Advanced Accounting Ch01_TestBank

8/13/2019 Advanced Accounting Ch01_TestBank

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Chapter 01

Intercorporate Acquisitions and Investments in Other Entities

Multiple Choice Questions

1. Assuming no impairment in value prior to transfer, assets transferred b a parent companto another entit it has created should be recorded b the ne!l created entit at the assets"#A. cost to the parent compan.$. boo% value on the parent compan"s boo%s at the date of transfer.C. fair value at the date of transfer.&. fair value of consideration e'changed b the ne!l created entit.

(. )iven the increased development of comple' business structures, !hich of the follo!ing

regulators is responsible for the continued usefulness of accounting reports*A. +ecurities and E'change Commission +EC$. ublic Compan Accounting Oversight $oard CAO$C. /inancial Accounting +tandards $oard /A+$&. All of the above

. A business combination in !hich the acquired compan"s assets and liabilities arecombined !ith those of the acquiring compan into a single entit is defined as#A. +toc% acquisition

$. everaged buoutC. +tatutor 2erger&. 3everse statutor rollup

4. In !hich of the follo!ing situations do accounting standards not require that the financialstatements of the parent and subsidiar be consolidated*A. A corporation creates a ne! 100 percent o!ned subsidiar$. A corporation purchases 50 percent of the voting stoc% of another companC. A corporation has both control and ma6orit o!nership of an unincorporated compan

&. A corporation o!ns less-than a controlling interest in an unincorporated compan

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In order to reduce the ris% associated !ith a ne! line of business, Conservative Corporationestablished +pin Compan as a !holl o!ned subsidiar. It transferred assets and accountspaable to +pin in e'change for its common stoc%. +pin recorded the follo!ing entr !henthe transaction occurred#

7. $ased on the preceding information, !hat number of shares of 89 par value stoc% did +pinissue to Conservative*A. 10,000$. 9,000C. :,000

&. (7,000

;. $ased on the preceding information, !hat !as Conservative"s boo% value of assetstransferred to +pin Compan*A. 8(4,000$. 8(;,000C. 8((1,000&. 8(01,000

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9. $ased on the preceding information, !hat amount did Conservative report as its investmentin +pin after the transfer of assets and liabilities*A. 81:1,000$. 8((1,000

C. 8(;,000&. 8(4,000

:. $ased on the preceding information, immediatel after the transfer,A. Conservative"s total assets decreased b 8(,000.$. Conservative"s total assets decreased b 8(0,000.C. Conservative"s total assets increased b 87;,000.&. Conservative"s total assets remained the same.

&uring its inception, &evon Compan purchased land for 8100,000 and a building for81:0,000. After e'actl ears, it transferred these assets and cash of 870,000 to a ne!lcreated subsidiar, 3egan Compan, in e'change for 17,000 shares of 3egan"s 810 par valuestoc%. &evon uses straight-line depreciation.


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11. $ased on the preceding information, 3egan Compan !ill reportA. additional paid-in capital of 80.$. additional paid-in capital of 8170,000.C. additional paid-in capital of 81;(,000.

&. additional paid-in capital of 81:0,000.

1(. >hich of the follo!ing situations best describes a business combination to be accountedfor as a statutor merger*A. $oth companies in a combination continue to operate as separate, but related, legal entities.$. Onl one of the combining companies survives and the other loses its separate identit.C. ?!o companies combine to form a ne! third compan, and the original t!o companies aredissolved.&. One compan transfers assets to another compan it has created.

1. A statutor consolidation is a tpe of business combination in !hich#A. one of the combining companies survives and the other loses its separate identit.$. one compan acquires the voting shares of the other compan and the t!o companiescontinue to operate as separate legal entities.C. t!o publicl traded companies agree to share a board of directors.&. each of the combining companies is dissolved and the net assets of both companies aretransferred to a ne!l created corporation.

3ivendell Corporation and /oster Compan merged as of @anuar 1, (05. ?o effect themerger, 3ivendell paid finder"s fees of 840,000, legal fees of 81,000, audit fees related to thestoc% issuance of 810,000, stoc% registration fees of 87,000, and stoc% listing application feesof 84,000.

14. $ased on the preceding information, under the acquisition method, !hat amount relatingto the business combination !ould be e'pensed*

A. 89(,000$. 815,000C. 87,000&. 8;,000

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17. $ased on the preceding information, under the acquisition method#A. 89(,000 of stoc% issue costs are treated as good!ill.$. 815,000 of stoc% issue costs are treated as a reduction in the issue price.C. 815,000 of stoc% issue costs are e'pensed.

&. 89(,000 of stoc% issue costs are e'pensed.

1;. hat amount !ill be recorded asgood!ill b $urrough Corporation !hile recording its investment in Belar*A. 80$. 87,000C. 8:,000&. 81,000

lummet Corporation reported the boo% value of its net assets at 8400,000 !hen enithCorporation acquired 100 percent o!nership. ?he fair value of lummet"s net assets !asdetermined to be 8710,000 on that date.

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15. $ased on the preceding information, !hat amount of good!ill !ill be reported inconsolidated financial statements presented immediatel follo!ing the combination if enithpaid 8770,000 for the acquisition*A. 80

$. 870,000C. 8170,000&. 840,000

(0. $ased on the preceding information, !hat amount !ill be recorded b enith as itsinvestment in lummet, if it paid 8700,000 for the acquisition*A. 8;10,000$. 8400,000C. 8700,000

&. 8710,000

(1. $ased on the preceding information, !hat amount of good!ill !ill be reported inconsolidated financial statements presented immediatel follo!ing the combination if enithpaid 8700,000 for the acquisition*A. 80$. 870,000C. 8170,000&. 840,000

((. ?he fair value of net identifiable assets of a reporting unit of Compan is 800,000. On Compan"s boo%s, the carring value of this reporting unit"s net assets is 870,000,including 8;0,000 good!ill. If the fair value of the reporting unit is subsequentl 87,000,!hat amount of good!ill impairment !ill be recogni=ed for this unit*A. 80$. 810,000C. 8(7,000&. 87,000

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(. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90,000. ?hecarring value of the reporting unit"s net assets on D Compan"s boo%s is 8(0,000, including870,000 good!ill. If the reported good!ill impairment for the unit is 810,000, !hat !ould bethe fair value of the reporting unit*

A. 8(0,000$. 810,000C. 8(90,000&. 8(50,000

/ollo!ing its acquisition of the net assets of &an Compan, Empire Compan assignedgood!ill of 8;0,000 to one of the reporting divisions. Information for this division follo!s#

(4. $ased on the preceding information, !hat amount of good!ill !ill be reported for thisdivision if its fair value is determined to be 8(00,000*

A. 80$. 8;0,000C. 80,000&. 810,000

(7. $ased on the preceding information, !hat amount of good!ill impairment !ill berecogni=ed for this division if its fair value is determined to be 8157,000*A. 87,000$. 80,000

C. 8;0,000&. 877,000

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(;. $ased on the preceding information, !hat amount of good!ill impairment !ill berecogni=ed for this division if its fair value is determined to be 8(47,000*A. 80$. 87,000

C. 8;0,000&. 877,000

ublic Equit Corporation acquired enore Compan through an e'change of commonshares. All of enore"s assets and liabilities !ere immediatel transferred to ublic Equit.ublic"s common stoc% !as trading at 8(0 per share at the time of e'change. /ollo!ingselected information is also available.

(9. $ased on the preceding information, !hat number of shares !as issued at the time of thee'change*A. 7,000$. 19,700

C. 1(,700&. 10,000

(:. $ased on the preceding information, !hat is the par value of ublic"s common stoc%*A. 810$. 81C. 87&. 84

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(5. $ased on the preceding information, !hat is the fair value of enore"s net assets, ifgood!ill of 87;,000 is recorded*A. 80;,000$. 8(44,000

C. 8154,000&. 800,000

ursuing an inorganic gro!th strateg, >ilson Compan acquired enus Compan"s netassets and assigned them to four separate reporting divisions. >ilson assigned total good!illof 814,000 to the four reporting divisions as given belo!#

0. $ased on the preceding information, !hat amount of good!ill !ill be reported for Alphaat ear-end*

A. 80$. 8(0,000C. 80,000&. 810,000

1. $ased on the preceding information, !hat amount of good!ill !ill be reported for $eta atear-end*A. 80$. 814,000

C. 84,000&. 870,000

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(. $ased on the preceding information, for )amma#A. no good!ill should be reported at ear-end.$. good!ill impairment of 80,000 should be recogni=ed at ear-end.C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end.

&. good!ill of 80,000 should be reported at ear-end.

. $ased on the preceding information, for &elta#A. no good!ill should be reported at ear-end.$. good!ill impairment of 817,000 should be recogni=ed at ear-end.C. good!ill impairment of 8(0,000 should be recogni=ed at ear-end.&. good!ill of 80,000 should be reported at ear-end.

4. $ased on the preceding information, !hat !ould be the total amount of good!ill that>ilson should report at ear-end*A. 80$. 8;5,000C. 895,000&. 854,000

7. >hich of the follo!ing observations is are consistent !ith the acquisition method of

accounting for business combinations*I. E'penses related to the business combination are e'pensed.II. +toc% issue costs are treated as a reduction in the issue price.III. All merger and stoc% issue costs are e'pensed.I. Fo good!ill is ever recorded.A. III$. IC. I and II&. I, II, and I

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;. >hich of the follo!ing observations refers to the term differential*A. E'cess of consideration e'changed over fair value of net identifiable assets.$. E'cess of fair value over boo% value of net identifiable assets.C. E'cess of consideration e'changed over boo% value of net identifiable assets.

&. E'cess of fair value over historical cost of net identifiable assets.

9. >hich of the follo!ing observations concerning Ggood!illG is FO? correct*A. Once !ritten do!n, it ma be !ritten up for recoveries.$. It must be tested for impairment at least annuall.C. )ood!ill impairment losses are recogni=ed in income from continuing operations orincome before e'traordinar gains and losses.&. It must be reported as a separate line item in the balance sheet.

:. $ig Compan acquired the follo!ing assets and liabilities of ittle Compan fair valueslisted belo! for 8490,000 cash.

Assuming these items are all recorded at their acquisition date fair values, !hat additionalitem needs to be recorded and ho! !ill it be accounted for in the future*

A. 80,000 )ood!ill, capitali=ed and tested for impairment$. 80,000 $argain purchase, recogni=ed in current earningsC. 80,000 $argain purchase, capitali=ed and recogni=ed over time&. 80,000 )ood!ill, capitali=ed and amorti=ed over time

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5. aul Corp. acquired 100 percent of +am Inc."s voting stoc% on @ul 1, (01. ?hefollo!ing information !as available as of &ecember 1, (01#

Bo! much net income should be reported in aul Corp"s income statement for (01*A. 890,000$. 89(0,000C. 8540,000&. 81,050,000

40. oint Co. purchased 50H of +harpe Corp."s voting stoc% on @anuar 1, (0( for87,7:0,000. rior to the acquisition, oint held a 10H equit position in +harpe Compan. On@anuar 1, (0( oint"s 10H investment in +harpe has a boo% value of 840,000 and a fairvalue of 8;(0,000. On @anuar 1, (0( oint records the follo!ing#A. &ebit )ain on revaluation of +harpe"s stoc% 8(:0,000$. Credit )ain on revaluation of +harpe"s stoc% 8(:0,000C. Credit Investment in +harpe stoc% 87,:;0,000&. &ebit Investment in +harpe stoc% 8;,(00,000

41. ?he length of the measurement period allo!ed to value the assets and liabilities in anacquired business combination starts on the date of acquisition and lasts until#A. All necessar information about the facts of the acquisition is obtained$. All necessar information about the facts of the acquisition is obtained, not to e'ceed onemonthC. All necessar information about the facts of the acquisition is obtained, not to e'ceed onereporting period&. All necessar information about the facts of the acquisition is obtained, not to e'ceed oneear

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4(. /A+$ 1413 A+C :07 requires contingent consideration in a business combination to beclassified as#A. An asset$. A liabilit or equit

C. An asset or equit&. An asset or a liabilit

4. /or all acquired contingencies, the acquirer should do all of the follo!ing e'cept#A. rovide documentation from the acquirer"s attorne regarding pending la!suits and loanguarantees$. rovide a description of each contingencC. &isclose the amount recogni=ed at the acquisition date&. &escribe the estimated range of possible undiscounted outcomes of the contingenc

44. /A+$ 1413 A+C :07 requires that ongoing research and development pro6ects betreated in all of the follo!ing !as e'cept#A. 3ecorded at acquisition-date fair values$. Classified as intangible assets having indefinite livesC. E'pensed immediatel&. ?ested for impairment periodicall

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Essay Questions

47. On @anuar 1, (0:, Alas%a Corporation acquired 2ercantile Corporation"s net assets bpaing 81;0,000 cash. $alance sheet data for the t!o companies and fair value informationfor 2ercantile Corporation immediatel before the business combination are given belo!#

3equired#repare the 6ournal entr to record the acquisition of 2ercantile Corporation.

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4;. On @anuar 1, (0:, ine Corporation acquired all of the common stoc% of +taffCompan for 800,000. On that date, +taff"s identifiable net assets had a fair value of8(70,000. ?he assets acquired in the purchase of +taff are considered to be a separatereporting unit of ine Corporation. ?he carring value of +taff"s investment at &ecember 1,

(0:, is 810,000. ?he fair value of the net assets e'cluding good!ill at that date is8((0,000 and the fair value of the reporting unit is determined to be (;0,000.3equired#1 E'plain ho! good!ill is tested for impairment for a reporting unit.( &etermine the amount, if an, of impairment loss to be recogni=ed at &ecember 1, (0:.

49. +eaine Corporation is involved in the distribution of processed marine products. ?he fairvalues of assets and liabilities held b three reporting units and other information related tothe reporting units o!ned b +eaine are as follo!s#

3equired# &etermine the amount of good!ill that +eaine should report in its currentfinancial statements.

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Chapter 01 Intercorporate Acquisitions and Investments in Other EntitiesAns!er e

Multiple Choice Questions

1. Assuming no impairment in value prior to transfer, assets transferred b a parent companto another entit it has created should be recorded b the ne!l created entit at the assets"#A.cost to the parent compan.B.boo% value on the parent compan"s boo%s at the date of transfer.C.fair value at the date of transfer.&.fair value of consideration e'changed b the ne!l created entit.

AACSB: Reflective Thinking

AICPA: FN Decision Making

Bloom's: Remembe

Diffic!lt": # $as"

%eaning &bective: (#)(# *n+estan+ an+ e,-lain +iffeent metho+s of b!siness e,-ansion. t"-es of ogani/ational st!ct!es. an+ t"-es ofac0!isitions

(. )iven the increased development of comple' business structures, !hich of the follo!ingregulators is responsible for the continued usefulness of accounting reports*A.+ecurities and E'change Commission +EC$.ublic Compan Accounting Oversight $oard CAO$C./inancial Accounting +tandards $oard /A+$D.All of the above


AICPA: FN Re-otingBloom's: Remembe

Diffic!lt": # $as"

%eaning &bective: (#)(# *n+estan+ an+ e,-lain +iffeent metho+s of b!siness e,-ansion. t"-es of ogani/ational st!ct!es. an+ t"-es of

ac0!isitions

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. A business combination in !hich the acquired compan"s assets and liabilities arecombined !ith those of the acquiring compan into a single entit is defined as#A.+toc% acquisition$.everaged buout

C.+tatutor 2erger&.3everse statutor rollup



Bloom's: Remembe

Diffic!lt": # $as"%eaning &bective: (#)(# *n+estan+ an+ e,-lain +iffeent metho+s of b!siness e,-ansion. t"-es of ogani/ational st!ct!es. an+ t"-es of

ac0!isitions

4. In !hich of the follo!ing situations do accounting standards not require that the financial

statements of the parent and subsidiar be consolidated*A.A corporation creates a ne! 100 percent o!ned subsidiar$.A corporation purchases 50 percent of the voting stoc% of another companC.A corporation has both control and ma6orit o!nership of an unincorporated companD.A corporation o!ns less-than a controlling interest in an unincorporated compan

AACSB: Reflective ThinkingAICPA: FN Decision Making

Bloom's: Remembe

Diffic!lt": # $as"

%eaning &bective: (#)(# *n+estan+ an+ e,-lain +iffeent metho+s of b!siness e,-ansion. t"-es of ogani/ational st!ct!es. an+ t"-es of

ac0!isitions

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In order to reduce the ris% associated !ith a ne! line of business, Conservative Corporationestablished +pin Compan as a !holl o!ned subsidiar. It transferred assets and accountspaable to +pin in e'change for its common stoc%. +pin recorded the follo!ing entr !henthe transaction occurred#

7. $ased on the preceding information, !hat number of shares of 89 par value stoc% did +pinissue to Conservative*A.10,000$.9,000C.:,000

&.(7,000

AACSB: Anal"ticAICPA: FN Meas!ement

Bloom's: *n+estan+

Diffic!lt": 1 Me+i!m

%eaning &bective: (#)(2 Make calc!lations an+ b!siness combination o!nal enties in the -esence of a +iffeential. goo+3ill. o a

bagain -!chase element4

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;. $ased on the preceding information, !hat !as Conservative"s boo% value of assetstransferred to +pin Compan*A.8(4,000$.8(;,000

C.8((1,000D.8(01,000

AACSB: Anal"tic

AICPA: FN Meas!ement

Bloom's: *n+estan+

Diffic!lt": 1 Me+i!m%eaning &bective: (#)(# *n+estan+ an+ e,-lain +iffeent metho+s of b!siness e,-ansion. t"-es of ogani/ational st!ct!es. an+ t"-es of

ac0!isitions

9. $ased on the preceding information, !hat amount did Conservative report as its investment

in +pin after the transfer of assets and liabilities*A.81:1,000$.8((1,000C.8(;,000&.8(4,000


Bloom's: *n+estan+


%eaning &bective: (#)(1 Make calc!lations an+ -e-ae o!nal enties fo the ceation an+ -!chase of a b!siness entit"4

:. $ased on the preceding information, immediatel after the transfer,A.Conservative"s total assets decreased b 8(,000.B.Conservative"s total assets decreased b 8(0,000.C.Conservative"s total assets increased b 87;,000.&.Conservative"s total assets remained the same.

AACSB: Anal"tic


Bloom's: *n+estan+Diffic!lt": 1 Me+i!m


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&uring its inception, &evon Compan purchased land for 8100,000 and a building for81:0,000. After e'actl ears, it transferred these assets and cash of 870,000 to a ne!lcreated subsidiar, 3egan Compan, in e'change for 17,000 shares of 3egan"s 810 par valuestoc%. &evon uses straight-line depreciation.


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11. $ased on the preceding information, 3egan Compan !ill reportA.additional paid-in capital of 80.$.additional paid-in capital of 8170,000.C.additional paid-in capital of 81;(,000.

&.additional paid-in capital of 81:0,000.


Bloom's: *n+estan+



1(. >hich of the follo!ing situations best describes a business combination to be accountedfor as a statutor merger*

A.$oth companies in a combination continue to operate as separate, but related, legal entities.B.Onl one of the combining companies survives and the other loses its separate identit.C.?!o companies combine to form a ne! third compan, and the original t!o companies aredissolved.&.One compan transfers assets to another compan it has created.


AICPA: FN Decision MakingBloom's: Remembe

Diffic!lt": # $as"

%eaning &bective: (#)(5 *n+estan+ an+ e,-lain the +iffeences bet3een +iffeent foms of b!siness combinations4

1. A statutor consolidation is a tpe of business combination in !hich#A.one of the combining companies survives and the other loses its separate identit.$.one compan acquires the voting shares of the other compan and the t!o companiescontinue to operate as separate legal entities.C.t!o publicl traded companies agree to share a board of directors.D.each of the combining companies is dissolved and the net assets of both companies aretransferred to a ne!l created corporation.

AACSB: Reflective ThinkingAICPA: FN Decision Making

Bloom's: RemembeDiffic!lt": # $as"

%eaning &bective: (#)(5 *n+estan+ an+ e,-lain the +iffeences bet3een +iffeent foms of b!siness combinations4

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3ivendell Corporation and /oster Compan merged as of @anuar 1, (05. ?o effect themerger, 3ivendell paid finder"s fees of 840,000, legal fees of 81,000, audit fees related to thestoc% issuance of 810,000, stoc% registration fees of 87,000, and stoc% listing application feesof 84,000.

14. $ased on the preceding information, under the acquisition method, !hat amount relatingto the business combination !ould be e'pensed*A.89(,000$.815,000C.87,000&.8;,000

AACSB: Anal"tic

AICPA: FN Meas!ementBloom's: *n+estan+




17. $ased on the preceding information, under the acquisition method#A.89(,000 of stoc% issue costs are treated as good!ill.B.815,000 of stoc% issue costs are treated as a reduction in the issue price.C.815,000 of stoc% issue costs are e'pensed.&.89(,000 of stoc% issue costs are e'pensed.

AACSB: Anal"tic


Bloom's: *n+estan+


%eaning &bective: (#)(2 Make calc!lations an+ b!siness combination o!nal enties in the -esence of a +iffeential. goo+3ill. o abagain -!chase element4

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1:. $urrough Corporation paid 8:0,000 to acquire all of Belar Compan"s net assets. Belarreported assets !ith a boo% value of 8;0,000 and fair value of 85:,000 and liabilities !ith aboo% value and fair value of 8(,000 on the date of combination. $urrough also paid 8,000to a search firm for finder"s fees related to the acquisition. >hat amount !ill be recorded as

good!ill b $urrough Corporation !hile recording its investment in Belar*A.80B.87,000C.8:,000&.81,000

AACSB: Anal"tic


Bloom's: *n+estan+



lummet Corporation reported the boo% value of its net assets at 8400,000 !hen enithCorporation acquired 100 percent o!nership. ?he fair value of lummet"s net assets !asdetermined to be 8710,000 on that date.

15. $ased on the preceding information, !hat amount of good!ill !ill be reported inconsolidated financial statements presented immediatel follo!ing the combination if enithpaid 8770,000 for the acquisition*

A.80$.870,000C.8170,000D.840,000

AACSB: Anal"tic


Bloom's: *n+estan+

Diffic!lt": 1 Me+i!m%eaning &bective: (#)(2 Make calc!lations an+ b!siness combination o!nal enties in the -esence of a +iffeential. goo+3ill. o a


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(0. $ased on the preceding information, !hat amount !ill be recorded b enith as itsinvestment in lummet, if it paid 8700,000 for the acquisition*A.8;10,000$.8400,000

C.8700,000D.8710,000

AACSB: Anal"tic


Bloom's: *n+estan+



(1. $ased on the preceding information, !hat amount of good!ill !ill be reported in

consolidated financial statements presented immediatel follo!ing the combination if enithpaid 8700,000 for the acquisition*A.80$.870,000C.8170,000&.840,000

AACSB: Anal"tic


Bloom's: *n+estan+



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((. ?he fair value of net identifiable assets of a reporting unit of Compan is 800,000. On Compan"s boo%s, the carring value of this reporting unit"s net assets is 870,000,including 8;0,000 good!ill. If the fair value of the reporting unit is subsequentl 87,000,!hat amount of good!ill impairment !ill be recogni=ed for this unit*

A.80$.810,000C.8(7,000&.87,000


Bloom's: A--l"

Diffic!lt": 5 7a+



(. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90,000. ?hecarring value of the reporting unit"s net assets on D Compan"s boo%s is 8(0,000, including870,000 good!ill. If the reported good!ill impairment for the unit is 810,000, !hat !ould bethe fair value of the reporting unit*A.8(0,000B.810,000C.8(90,000&.8(50,000

AACSB: Anal"tic


Bloom's: A--l"

Diffic!lt": 5 7a+


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/ollo!ing its acquisition of the net assets of &an Compan, Empire Compan assignedgood!ill of 8;0,000 to one of the reporting divisions. Information for this division follo!s#

(4. $ased on the preceding information, !hat amount of good!ill !ill be reported for thisdivision if its fair value is determined to be 8(00,000*

A.80$.8;0,000C.80,000D.810,000

AACSB: Anal"tic

AICPA: FN Meas!ementBloom's: A--l"

Diffic!lt": 5 7a+



(7. $ased on the preceding information, !hat amount of good!ill impairment !ill berecogni=ed for this division if its fair value is determined to be 8157,000*A.87,000$.80,000C.8;0,000D.877,000

AACSB: Anal"tic


Bloom's: A--l"

Diffic!lt": 5 7a+%eaning &bective: (#)(2 Make calc!lations an+ b!siness combination o!nal enties in the -esence of a +iffeential. goo+3ill. o a


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(;. $ased on the preceding information, !hat amount of good!ill impairment !ill berecogni=ed for this division if its fair value is determined to be 8(47,000*A.80B.87,000

C.8;0,000&.877,000

AACSB: Anal"tic


Bloom's: A--l"



ublic Equit Corporation acquired enore Compan through an e'change of common

shares. All of enore"s assets and liabilities !ere immediatel transferred to ublic Equit.ublic"s common stoc% !as trading at 8(0 per share at the time of e'change. /ollo!ingselected information is also available.

(9. $ased on the preceding information, !hat number of shares !as issued at the time of thee'change*A.7,000$.19,700C.1(,700&.10,000

AACSB: Anal"tic


Bloom's: *n+estan+Diffic!lt": # $as"



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(:. $ased on the preceding information, !hat is the par value of ublic"s common stoc%*A.810$.81C.87

D.84


Bloom's: *n+estan+

Diffic!lt": # $as"



(5. $ased on the preceding information, !hat is the fair value of enore"s net assets, ifgood!ill of 87;,000 is recorded*

A.80;,000$.8(44,000C.8154,000&.800,000

AACSB: Anal"tic


Bloom's: A--l"Diffic!lt": 1 Me+i!m



ursuing an inorganic gro!th strateg, >ilson Compan acquired enus Compan"s netassets and assigned them to four separate reporting divisions. >ilson assigned total good!illof 814,000 to the four reporting divisions as given belo!#

1-(5


30/40


0. $ased on the preceding information, !hat amount of good!ill !ill be reported for Alphaat ear-end*A.80B.8(0,000

C.80,000&.810,000

AACSB: Anal"tic


Bloom's: A--l"



1. $ased on the preceding information, !hat amount of good!ill !ill be reported for $eta at

ear-end*A.80$.814,000C.84,000&.870,000


Bloom's: A--l"

Diffic!lt": 5 7a+



(. $ased on the preceding information, for )amma#A.no good!ill should be reported at ear-end.$.good!ill impairment of 80,000 should be recogni=ed at ear-end.C.good!ill impairment of 8(0,000 should be recogni=ed at ear-end.&.good!ill of 80,000 should be reported at ear-end.

AACSB: Anal"tic




1-0


31/40


. $ased on the preceding information, for &elta#A.no good!ill should be reported at ear-end.B.good!ill impairment of 817,000 should be recogni=ed at ear-end.C.good!ill impairment of 8(0,000 should be recogni=ed at ear-end.

&.good!ill of 80,000 should be reported at ear-end.


Bloom's: A--l"

Diffic!lt": 5 7a+



4. $ased on the preceding information, !hat !ould be the total amount of good!ill that>ilson should report at ear-end*

A.80B.8;5,000C.895,000&.854,000

AACSB: Anal"tic


Bloom's: A--l"Diffic!lt": 5 7a+



1-1


32/40


7. >hich of the follo!ing observations is are consistent !ith the acquisition method ofaccounting for business combinations*I. E'penses related to the business combination are e'pensed.II. +toc% issue costs are treated as a reduction in the issue price.

III. All merger and stoc% issue costs are e'pensed.I. Fo good!ill is ever recorded.A.III$.IC.I and II&.I, II, and I


AICPA: FN Re-oting

Bloom's: RemembeDiffic!lt": # $as"


;. >hich of the follo!ing observations refers to the term differential*A.E'cess of consideration e'changed over fair value of net identifiable assets.$.E'cess of fair value over boo% value of net identifiable assets.C.E'cess of consideration e'changed over boo% value of net identifiable assets.&.E'cess of fair value over historical cost of net identifiable assets.

AACSB: Reflective ThinkingAICPA: FN Re-oting

Bloom's: Remembe

Diffic!lt": # $as"



1-(


33/40


9. >hich of the follo!ing observations concerning Ggood!illG is FO? correct*A.Once !ritten do!n, it ma be !ritten up for recoveries.$.It must be tested for impairment at least annuall.C.)ood!ill impairment losses are recogni=ed in income from continuing operations or

income before e'traordinar gains and losses.&.It must be reported as a separate line item in the balance sheet.


AICPA: FN Re-oting

Bloom's: Remembe

Diffic!lt": # $as"%eaning &bective: (#)(2 Make calc!lations an+ b!siness combination o!nal enties in the -esence of a +iffeential. goo+3ill. o a


:. $ig Compan acquired the follo!ing assets and liabilities of ittle Compan fair values

listed belo! for 8490,000 cash.

Assuming these items are all recorded at their acquisition date fair values, !hat additionalitem needs to be recorded and ho! !ill it be accounted for in the future*A.80,000 )ood!ill, capitali=ed and tested for impairment$.80,000 $argain purchase, recogni=ed in current earningsC.80,000 $argain purchase, capitali=ed and recogni=ed over time

&.80,000 )ood!ill, capitali=ed and amorti=ed over time

AACSB: Anal"tic


Bloom's: *n+estan+



1-


34/40


5. aul Corp. acquired 100 percent of +am Inc."s voting stoc% on @ul 1, (01. ?hefollo!ing information !as available as of &ecember 1, (01#

Bo! much net income should be reported in aul Corp"s income statement for (01*A.890,000$.89(0,000C.8540,000&.81,050,000

AACSB: Anal"tic

AICPA: FN Meas!ementBloom's: *n+estan+



40. oint Co. purchased 50H of +harpe Corp."s voting stoc% on @anuar 1, (0( for87,7:0,000. rior to the acquisition, oint held a 10H equit position in +harpe Compan. On@anuar 1, (0( oint"s 10H investment in +harpe has a boo% value of 840,000 and a fairvalue of 8;(0,000. On @anuar 1, (0( oint records the follo!ing#A.&ebit )ain on revaluation of +harpe"s stoc% 8(:0,000$.Credit )ain on revaluation of +harpe"s stoc% 8(:0,000

C.Credit Investment in +harpe stoc% 87,:;0,000&.&ebit Investment in +harpe stoc% 8;,(00,000



Bloom's: *n+estan+Diffic!lt": 1 Me+i!m

%eaning &bective: (#)(8 *n+estan+ a++itional consi+eations associate+ 3ith b!siness combinations4

1-4


35/40


41. ?he length of the measurement period allo!ed to value the assets and liabilities in anacquired business combination starts on the date of acquisition and lasts until#A.All necessar information about the facts of the acquisition is obtained$.All necessar information about the facts of the acquisition is obtained, not to e'ceed one

monthC.All necessar information about the facts of the acquisition is obtained, not to e'ceed onereporting periodD.All necessar information about the facts of the acquisition is obtained, not to e'ceed oneear



Bloom's: Remembe

Diffic!lt": # $as"


4(. /A+$ 1413 A+C :07 requires contingent consideration in a business combination to beclassified as#A.An assetB.A liabilit or equitC.An asset or equit&.An asset or a liabilit


AICPA: FN Re-otingBloom's: Remembe

Diffic!lt": # $as"


4. /or all acquired contingencies, the acquirer should do all of the follo!ing e'cept#A.rovide documentation from the acquirer"s attorne regarding pending la!suits and loanguarantees$.rovide a description of each contingencC.&isclose the amount recogni=ed at the acquisition date&.&escribe the estimated range of possible undiscounted outcomes of the contingenc



Bloom's: Remembe

Diffic!lt": # $as"


1-7


36/40


44. /A+$ 1413 A+C :07 requires that ongoing research and development pro6ects betreated in all of the follo!ing !as e'cept#A.3ecorded at acquisition-date fair values$.Classified as intangible assets having indefinite lives

C.E'pensed immediatel&.?ested for impairment periodicall


AICPA: FN Re-oting

Bloom's: Remembe

Diffic!lt": # $as"%eaning &bective: (#)(8 *n+estan+ a++itional consi+eations associate+ 3ith b!siness combinations4

1-;


37/40


Essay Questions

47. On @anuar 1, (0:, Alas%a Corporation acquired 2ercantile Corporation"s net assets bpaing 81;0,000 cash. $alance sheet data for the t!o companies and fair value informationfor 2ercantile Corporation immediatel before the business combination are given belo!#

3equired#repare the 6ournal entr to record the acquisition of 2ercantile Corporation.

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38/40


Or if the cash paid is reported net of cash received#

AACSB: Anal"tic


Bloom's: A--l"

Diffic!lt": 1 Me+i!m%eaning &bective: (#)(6 Make calc!lations an+ -e-ae o!nal enties fo +iffeent t"-es of b!siness combinations tho!gh the

ac0!isition of stock o assets4

1-:


39/40


4;. On @anuar 1, (0:, ine Corporation acquired all of the common stoc% of +taffCompan for 800,000. On that date, +taff"s identifiable net assets had a fair value of8(70,000. ?he assets acquired in the purchase of +taff are considered to be a separatereporting unit of ine Corporation. ?he carring value of +taff"s investment at &ecember 1,

(0:, is 810,000. ?he fair value of the net assets e'cluding good!ill at that date is8((0,000 and the fair value of the reporting unit is determined to be (;0,000.3equired#1 E'plain ho! good!ill is tested for impairment for a reporting unit.( &etermine the amount, if an, of impairment loss to be recogni=ed at &ecember 1, (0:.

1 ?o test for the impairment of good!ill, the fair value of the reporting unit is compared !ithits carring amount. If the fair value of the reporting unit e'ceeds its carring amount, thegood!ill of that reporting unit is considered unimpaired. On the other hand, if the carringamount of the reporting unit e'ceeds its fair value, an impairment of the reporting unit"sgood!ill is implied. ?he amount of the reporting unit"s good!ill impairment is measured as

the e'cess of the carring amount of the unit"s good!ill over the implied value of its good!ill.?he implied value of its good!ill is determined as the e'cess of the fair value of the reportingunit over the fair value of its net assets e'cluding good!ill.( ?he 810,000 carring value e'ceeds the 8(;0,000 fair value, impling impairment.Implied good!ill J 8(;0,000 - 8((0,000 J 840,000.Impairment loss J 870,000 - 840,000 J 810,000.

AACSB: Anal"tic


Diffic!lt": 5 7a+


1-5


40/40


49. +eaine Corporation is involved in the distribution of processed marine products. ?he fairvalues of assets and liabilities held b three reporting units and other information related tothe reporting units o!ned b +eaine are as follo!s#

3equired# &etermine the amount of good!ill that +eaine should report in its currentfinancial statements.

?otal )ood!ill reported J 890,000


Bloom's: A--l"

Diffic!lt": 5 7a+



Advanced Accounting Ch01_TestBank

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