12,000.
Required:
Prepare a fair value allocation and goodwill schedule at the date of the acquisition.

Accepted Answer

The answer of Jernigan Corp.had the following account balances at...

Question 8

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

Accepted Answer

A) Net assets of the acquired company are reported at their fair values. 
B) Net assets of the acquired company are reported at their book values. 
C) Any goodwill associated with the acquisition is reported as a development cost. 
D) The acquisition can only be effected by a mutual exchange of voting common stock. 
E) Indirect costs of the combination reduce additional paid-in capital.

Question 9

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company,which statement is true for the acquiring company with regard to its investment?

Accepted Answer

A) Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill. 
B) Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill. 
C) Acquired assets are revalued to their fair values.Acquired liabilities are maintained at book values.Any excess is allocated to goodwill. 
D) Acquired long-term assets are revalued to their fair values.Any excess is allocated to goodwill.

Question 10

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 revenues immediately following the acquisition.

Accepted Answer

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

Question 11

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.
 $$\begin{array} { l r } 
\text { Inventory } & \$ 100,000 \
\text { Land } & 400,000 \
\text { Buildings (net) } & 500,000 \
\text { Common stock (\$10 par) } & 600,000 \
\text { Additional paid-in capital } & 200,000 \
\text { Retained Earnings } & 200,000 \
\text { Revenues } & 450,000 \
\text { Expenses } & 250,000
\end{array}$$
-What will the consolidated common stock account be as a result of this acquisition?

Accepted Answer

A) $ 300,000. 
B) $ 990,000. 
C) $1,000,000. 
D) $1,590,000. 
E) $1,600,000.

Question 12

Acquired in-process research and development is considered as

Accepted Answer

A) A definite-lived asset subject to amortization. 
B) A definite-lived asset subject to testing for impairment. 
C) An indefinite-lived asset subject to amortization. 
D) An indefinite-lived asset subject to testing for impairment. 
E) A research and development expense at the date of acquisition.

Question 13

What term is used to refer to a business combination in which only one of the original companies continues to exist?

Accepted Answer

The answer of What term is used to refer to...

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.
-Compute the consolidated equipment (net)account at December 31,2018.

Accepted Answer

A) $2,100. 
B) $3,500. 
C) $3,300. 
D) $3,000. 
E) $3,200.

Question 15

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.Immediately afterwards,what is the value of the consolidated Common Stock?

Accepted Answer

A) $456,000. 
B) $402,000. 
C) $274,000. 
D) $276,000. 
E) $330,000.

Question 16

REFERENCE: 02-08
Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1,2018.To obtain these shares,Flynn pays $400 cash (in thousands)and issues 10,000 shares of $20 par value common stock on this date.Flynn's stock had a fair value of $36 per share on that date.Flynn also pays $15 (in thousands)to a local investment firm for arranging the acquisition.An additional $10 (in thousands)was paid by Flynn in stock issuance costs.
The book values for both Flynn and Macek as of January 1,2018 follow.The fair value of each of Flynn and Macek accounts is also included.In addition,Macek holds a fully amortized trademark that still retains a $40 (in thousands)value.The figures below are in thousands.Any related question also is in thousands.
 $\begin{array}{lrrr}
& \text { Flynn, Inc. } & &{ \text { Macek Company } } \
& & \text { Book Value } & \text { Fair Value } \
\text { Cash } & \$ 900& \$ 80 & \$ 80\
\text { Receivables } & 480& 180 & 160 \
\text { Inventory } & 660& 260& 300 \
\text { Land } & 300& 120& 130 \
\text { Buildings (net) } & 1,200 & 220 & 280 \
\text { Equipment } & 360 & 100& 75 \
\text { Accounts payable } & 480& 6 0& 60 \
\text { Long-term liabilities } & 1,140 & 340 & 300 \
\text { Common stock } & 1,000 & 80& \
\text { Additional paid-in capital } & 200 & 0 & \
\text { Retained earnings } & 1,080& 480&
\end{array}$
-What amount will be reported for consolidated long-term liabilities?

Accepted Answer

A) $1,520,000. 
B) $1,480,000. 
C) $1,440,000. 
D) $1,180,000. 
E) $1,100,000.

Question 17

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 retained earnings as a result of this acquisition.

Accepted Answer

A) $1,160. 
B) $1,170. 
C) $1,265. 
D) $1,280. 
E) $1,650.

Question 18

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

Accepted Answer

The answer of How are direct combination costs accounted for...

Question 19

Bale Co.acquired Silo Inc.on December 31,2018,in an acquisition business combination transaction.Bale's net income for the year was $1,400,000,while Silo had net income of $400,000 earned evenly during the year.Bale paid $100,000 in direct combination costs,$50,000 in indirect costs,and $30,000 in stock issuance costs to effect the combination.
Required:
What is consolidated net income for 2018?

Accepted Answer

The answer of Bale Co.acquired Silo Inc.on December 31,2018,in an...

Question 20

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 expenses immediately following the acquisition.

Accepted Answer

A) $2,735. 
B) $2,760. 
C) $2,770. 
D) $2,785. 
E) $3,380.

Exam 2: Consolidation of Financial Information

Assume that Bellington paid cash of $2.8 million.No stock is issued.An additional $50,000 is paid in direct combination costs. Required: For Goodwill,determine what balance would be included in a December 1,2017 consolidation.