Test Bank for Advanced Accounting 11th Edition by Hoyle Link … · 2018-11-16 ·...
Transcript of Test Bank for Advanced Accounting 11th Edition by Hoyle Link … · 2018-11-16 ·...
Test Bank for Advanced Accounting 11th Edition by Hoyle
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Chapter 02
Consolidation of Financial Information
Multiple Choice Questions
1) At the date of an acquisition which is not a bargain purchase,
the acquisition method
a. consolidates the subsidiary's assets at fair value and the
liabilities at book value. b. consolidates all subsidiary assets and liabilities at book value.
c. consolidates all subsidiary assets and liabilities at fair value.
d. consolidates current assets and liabilities at book value, long-term assets
and liabilities at fair value.
e. consolidates the subsidiary's assets at book value and the
liabilities at fair value.
2) In an acquisition where control is achieved, how would the land accounts
of the parent and the land accounts of the subsidiary be combined?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
3) Lisa Co. paid cash for all of the voting common stock of Victoria Corp.
Victoria will continue to exist as a separate corporation. Entries for the
consolidation of Lisa and Victoria would be recorded in
a. a worksheet.
b. Lisa's general journal. c. Victoria's general journal. d. Victoria's secret consolidation journal.
e. the general journals of both companies.
4) Using the acquisition method for a business combination,
goodwill is generally defined as:
A. Cost of the investment less the subsidiary's book value at the beginning
of the year.
B. Cost of the investment less the subsidiary's book value at the acquisition date.
C. Cost of the investment less the subsidiary's fair value at the beginning of
the year. D. Cost of the investment less the subsidiary's fair value at acquisition date. E. is no longer allowed under federal law.
a. 5) Direct combination costs and stock issuance costs are often incurred in the
process of making a controlling investment in another company. How
should those costs be accounted for in a pre-2009 purchase transaction?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
6) How are direct and indirect costs accounted for when applying
the acquisition method for a business combination?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
7) What is the primary accounting difference between accounting for when
the subsidiary is dissolved and when the subsidiary retains its
incorporation?
a. If the subsidiary is dissolved, it will not be operated as a separate division.
b. If the subsidiary is dissolved, assets and liabilities are
consolidated at their book values.
c. If the subsidiary retains its incorporation, there will be no
goodwill associated with the acquisition.
d. If the subsidiary retains its incorporation, assets and liabilities are
consolidated at their book values.
e. If the subsidiary retains its incorporation, the consolidation is not
formally recorded in the accounting records of the acquiring
company.
8) According to GAAP, the pooling of interest method for business combinations
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.
9) An example of a difference in types of business combination is:
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. A statutory merger requires dissolution of the acquired
company while a statutory consolidation does not require
dissolution.
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.
10) Acquired in-process research and development is considered as
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.
11) Which one of the following is a characteristic of a
business combination accounted for as an acquisition?
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.
12) Which one of the following is a characteristic of a business combination that is
accounted for as an acquisition?
a. Fair value only for items received by the acquirer can enter into the
determination of the acquirer's accounting valuation of the acquired
company.
b. Fair value only for the consideration transferred by the acquirer can
enter into the determination of the acquirer's accounting valuation of
the acquired company.
c. Fair value for the consideration transferred by the acquirer as well as the
fair value of items received by the acquirer can enter into the
determination of the acquirer's accounting valuation of the acquired
company.
d. Fair value for only consideration transferred and identifiable assets
received by the acquirer can enter into the determination of the
acquirer's accounting valuation of the acquired company.
e. Only fair value of identifiable assets received enters into the
determination of the acquirer's accounting valuation of the acquired
company.
13) A statutory merger is a(n)
a. business combination in which only one of the two companies
continues to exist as a legal corporation. b. business combination in which both companies continues to exist. c. acquisition of a competitor. d. acquisition of a supplier or a customer. e. legal proposal to acquire outstanding shares of the target's stock.
14) How are stock issuance costs and direct combination costs treated in a
business combination which is accounted for as an acquisition when the
subsidiary will retain its incorporation?
a. Stock issuance costs are a part of the acquisition costs,
and the direct combination costs are expensed.
b. Direct combination costs are a part of the acquisition costs,
and the stock issuance costs are a reduction to additional
paid-in capital.
c. Direct combination costs are expensed and stock issuance
costs are a reduction to additional paid-in capital. d. Both are treated as part of the acquisition consideration transferred. e. Both are treated as a reduction to additional paid-in capital.
15) 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:
a. Assume that Bullen issued 12,000 shares of common stock with a $5 par
value and a $47 fair value to obtain all of Vicker's outstanding stock. In
this acquisition transaction, how much goodwill should be recognized?
16) $144,000.
17) $104,000. 18) $64,000. 19) $60,000. 20) $0.
21) 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:
22) 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 balance for Land as a result of this acquisition
transaction?
23) $460,000.
24) $510,000. 25) $500,000. 26) $520,000. 27) $490,000.
28) 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:
a. 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 shares of Vicker.
What will be the consolidated Additional Paid-In Capital and Retained
Earnings (January 1, 20X1 balances) as a result of this acquisition
transaction?
29) $60,000 and $490,000. 30) $60,000 and $250,000. 31) $380,000 and $250,000. 32) $464,000 and $250,000. 33) $464,000 and $420,000.
34) 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:
35) Assume that Bullen issued preferred stock with a par value of $240,000 and a
fair value of $500,000 for all of the outstanding shares of Vicker in an
acquisition business combination. What will be the balance in the
consolidated Inventory and Land accounts?
36) $440,000, $496,000. 37) $440,000, $520,000. 38) $425,000, $505,000. 39) $400,000, $500,000. 40) $427,000, $510,000.
41) 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:
a. 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?
42) $0. 43) $20,000. 44) $35,000. 45) $55,000. 46) $65,000.
47) 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:
48) 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?
49) $0. 50) $20,000. 51) $35,000. 52) $55,000. 53) $65,000
54) Prior to being united in a business combination, Botkins Inc. and
Volkerson Corp. had the following stockholders' equity figures:
a. Botkins issued 56,000 new shares of its common stock valued at $3.25
per share for all of the outstanding stock of Volkerson.
b. Assume that Botkins acquired Volkerson on January 1, 2010. At what
amount did Botkins record the investment in Volkerson?
c. $56,000. d. $182,000. e. $209,000. f. $261,000. g. $312,000.
55) Prior to being united in a business combination, Botkins Inc. and
Volkerson Corp. had the following stockholders' equity figures:
56) Botkins issued 56,000 new shares of its common stock valued at $3.25 per
share for all of the outstanding stock of Volkerson.
57) Assume that Botkins acquired Volkerson on January 1, 2010.
Immediately afterwards, what is consolidated Common Stock?
a. $456,000. b. $402,000. c. $274,000. d. $276,000. e. $330,000.
58) Chapel Hill Company had common stock of $350,000 and retained
earnings of $490,000. Blue Town Inc. had common stock of $700,000 and
retained earnings of $980,000. On January 1, 2011, Blue Town issued
34,000 shares of common stock with a $12 par value and a $35 fair value
for all of Chapel Hill Company's outstanding common stock. This
combination was accounted for as an acquisition. Immediately after the
combination, what was the total consolidated net assets?
a. $2,520,000. b. $1,190,000.
c. $1,680,000.
d. $2,870,000. e. $2,030,000.
59) Which of the following is a not a reason for a business combination
to take place?
a. Cost savings through elimination of duplicate facilities.
b. Quick entry for new and existing products into domestic and foreign markets. c. Diversification of business risk. d. Vertical integration. e. Increase in stock price of the acquired company.
60) Which of the following statements is true regarding a statutory merger?
a. The original companies dissolve while remaining as separate
divisions of a newly created company.
b. Both companies remain in existence as legal corporations
with one corporation now a subsidiary of the acquiring
company.
c. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
d. The acquiring company acquires the stock of the acquired company
as an investment. e. A statutory merger is no longer a legal option.
61) Which of the following statements is true regarding a statutory consolidation?
a. The original companies dissolve while remaining as separate
divisions of a newly created company.
b. Both companies remain in existence as legal corporations
with one corporation now a subsidiary of the acquiring
company.
c. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
d. The acquiring company acquires the stock of the acquired company
as an investment. e. A statutory consolidation is no longer a legal option.
62) 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?
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.
63) 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?
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.
64) Which of the following statements is true regarding the acquisition method
of accounting for a business combination?
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.
65) Which of the following statements is true?
a. The pooling of interests for business combinations is an
alternative to the acquisition method.
b. The purchase method for business combinations is an
alternative to the acquisition method.
c. Neither the purchase method nor the pooling of interests method is
allowed for new business combinations.
d. Any previous business combination originally accounted for under
purchase or pooling of interests accounting method will now be accounted
for under the acquisition method of accounting for business combinations.
e. Companies previously using the purchase or pooling of interests
accounting method must report a change in accounting principle when
consolidating those subsidiaries with new acquisition combinations.
66) 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):
67) 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.
68) 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.
69) In this acquisition business combination, at what amount is the
investment recorded on Goodwin's books?
70) $1,540.
71) $1,800. 72) $1,860.
73) $1,825.
a. E. $1,625.
74) 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):
75) 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.
76) 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.
77) In this acquisition business combination, what total amount of common stock
and additional paid-in capital is recorded on Goodwin's books?
78) $265. 79) $1,165.
80) $1,200.
81) $1,235.
a. E. $1,765.
82) 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):
83) 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.
84) 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.
85) Compute the consolidated revenues for 20X1.
86) $2,700. 87) $720.
88) $920. 89) $3,300.
90) $1,540.
91) 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):
a. 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.
b. 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.
c. Compute the consolidated receivables and inventory for 20X1.
92) $1,200.
93) $1,515. 94) $1,540. 95) $1,800. 96) $2,140.
97) 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):
98) 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.
99) 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.
100) Compute the consolidated expenses for 20X1.
101) $1,980.
102) $2,005. 103) $2,040. 104) $2,380.
105) $2,405.
106) 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):
a. 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.
b. 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.
c. Compute the consolidated cash account at December 31, 20X1.
107) $460. 108) $425. 109) $400. 110) $435. 111) $240.
112) 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):
113) 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.
114) 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.
115) Compute the consolidated buildings (net) account at December 31, 20X1.
116) $2,700.
117) $3,370. 118) $3,300. 119) $3,260.
120) $3,340.
121) 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):
a. 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.
b. 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.
122) Compute the consolidated equipment (net) account at December 31, 20X1.
123) $2,100.
124) $3,500. 125) $3,300. 126) $3,000. 127) $3,200.
128) 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):
129) 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.
130) 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.
131) Compute the consideration transferred for this acquisition at
December 31, 20X1.
132) $900. 133) $1,165.
134) $1,200.
135) $1,765.
a. E. $1,800.
136) 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):
137) 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.
138) 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.
139) Compute the goodwill arising from this acquisition at December 31, 20X1.
140) $0.
141) $100. 142) $125. 143) $160.
144) $45.
145) 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):
a. 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.
b. 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.
146) Compute the consolidated common stock account at December 31, 20X1.
147) $1,080.
148) $1,480. 149) $1,380. 150) $2,280.
151) $2,680.
152) 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):
153) 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.
154) 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.
155) Compute the consolidated additional paid-in capital at December 31, 20X1.
156) $810. 157) $1,350.
158) $1,675.
159) $1,910. 160) $1,875.
161) 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):
a. 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.
b. 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.
c. Compute the consolidated liabilities at December 31, 20X1.
162) $1,500.
163) $2,100. 164) $2,320. 165) $2,920. 166) $2,885.
167) 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):
168) 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.
169) 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.
170) Compute the consolidated retained earnings at December 31, 20X1.
171) $2,800.
172) $2,825. 173) $2,850. 174) $3,425.
175) $3,450.
176) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
c. What amount was recorded as the investment in Osorio?
177) $930. 178) $820. 179) $800. 180) $835.
181) $815.
182) 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:
183) Note: Parentheses indicate a credit balance.
184) 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.
185) What amount was recorded as goodwill arising from this acquisition?
186) $230. 187) $120. 188) $520. 189) None. There is a gain on bargain purchase of $230.
190) None. There is a gain on bargain purchase of $265.
191) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
c. Compute the amount of consolidated inventories at date of acquisition.
192) $1,080. 193) $1,350.
194) $1,360. 195) $1,370.
196) $290.
197) 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:
198) Note: Parentheses indicate a credit balance.
199) 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.
200) Compute the amount of consolidated buildings (net) at date of acquisition.
201) $1,700. 202) $1,760.
203) $1,640. 204) $1,320.
205) $500.
206) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
c. Compute the amount of consolidated land at date of acquisition.
207) $1,000. 208) $960.
209) $920. 210) $400.
211) $320.
212) 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:
213) Note: Parentheses indicate a credit balance.
214) 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.
215) Compute the amount of consolidated equipment at date of acquisition.
216) $480. 217) $580. 218) $559. 219) $570.
220) $560.
221) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
222) Compute the amount of consolidated common stock at date of acquisition.
223) $370. 224) $570. 225) $610. 226) $330.
227) $530.
228) 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:
229) Note: Parentheses indicate a credit balance.
230) 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.
231) Compute the amount of consolidated additional paid-in
capital at date of acquisition.
232) $1,080. 233) $1,420.
234) $1,065. 235) $1,425.
236) $1,440.
237) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
c. Compute the amount of consolidated cash after
recording the acquisition transaction.
238) $220. 239) $185. 240) $200.
241) $205. 242) $215.
243) Carnes has the following account balances as of May 1, 2010
before an acquisition transaction takes place.
244) 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.
245) On May 1, 2010, what value is assigned to Riley's investment account?
246) $150,000.
247) $300,000. 248) $750,000. 249) $760,000. 250) $1,350,000.
251) Carnes has the following account balances as of May 1, 2010
before an acquisition transaction takes place.
a. 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.
b. At the date of acquisition, by how much does Riley's additional paid-in
capital increase or decrease?
252) $0.
253) $440,000 increase. 254) $450,000 increase. 255) $640,000 increase. 256) $650,000 decrease.
257) Carnes has the following account balances as of May 1,
2010 before an acquisition transaction takes place.
258) 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.
259) What will be Riley's balance in its common stock account as
a result of this acquisition?
260) $300,000. 261) $990,000. 262) $1,000,000. 263) $1,590,000. 264) $1,600,000.
265) Carnes has the following account balances as of May 1, 2010
before an acquisition transaction takes place.
a. 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.
b. What will be the consolidated additional paid-in capital as a
result of this acquisition?
266) $440,000. 267) $740,000. 268) $750,000. 269) $940,000. 270) $950,000.
271) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
272) Note: Parenthesis indicate a credit balance
273) Assume an acquisition business combination took place at December
31, 20X1. 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.
274) Compute the investment to be recorded at date of acquisition.
275) $1,750.
276) $1,760. 277) $1,775.
278) $1,300. 279) $1,120.
280) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute the consolidated common stock at date of acquisition.
281) $1,000.
282) $2,980. 283) $2,400.
284) $3,400. 285) $3,730.
286) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
287) Note: Parenthesis indicate a credit balance
288) Assume an acquisition business combination took place at December
31, 20X1. 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.
289) Compute consolidated inventory at the date of the acquisition.
290) $1,650.
291) $1,810. 292) $1,230.
293) $580. 294) $1,830.
295) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute consolidated land at the date of the acquisition.
296) $2,060. 297) $1,800. 298) $260.
299) $2,050. 300) $2,070.
301) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
302) Note: Parenthesis indicate a credit balance
303) Assume an acquisition business combination took place at December
31, 20X1. 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.
304) Compute consolidated buildings (net) at the date of the acquisition.
305) $2,450.
306) $2,340. 307) $1,800.
308) $650. 309) $1,690.
310) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute consolidated long-term liabilities at the date of the acquisition.
311) $2,600.
312) $2,700. 313) $2,800.
314) $3,720. 315) $3,820.
316) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
317) Note: Parenthesis indicate a credit balance
318) Assume an acquisition business combination took place at December
31, 20X1. 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.
319) Compute consolidated goodwill at the date of the acquisition.
320) $360. 321) $450. 322) $460. 323) $440. 324) $475.
325) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute consolidated equipment (net) at the date of the acquisition.
326) $400. 327) $660. 328) $1,060.
329) $1,040. 330) $1,050.
331) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
332) Note: Parenthesis indicate a credit balance
333) Assume an acquisition business combination took place at December
31, 20X1. 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.
334) Compute fair value of the net assets acquired at the date of the acquisition.
335) $1,300.
336) $1,340. 337) $1,500.
338) $1,750. 339) $2,480.
340) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute consolidated retained earnings at the date of the acquisition.
341) $1,160.
342) $1,170. 343) $1,280.
344) $1,290. 345) $1,640.
346) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
347) Note: Parenthesis indicate a credit balance
348) Assume an acquisition business combination took place at December
31, 20X1. 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.
349) Compute consolidated revenues at the date of the acquisition.
350) $3,540.
351) $2,880. 352) $1,170.
353) $1,650. 354) $4,050.
355) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December
31, 20X1. 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.
c. Compute consolidated cash at the completion of the acquisition.
356) $1,350.
357) $1,085. 358) $1,110.
359) $870. 360) $845.
361) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included
are the fair values for Franz Company's net assets.
362) Note: Parenthesis indicate a credit balance
363) Assume an acquisition business combination took place at December
31, 20X1. 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.
364) Compute consolidated expenses at the date of the acquisition.
365) $2,760.
366) $2,770. 367) $2,785.
368) $3,380. 369) $3,390.
370) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute the investment to be recorded at date of acquisition.
371) $1,750. 372) $1,755.
373) $1,725. 374) $1,760.
375) E. $1,765.
376) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated inventory at date of acquisition.
377) $1,650. 378) $1,810. 379) $1,230. 380) $580.
381) E. $1,830.
382) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated land at date of acquisition.
383) $2,060. 384) $1,800. 385) $260. 386) $2,050.
387) E. $2,070.
388) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated buildings (net) at date of acquisition.
389) $2,450. 390) $2,340. 391) $1,800. 392) $650.
393) E. $1,690.
394) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated goodwill at date of acquisition.
395) $440. 396) $442. 397) $450. 398) $455.
399) E. $452.
400) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated equipment at date of acquisition.
401) $400. 402) $660. 403) $1,060. 404) $1,040.
405) E. $1,050.
406) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated retained earnings as a result of this acquisition.
407) $1,160. 408) $1,170.
409) $1,265. 410) $1,280.
411) E. $1,650.
412) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated revenues at date of acquisition.
413) $3,540. 414) $2,880.
415) $1,170. 416) $1,650.
417) E. $4,050.
418) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute consolidated expenses at date of acquisition.
419) $2,735. 420) $2,760.
421) $2,770. 422) $2,785.
423) E. $3,380.
424) 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.
a. Note: Parenthesis indicate a credit balance
b. 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).
c. Compute the consolidated cash upon completion of the acquisition.
425) $1,350. 426) $1,110.
427) $1,080. 428) $1,085.
429) E. $635.
430) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 431) The book values for both Flynn and Macek as of January 1, 20X1
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.
432) By how much will Flynn's additional paid-in capital increase as a
result of this acquisition?
433) $150. 434) $160. 435) $230. 436) $350. 437) $360.
438) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for goodwill as a result of this acquisition?
439) $30. 440) $55. 441) $65. 442) $175.
443) $200.
444) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 445) The book values for both Flynn and Macek as of January 1, 20X1
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.
446) What amount will be reported for consolidated receivables?
447) $660. 448) $640. 449) $500. 450) $460. 451) $480.
452) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated inventory?
453) $1,000. 454) $960. 455) $920. 456) $660. 457) $620.
458) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 459) The book values for both Flynn and Macek as of January 1, 20X1
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.
460) What amount will be reported for consolidated buildings (net)?
461) $1,420. 462) $1,260. 463) $1,140. 464) $1,480.
465) $1,200.
466) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated equipment (net)?
467) $385. 468) $335. 469) $435. 470) $460. 471) $360.
472) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 473) The book values for both Flynn and Macek as of January 1, 20X1
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.
474) What amount will be reported for consolidated long-term liabilities?
475) $1,520. 476) $1,480. 477) $1,440. 478) $1,180.
479) $1,100.
480) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated common stock?
481) $1,000. 482) $1,080. 483) $1,200. 484) $1,280.
485) $1,360.
486) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 487) The book values for both Flynn and Macek as of January 1, 20X1
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.
488) Assuming the combination is accounted for as a purchase, what
amount will be reported for consolidated retained earnings?
489) $1,830. 490) $1,350. 491) $1,080.
492) $1,560. 493) $1,535.
494) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated retained earnings?
495) $1,065. 496) $1,080. 497) $1,525. 498) $1,535.
499) $1,560.
500) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. 501) The book values for both Flynn and Macek as of January 1, 20X1
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.
502) What amount will be reported for consolidated additional paid-in capital?
503) $365. 504) $350. 505) $360. 506) $375. 507) $345.
508) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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. a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated cash after the
acquisition is completed?
509) $475. 510) $500. 511) $555. 512) $580. 513) $875.
514) Essay Questions
515) What term is used to refer to a business combination in which only
one of the original companies continues to exist?
516) How are stock issuance costs accounted for in an
acquisition business combination?
517) What is the primary difference between recording an acquisition
when the subsidiary is dissolved and when separate incorporation is
maintained?
518) 96. How are direct combination costs accounted for in an acquisition
transaction?
519) Peterman Co. owns 55% of Samson Co. Under what circumstances
would Peterman not be required to prepare consolidated financial
statements?
520) How would you account for in-process research and development
acquired in a business combination accounted for as an acquisition?
521) Elon Corp. obtained all of the common stock of Finley Co., paying
slightly less than the fair value of Finley's net assets acquired. How
should the difference between the consideration transferred and the fair
value of the net assets be treated if the transaction is accounted for as an
acquisition?
522) For acquisition accounting, why are assets and liabilities of the
subsidiary consolidated at fair value?
523) 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?
524) How are direct combination costs, contingent consideration, and a
bargain purchase reflected in recording an acquisition transaction?
525) How is contingent consideration accounted for in an acquisition
business combination transaction?
526) How are bargain purchases accounted for in an acquisition
business transaction?
527) Describe the accounting for direct costs, indirect costs, and
issuance costs under the acquisition method of accounting for a business
combination.
528) What is the difference in consolidated results between a business
combination whereby the acquired company is dissolved, and a business
combination whereby separate incorporation is maintained?
529) Short Answer Questions
530) Bale Co. acquired Silo Inc. on December 31, 20X1, 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 issue costs to effect the combination.
a. Required:
b. What is consolidated net income for 20X1?
531) Fine Co. issued its common stock in exchange for the common stock of
Dandy Corp. in an acquisition. At the date of the combination, Fine had land
with a book value of $480,000 and a fair value of $620,000. Dandy had land
with a book value of $170,000 and a fair value of $190,000.
a. Required:
b. What was the consolidated balance for Land in a consolidated balance
sheet prepared at the date of the acquisition combination?
532) Jernigan Corp. had the following account balances at 12/1/10:
533) 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.
534) Inglewood Inc. acquired all of the outstanding common shares of
Jernigan by issuing 20,000 shares of common stock having a $6 par
value, but a $66 fair value. Stock issuance costs amounted to $12,000.
535) Required:
536) Prepare a fair value allocation and goodwill schedule at the
date of the acquisition.
537) Salem Co. had the following account balances as of December 1, 2010:
a. 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.
b. Determine the balance for Goodwill that would be included in a
December 1, 2010, consolidation.
538) Salem Co. had the following account balances as of December 1, 2010:
539) 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.
540) Assume that Bellington paid cash of $2.8 million. No stock is
issued. An additional $50,000 is paid in direct combination costs.
541) Required:
542) For Goodwill, determine what balance would be included in a
December 1, 2010 consolidation.
543) On January 1, 2011, Chester Inc. acquired 100% of Festus Corp.'s outstanding
common stock by exchanging 37,500 shares of Chester's $2 par value common
voting stock. On January 1, 2011, Chester's voting common stock had a fair
value of $40 per share. Festus' voting common shares were selling for $6.50 per
share. Festus' balances on the acquisition date, just prior to acquisition are listed
below.
a. Required:
b. Compute the value of the Goodwill account on the date of acquisition, 1/1/11.
544) The financial statements for Jode Inc. and Lakely Corp., just prior to
their combination, for the year ending December 31, 2010, follow. Lakely's
buildings were undervalued on its financial records by $60,000.
545) On December 31, 2010, Jode issued 54,000 new shares of its $10
par value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000 to
an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely. Lakely
will retain its incorporation.
546) Prepare the journal entries to record (1) the issuance of stock by
Jode and (2) the payment of the combination costs.
547) The financial statements for Jode Inc. and Lakely Corp., just prior to their
combination, for the year ending December 31, 2010, follow. Lakely's buildings
were undervalued on its financial records by $60,000.
a. On December 31, 2010, Jode issued 54,000 new shares of its $10 par
value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000
to an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely.
Lakely will retain its incorporation.
b. Required:
c. Determine consolidated net income for the year ended December 31, 2010.
548) The financial statements for Jode Inc. and Lakely Corp., just prior to
their combination, for the year ending December 31, 2010, follow. Lakely's
buildings were undervalued on its financial records by $60,000.
549) On December 31, 2010, Jode issued 54,000 new shares of its $10
par value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000 to
an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely. Lakely
will retain its incorporation.
550) Determine consolidated Additional paid-in Capital at December 31, 2010.
551) The following are preliminary financial statements for Black Co. and Blue Co.
for the year ending December 31, 20X1.
a. On December 31, 20X1 (subsequent to the preceding statements), Black
exchanged 10,000 shares of its $10 par value common stock for all of the
outstanding shares of Blue. Black's stock on that date has a fair value of
$50 per share. Black was willing to issue 10,000 shares of stock because
Blue's land was appraised at $204,000. Black also paid $14,000 to
several attorneys and accountants who assisted in creating this
combination.
b. Required:
c. Assuming that these two companies retained their separate legal
identities, prepare a consolidation worksheet as of December 31,
20X1 assuming the transaction is treated as a purchase
combination.
552) The following are preliminary financial statements for Black Co. and
Blue Co. for the year ending December 31, 20X1 prior to Black's acquisition
of Blue.
553) On December 31, 20X1 (subsequent to the preceding statements),
Black exchanged 10,000 shares of its $10 par value common stock for all of
the outstanding shares of Blue. Black's stock on that date has a fair value of
$60 per share. Black was willing to issue 10,000 shares of stock because
Blue's land was appraised at $204,000. Black also paid $14,000 to several
attorneys and accountants who assisted in creating this combination.
554) Required:
555) Assuming that these two companies retained their separate
legal identities, prepare a consolidation worksheet as of December
31, 20X1 after the acquisition transaction is completed.
556) For each of the following situations, select the best letter answer to reflect the
effect of the numbered item on the acquirer's accounting entry at the date of
combination when separate incorporation will be maintained. Items (4) and (6)
require two selections.
a. Increase Investment account. b. Decrease Investment account. c. Increase Liabilities. d. Increase Common stock. e. Decrease common stock. f. Increase Additional paid-in capital. g. Decrease Additional paid-in capital. h. Increase Retained earnings i. Decrease Retained earnings
A. Direct costs. B. Indirect costs. C. Stock issue costs. D. Contingent consideration. E. Bargain purchase. F. In-process research and development acquired.
557) Chapter 02 Consolidation of Financial Information Answer Key
558) Multiple Choice Questions
559) At the date of an acquisition which is not a bargain
purchase, the acquisition method
a. consolidates the subsidiary's assets at fair value and the liabilities at
book value. b. consolidates all subsidiary assets and liabilities at book value.
c. consolidates all subsidiary assets and liabilities at fair value.
d. consolidates current assets and liabilities at book value, long-term
assets and liabilities at fair value.
e. consolidates the subsidiary's assets at book value and the
liabilities at fair value.
560) AACSB: Reflective thinking 561) AICPA FN: Measurement
562) Blooms: Remember 563) Difficulty: 1 Easy
a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 564) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
565) In an acquisition where control is achieved, how would the land accounts of
the parent and the land accounts of the subsidiary be combined?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
566) AACSB: Reflective thinking 567) AICPA FN: Measurement
568) Blooms: Remember 569) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
570) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
571) Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria
will continue to exist as a separate corporation. Entries for the consolidation of
Lisa and Victoria would be recorded in
a. a worksheet. b. Lisa's general journal. c. Victoria's general journal. d. Victoria's secret consolidation journal.
e. the general journals of both companies.
572) AACSB: Reflective thinking
573) AICPA FN: Measurement 574) Blooms: Remember
575) Difficulty: 1 Easy A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business i. combination if dissolution does not take place.
576) Using the acquisition method for a business combination,
goodwill is generally defined as:
a. Cost of the investment less the subsidiary's book value at the
beginning of the year.
b. Cost of the investment less the subsidiary's book value
at the acquisition date.
c. Cost of the investment less the subsidiary's fair value at the
beginning of the year. d. Cost of the investment less the subsidiary's fair value at acquisition date.
e. is no longer allowed under federal law.
577) AACSB: Reflective thinking
578) AICPA FN: Measurement 579) Blooms: Remember 580) Difficulty: 2 Medium
581) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
582) Direct combination costs and stock issuance costs are often
incurred in the process of making a controlling investment in another
company. How should those costs be accounted for in a pre-2009
purchase transaction?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
583) AACSB: Reflective thinking 584) AICPA FN: Measurement
585) Blooms: Remember 586) Difficulty: 2 Medium
587) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of
interest methods of accounting for past business combinations. Understand the effects that persist today in financial
statements from the use of these legacy methods.
588) How are direct and indirect costs accounted for when applying
the acquisition method for a business combination?
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
589) AACSB: Reflective thinking 590) AICPA FN: Measurement
591) Blooms: Remember 592) Difficulty: 1 Easy
593) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
594) What is the primary accounting difference between accounting for when the
subsidiary is dissolved and when the subsidiary retains its incorporation?
a. If the subsidiary is dissolved, it will not be operated as a separate division.
b. If the subsidiary is dissolved, assets and liabilities are consolidated
at their book values.
c. If the subsidiary retains its incorporation, there will be
no goodwill associated with the acquisition.
d. If the subsidiary retains its incorporation, assets and
liabilities are consolidated at their book values.
e. If the subsidiary retains its incorporation, the consolidation is not formally
recorded in the accounting records of the acquiring company.
595) AACSB: Reflective thinking
596) AICPA FN: Measurement 597) Blooms: Understand 598) Difficulty: 2 Medium
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
599) According to GAAP, the pooling of interest method for business
combinations
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.
600) AACSB: Reflective thinking
601) AICPA FN: Measurement 602) Blooms: Remember
603) Difficulty: 1 Easy 604) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of
interest methods of accounting for past business combinations. Understand the effects that persist today in financial
statements from the use of these legacy methods.
605) An example of a difference in types of business combination is:
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. A statutory merger requires dissolution of the acquired company
while a statutory consolidation does not require dissolution.
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.
606) AACSB: Reflective thinking
607) AICPA FN: Measurement 608) Blooms: Remember
609) Difficulty: 3 Hard a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of
business combinations.
610) Acquired in-process research and development is considered as
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.
611) AACSB: Reflective thinking
612) AICPA FN: Measurement 613) Blooms: Remember
614) Difficulty: 1 Easy a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a business
combination.
615) Which one of the following is a characteristic of a
business combination accounted for as an acquisition?
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.
616) AACSB: Reflective thinking
617) AICPA FN: Measurement 618) Blooms: Remember
619) Difficulty: 1 Easy 620) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
621) Which one of the following is a characteristic of a business
combination that is accounted for as an acquisition?
a. Fair value only for items received by the acquirer can enter
into the determination of the acquirer's accounting valuation of
the acquired company.
b. Fair value only for the consideration transferred by the acquirer can
enter into the determination of the acquirer's accounting valuation of
the acquired company.
c. Fair value for the consideration transferred by the acquirer as well as the
fair value of items received by the acquirer can enter into the
determination of the acquirer's accounting valuation of the acquired
company.
d. Fair value for only consideration transferred and identifiable assets
received by the acquirer can enter into the determination of the
acquirer's accounting valuation of the acquired company.
e. Only fair value of identifiable assets received enters into the
determination of the acquirer's accounting valuation of the acquired
company.
622) AACSB: Reflective thinking
623) AICPA FN: Measurement 624) Blooms: Understand
625) Difficulty: 3 Hard 626) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
627) A statutory merger is a(n)
a. business combination in which only one of the two companies
continues to exist as a legal corporation. b. business combination in which both companies continues to exist.
c. acquisition of a competitor. d. acquisition of a supplier or a customer.
e. legal proposal to acquire outstanding shares of the target's stock.
628) AACSB: Reflective thinking
629) AICPA FN: Measurement 630) Blooms: Remember 631) Difficulty: 2 Medium
a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business i. combinations.
632) How are stock issuance costs and direct combination costs treated in a
business combination which is accounted for as an acquisition when the
subsidiary will retain its incorporation?
a. Stock issuance costs are a part of the acquisition costs, and
the direct combination costs are expensed.
b. Direct combination costs are a part of the acquisition costs, and the
stock issuance costs are a reduction to additional paid-in capital.
c. Direct combination costs are expensed and stock issuance costs
are a reduction to additional paid-in capital.
d. Both are treated as part of the acquisition consideration transferred. e. Both are treated as a reduction to additional paid-in capital.
633) AACSB: Reflective thinking
634) AICPA FN: Measurement 635) Blooms: Remember 636) Difficulty: 2 Medium
637) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. Learning
Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
638) 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:
639) Assume that Bullen issued 12,000 shares of common stock with
a $5 par value and a $47 fair value to obtain all of Vicker's outstanding
stock. In this acquisition transaction, how much goodwill should be
recognized?
640) $144,000. 641) $104,000. 642) $64,000. 643) $60,000. 644) $0.
645) AACSB: Analytic
646) AICPA FN: Measurement 647) Blooms: Apply
648) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
649) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
650) 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:
a. 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 balance for Land as a result of this acquisition
transaction?
651) $460,000. 652) $510,000. 653) $500,000. 654) $520,000. 655) $490,000.
656) AACSB: Analytic
657) AICPA FN: Measurement 658) Blooms: Apply
659) Difficulty: 2 Medium 660) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
661) 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:
662) 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 shares of Vicker.
What will be the consolidated Additional Paid-In Capital and Retained
Earnings (January 1, 20X1 balances) as a result of this acquisition
transaction?
663) $60,000 and $490,000. 664) $60,000 and $250,000. 665) $380,000 and $250,000. 666) $464,000 and $250,000. 667) $464,000 and $420,000.
668) AACSB: Analytic
669) AICPA FN: Measurement 670) Blooms: Apply
671) Difficulty: 3 Hard a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
672) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
673) 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:
a. Assume that Bullen issued preferred stock with a par value of $240,000
and a fair value of $500,000 for all of the outstanding shares of Vicker in
an acquisition business combination. What will be the balance in the
consolidated Inventory and Land accounts?
674) $440,000, $496,000. 675) $440,000, $520,000. 676) $425,000, $505,000. 677) $400,000, $500,000. 678) $427,000, $510,000.
679) AACSB: Analytic
680) AICPA FN: Measurement 681) Blooms: Apply
682) Difficulty: 2 Medium 683) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
684) 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:
685) 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?
686) $0. 687) $20,000. 688) $35,000. 689) $55,000. 690) $65,000.
691) AACSB: Analytic
692) AICPA FN: Measurement 693) Blooms: Apply
694) Difficulty: 2 Medium 695) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that
fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
696) 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:
a. 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?
697) $0. 698) $20,000. 699) $35,000. 700) $55,000. 701) $65,000
702) AACSB: Analytic
703) AICPA FN: Measurement 704) Blooms: Apply
705) Difficulty: 2 Medium 706) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
707) Prior to being united in a business combination, Botkins
Inc. and Volkerson Corp. had the following stockholders' equity
figures:
708) Botkins issued 56,000 new shares of its common stock valued
at $3.25 per share for all of the outstanding stock of Volkerson.
709) Assume that Botkins acquired Volkerson on January 1, 2010.
At what amount did Botkins record the investment in Volkerson?
a. $56,000. b. $182,000. c. $209,000. d. $261,000. e. $312,000.
i. AACSB: Analytic ii. AICPA FN: Measurement iii. Blooms: Apply iv. Difficulty: 1 Easy
b. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 710) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
711) Prior to being united in a business combination, Botkins Inc. and
Volkerson Corp. had the following stockholders' equity figures:
a. Botkins issued 56,000 new shares of its common stock valued at
$3.25 per share for all of the outstanding stock of Volkerson.
b. Assume that Botkins acquired Volkerson on January 1,
2010. Immediately afterwards, what is consolidated
Common Stock?
c. $456,000. d. $402,000. e. $274,000. f. $276,000. g. $330,000.
712) AACSB: Analytic
713) AICPA FN: Measurement 714) Blooms: Apply
715) Difficulty: 2 Medium 716) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
717) Chapel Hill Company had common stock of $350,000 and retained
earnings of $490,000. Blue Town Inc. had common stock of $700,000 and
retained earnings of $980,000. On January 1, 2011, Blue Town issued
34,000 shares of common stock with a $12 par value and a $35 fair value for
all of Chapel Hill Company's outstanding common stock. This combination
was accounted for as an acquisition. Immediately after the combination, what
was the total consolidated net assets?
a. $2,520,000.
b. $1,190,000.
c. $1,680,000. d. $2,870,000. e. $2,030,000.
718) AACSB: Analytic
719) AICPA FN: Measurement 720) Blooms: Apply
721) Difficulty: 2 Medium 722) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that
fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
723) Which of the following is a not a reason for a business
combination to take place?
a. Cost savings through elimination of duplicate facilities.
b. Quick entry for new and existing products into
domestic and foreign markets. c. Diversification of business risk. d. Vertical integration.
e. Increase in stock price of the acquired company.
724) AACSB: Reflective thinking
725) AICPA FN: Measurement 726) Blooms: Remember
727) Difficulty: 1 Easy 728) Learning Objective: 02-01 Discuss the motives for business combinations.
729) Which of the following statements is true regarding a statutory merger?
a. The original companies dissolve while remaining as separate divisions
of a newly created company.
b. Both companies remain in existence as legal corporations with one
corporation now a subsidiary of the acquiring company.
c. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
d. The acquiring company acquires the stock of the acquired company
as an investment.
e. A statutory merger is no longer a legal option.
730) AACSB: Reflective thinking 731) AICPA FN: Measurement
732) Blooms: Remember 733) Difficulty: 2 Medium
A. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of
business combinations.
734) Which of the following statements is true regarding a statutory consolidation?
a. The original companies dissolve while remaining as separate divisions
of a newly created company.
b. Both companies remain in existence as legal corporations with one
corporation now a subsidiary of the acquiring company.
c. The acquired company dissolves as a separate corporation and
becomes a division of the acquiring company.
d. The acquiring company acquires the stock of the acquired company
as an investment. e. A statutory consolidation is no longer a legal option.
735) AACSB: Reflective thinking
736) AICPA FN: Measurement 737) Blooms: Remember 738) Difficulty: 2 Medium
A. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of
business combinations.
739) 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?
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.
740) AACSB: Reflective thinking 741) AICPA FN: Measurement
742) Blooms: Analyze 743) Difficulty: 2 Medium
a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 744) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
745) 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?
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.
746) AACSB: Reflective thinking
747) AICPA FN: Measurement 748) Blooms: Remember
749) Difficulty: 1 Easy a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
750) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
751) Which of the following statements is true regarding the acquisition
method of accounting for a business combination?
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.
752) AACSB: Reflective thinking
753) AICPA FN: Measurement 754) Blooms: Remember 755) Difficulty: 2 Medium
756) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
757) Which of the following statements is true?
a. The pooling of interests for business combinations is an alternative
to the acquisition method.
b. The purchase method for business combinations is an alternative to the
acquisition method.
c. Neither the purchase method nor the pooling of interests method
is allowed for new business combinations.
d. Any previous business combination originally accounted for under purchase
or pooling of interests accounting method will now be accounted for under
the acquisition method of accounting for business combinations.
e. Companies previously using the purchase or pooling of interests
accounting method must report a change in accounting principle when
consolidating those subsidiaries with new acquisition combinations.
758) AACSB: Reflective thinking
759) AICPA FN: Measurement 760) Blooms: Remember 761) Difficulty: 2 Medium
762) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of interest
methods of accounting for past business combinations. Understand the effects that persist today in financial statements
from the use of these legacy methods.
763) 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):
764) 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.
765) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
766) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
767) In this acquisition business combination, at what
amount is the investment recorded on Goodwin's books?
768) $1,540. 769) $1,800. 770) $1,860.
771) $1,825. 772) $1,625.
773) AACSB: Analytic
774) AICPA FN: Measurement 775) Blooms: Apply
776) Difficulty: 2 Medium A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
777) 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):
778) 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.
779) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
780) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
781) In this acquisition business combination, what total amount of
common stock and additional paid-in capital is recorded on
Goodwin's books?
782) $265. 783) $1,165.
784) $1,200.
785) $1,235. 786) $1,765.
787) AACSB: Analytic
788) AICPA FN: Measurement 789) Blooms: Apply
790) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 791) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
792) 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):
793) 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.
794) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
795) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
796) Compute the consolidated revenues for 20X1.
797) $2,700. 798) $720. 799) $920. 800) $3,300.
801) $1,540.
802) AACSB: Analytic 803) AICPA FN: Measurement
804) Blooms: Apply 805) Difficulty: 1 Easy
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
806) 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):
807) 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.
808) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
809) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
810) Compute the consolidated receivables and inventory for 20X1.
811) $1,200.
812) $1,515. 813) $1,540. 814) $1,800.
815) $2,140.
816) AACSB: Analytic 817) AICPA FN: Measurement
818) Blooms: Apply 819) Difficulty: 1 Easy
820) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
821) 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):
822) 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.
823) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
824) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
825) Compute the consolidated expenses for 20X1.
826) $1,980.
827) $2,005. 828) $2,040. 829) $2,380.
830) $2,405.
831) AACSB: Analytic 832) AICPA FN: Measurement
833) Blooms: Apply 834) Difficulty: 2 Medium
835) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
836) 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):
837) 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.
838) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
839) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
840) Compute the consolidated cash account at December 31, 20X1.
841) $460. 842) $425. 843) $400. 844) $435.
845) $240.
846) AACSB: Analytic 847) AICPA FN: Measurement
848) Blooms: Apply 849) Difficulty: 2 Medium
850) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
851) 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):
852) 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.
853) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
854) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
855) Compute the consolidated buildings (net) account at December 31, 20X1.
856) $2,700.
857) $3,370. 858) $3,300. 859) $3,260.
860) $3,340.
861) AACSB: Analytic 862) AICPA FN: Measurement
863) Blooms: Apply 864) Difficulty: 2 Medium
865) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
866) 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):
867) 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.
868) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
869) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
870) Compute the consolidated equipment (net) account at December 31, 20X1.
871) $2,100.
872) $3,500. 873) $3,300. 874) $3,000.
875) $3,200.
876) AACSB: Analytic 877) AICPA FN: Measurement
878) Blooms: Apply 879) Difficulty: 2 Medium
880) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
881) 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):
882) 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.
883) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
884) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
885) Compute the consideration transferred for this acquisition at
December 31, 20X1.
886) $900. 887) $1,165. 888) $1,200.
889) $1,765. 890) $1,800.
891) AACSB: Analytic
892) AICPA FN: Measurement 893) Blooms: Apply
894) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 895) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
896) 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):
897) 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.
898) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
899) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
900) Compute the goodwill arising from this acquisition at December 31, 20X1.
901) $0.
902) $100. 903) $125. 904) $160.
905) $45.
906) AACSB: Analytic 907) AICPA FN: Measurement
908) Blooms: Apply 909) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
910) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
911) 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):
912) 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.
913) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
914) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
915) Compute the consolidated common stock account at December 31, 20X1.
916) $1,080.
917) $1,480. 918) $1,380. 919) $2,280.
920) $2,680.
921) AACSB: Analytic 922) AICPA FN: Measurement
923) Blooms: Apply 924) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
925) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
926) 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):
927) 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.
928) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
929) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
930) Compute the consolidated additional paid-in capital at December 31, 20X1.
931) $810. 932) $1,350. 933) $1,675.
934) $1,910.
935) $1,875.
936) AACSB: Analytic 937) AICPA FN: Measurement
938) Blooms: Apply 939) Difficulty: 3 Hard
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
940) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
941) 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):
942) 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.
943) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
944) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
945) Compute the consolidated liabilities at December 31, 20X1.
946) $1,500.
947) $2,100. 948) $2,320. 949) $2,920.
950) $2,885.
951) AACSB: Analytic 952) AICPA FN: Measurement
953) Blooms: Apply 954) Difficulty: 2 Medium
955) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
956) 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):
957) 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.
958) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid
959) $35 in stock issuance costs. Corr's equipment was actually worth
$1,400 but its buildings were only valued at $560.
960) Compute the consolidated retained earnings at December 31, 20X1.
961) $2,800.
962) $2,825. 963) $2,850. 964) $3,425.
965) $3,450.
966) AACSB: Analytic 967) AICPA FN: Measurement
968) Blooms: Apply 969) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
970) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
971) On January 1, 20X1, the Moody Company entered into a transaction for 972) 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:
973) Note: Parentheses indicate a credit balance.
974) 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.
975) What amount was recorded as the investment in Osorio?
976) $930. 977) $820.
978) $800. 979) $835. 980) $815.
981) AACSB: Analytic
982) AICPA FN: Measurement 983) Blooms: Apply
984) Difficulty: 2 Medium a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
985) On January 1, 20X1, the Moody Company entered into a transaction for a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. What amount was recorded as goodwill arising from this acquisition?
986) $230. 987) $120. 988) $520. 989) None. There is a gain on bargain purchase of $230. 990) None. There is a gain on bargain purchase of $265.
i. AACSB: Analytic
991) AICPA FN: Measurement i. Blooms: Apply
992) Difficulty: 2 Medium 993) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
994) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that
fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
995) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. Compute the amount of consolidated inventories at date of acquisition.
996) $1,080.
997) $1,350.
998) $1,360. 999) $1,370. 1000) $290.
1001) AACSB: Analytic
1002) AICPA FN: Measurement 1003) Blooms: Apply
1004) Difficulty: 2 Medium 1005) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
1006) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
1007) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1008) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. Compute the amount of consolidated buildings (net) at date of acquisition.
1009) $1,700.
1010) $1,760.
1011) $1,640. 1012) $1,320. 1013) $500.
1014) AACSB: Analytic
1015) AICPA FN: Measurement 1016) Blooms: Apply
1017) Difficulty: 2 Medium 1018) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
1019) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. 1020) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes
place. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1021) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. Compute the amount of consolidated land at date of acquisition.
1022) $1,000. 1023) $960.
1024) $920. 1025) $400. 1026) $320.
1027) AACSB: Analytic
1028) AICPA FN: Measurement 1029) Blooms: Apply
1030) Difficulty: 2 Medium 1031) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
1032) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
1033) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1034) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
1035) Compute the amount of consolidated equipment at date of acquisition.
1036) $480. 1037) $580.
1038) $559. 1039) $570. 1040) $560.
1041) AACSB: Analytic
1042) AICPA FN: Measurement 1043) Blooms: Apply
1044) Difficulty: 2 Medium 1045) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair
1046) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. 1047) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes
place. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1048) 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:
a. Note: Parentheses indicate a credit balance.
b. 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.
c. Compute the amount of consolidated common stock at date of acquisition.
1049) $370. 1050) $570.
1051) $610. 1052) $330. 1053) $530.
1054) AACSB: Analytic
1055) AICPA FN: Measurement 1056) Blooms: Apply
1057) Difficulty: 2 Medium 1058) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1059) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1060) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. Compute the amount of consolidated additional paid-in capital at
date of acquisition.
1061) $1,080. 1062) $1,420. 1063) $1,065. 1064) $1,425. 1065) $1,440.
i. AACSB: Analytic
1066) AICPA FN: Measurement i. Blooms: Apply
1067) Difficulty: 3 Hard 1068) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1069) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1070) On January 1, 20X1, the Moody Company entered into a transaction for
a. 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:
b. Note: Parentheses indicate a credit balance.
c. 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.
d. Compute the amount of consolidated cash after
recording the acquisition transaction.
1071) $220. 1072) $185. 1073) $200. 1074) $205. 1075) $215.
i. AACSB: Analytic
1076) AICPA FN: Measurement i. Blooms: Apply
ii. Difficulty: 2 Medium 1077) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1078) Carnes has the following account balances as of May 1,
2010 before an acquisition transaction takes place.
1079) The fair value of Carnes' Land and Buildings are $650,000 and $550,000,
1080) respectively. On May 1, 2010, Riley Company issues 30,000 shares of its
1081) $10 par value ($25 fair value) common stock in exchange for all of the shares
1082) of Carnes' common stock. Riley paid $10,000 for costs to issue the new
1083) shares of stock. Before the acquisition, Riley has $700,000 in its common
1084) stock account and $300,000 in its additional paid-in capital account.
1085) On May 1, 2010, what value is assigned to Riley's investment account?
1086) $150,000. 1087) $300,000. 1088) $750,000. 1089) $760,000. 1090) $1,350,000.
1091) AACSB: Analytic
1092) AICPA FN: Measurement 1093) Blooms: Apply
1094) Difficulty: 1 Easy a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
1095) Carnes has the following account balances as of May 1, 2010 before
an acquisition transaction takes place.
a. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,
b. respectively. On May 1, 2010, Riley Company issues 30,000 shares of its
c. $10 par value ($25 fair value) common stock in exchange for all of the shares
d. of Carnes' common stock. Riley paid $10,000 for costs to issue the new
e. shares of stock. Before the acquisition, Riley has $700,000 in its common
f. stock account and $300,000 in its additional paid-in capital account.
g. At the date of acquisition, by how much does Riley's additional
paid-in capital increase or decrease?
1096) $0. 1097) $440,000 increase. 1098) $450,000 increase.
1099) $640,000 increase. 1100) $650,000 decrease.
1101) AACSB: Analytic
1102) AICPA FN: Measurement 1103) Blooms: Apply
1104) Difficulty: 1 Easy i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 1105) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1106) Carnes has the following account balances as of May 1,
2010 before an acquisition transaction takes place.
1107) The fair value of Carnes' Land and Buildings are $650,000 and $550,000,
1108) respectively. On May 1, 2010, Riley Company issues 30,000 shares of its
1109) $10 par value ($25 fair value) common stock in exchange for all of the shares
1110) of Carnes' common stock. Riley paid $10,000 for costs to issue the new
1111) shares of stock. Before the acquisition, Riley has $700,000 in its common
1112) stock account and $300,000 in its additional paid-in capital account.
1113) What will be Riley's balance in its common stock account as a
result of this acquisition?
1114) $300,000. 1115) $990,000. 1116) $1,000,000. 1117) $1,590,000.
1118) $1,600,000.
1119) AACSB: Analytic
1120) AICPA FN: Measurement 1121) Blooms: Apply
1122) Difficulty: 1 Easy a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1123) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1124) Carnes has the following account balances as of May 1, 2010
before an acquisition transaction takes place.
a. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,
b. respectively. On May 1, 2010, Riley Company issues 30,000 shares of its
c. $10 par value ($25 fair value) common stock in exchange for all of the shares
d. of Carnes' common stock. Riley paid $10,000 for costs to issue the new
e. shares of stock. Before the acquisition, Riley has $700,000 in its common
f. stock account and $300,000 in its additional paid-in capital account.
g. What will be the consolidated additional paid-in capital as a
result of this acquisition?
1125) $440,000. 1126) $740,000. 1127) $750,000. 1128) $940,000. 1129) $950,000.
1130) AACSB: Analytic
1131) AICPA FN: Measurement 1132) Blooms: Apply
1133) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 1134) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
1135) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1136) Note: Parenthesis indicate a credit balance
1137) Assume an acquisition business combination took place at December
31, 20X1. 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.
1138) Compute the investment to be recorded at date of acquisition.
1139) $1,750.
1140) $1,760. 1141) $1,775.
1142) $1,300. 1143) $1,120.
1144) AACSB: Analytic
1145) AICPA FN: Measurement 1146) Blooms: Apply
1147) Difficulty: 2 Medium a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
1148) The financial balances for the Atwood Company and the Franz Company as
of December 31, 20X1, are presented below. Also included are the fair values for
Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December 31,
20X1. 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.
c. Compute the consolidated common stock at date of acquisition.
1149) $1,000.
1150) $2,980. 1151) $2,400.
1152) $3,400. 1153) $3,730.
1154) AACSB: Analytic
1155) AICPA FN: Measurement 1156) Blooms: Apply
1157) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method.
1158) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1159) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1160) Note: Parenthesis indicate a credit balance
1161) Assume an acquisition business combination took place at December
31, 20X1. 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.
1162) Compute consolidated inventory at the date of the acquisition.
1163) $1,650. 1164) $1,810.
1165) $1,230. 1166) $580. 1167) $1,830.
i. AACSB: Analytic 1168) AICPA FN: Measurement i. Blooms: Apply
ii. Difficulty: 2 Medium 1169) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1170) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1171) Note: Parenthesis indicate a credit balance
1172) Assume an acquisition business combination took place at December
31, 20X1. 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.
1173) Compute consolidated land at the date of the acquisition.
1174) $2,060. 1175) $1,800. 1176) $260.
1177) $2,050. 1178) $2,070.
1179) AACSB: Analytic
1180) AICPA FN: Measurement 1181) Blooms: Apply
1182) Difficulty: 2 Medium 1183) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place.
A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that
form a business combination if dissolution does not take place.
1184) The financial balances for the Atwood Company and the Franz Company as
of December 31, 20X1, are presented below. Also included are the fair values for
Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December 31,
20X1. 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.
c. Compute consolidated buildings (net) at the date of the acquisition.
1185) $2,450.
1186) $2,340. 1187) $1,800. 1188) $650. 1189) $1,690.
1190) AACSB: Analytic
1191) AICPA FN: Measurement 1192) Blooms: Apply
1193) Difficulty: 2 Medium
1194) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1195) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1196) Note: Parenthesis indicate a credit balance
1197) Assume an acquisition business combination took place at December
31, 20X1. 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.
1198) Compute consolidated long-term liabilities at the date of the acquisition.
1199) $2,600.
1200) $2,700.
1201) $2,800. 1202) $3,720. 1203) $3,820.
i. AACSB: Analytic
1204) AICPA FN: Measurement 1205) Blooms: Apply
1206) Difficulty: 2 Medium 1207) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1208) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1209) Note: Parenthesis indicate a credit balance
1210) Assume an acquisition business combination took place at December
31, 20X1. 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.
1211) Compute consolidated goodwill at the date of the acquisition.
1212) $360. 1213) $450. 1214) $460.
1215) $440. 1216) $475.
1217) AACSB: Analytic
1218) AICPA FN: Measurement 1219) Blooms: Apply
1220) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1221) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1222) The financial balances for the Atwood Company and the Franz Company as
of December 31, 20X1, are presented below. Also included are the fair values for
Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December 31,
20X1. 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.
1223) Compute consolidated equipment (net) at the date of the acquisition.
1224) $400. 1225) $660. 1226) $1,060. 1227) $1,040.
1228) $1,050.
i. AACSB: Analytic
1229) AICPA FN: Measurement i. Blooms: Apply
ii. Difficulty: 2 Medium 1230) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1231) The financial balances for the Atwood Company and the Franz Company as
of December 31, 20X1, are presented below. Also included are the fair values for
Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December 31,
20X1. 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.
c. Compute fair value of the net assets acquired at the date of the acquisition.
1232) $1,300.
1233) $1,340. 1234) $1,500.
1235) $1,750. 1236) $2,480.
1237) AACSB: Analytic
1238) AICPA FN: Measurement 1239) Blooms: Apply
1240) Difficulty: 2 Medium 1241) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1242) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1243) Note: Parenthesis indicate a credit balance
1244) Assume an acquisition business combination took place at December
31, 20X1. 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.
1245) Compute consolidated retained earnings at the date of the acquisition.
1246) $1,160.
1247) $1,170. 1248) $1,280.
1249) $1,290. 1250) $1,640.
1251) AACSB: Analytic
1252) AICPA FN: Measurement 1253) Blooms: Apply
1254) Difficulty: 3 Hard
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
b. Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1255) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1256) Note: Parenthesis indicate a credit balance
1257) Assume an acquisition business combination took place at December
31, 20X1. 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.
1258) Compute consolidated revenues at the date of the acquisition.
1259) $3,540.
1260) $2,880. 1261) $1,170.
1262) $1,650. 1263) $4,050.
1264) AACSB: Analytic
1265) AICPA FN: Measurement 1266) Blooms: Apply
1267) Difficulty: 2 Medium a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1268) The financial balances for the Atwood Company and the Franz Company as
of December 31, 20X1, are presented below. Also included are the fair values for
Franz Company's net assets.
a. Note: Parenthesis indicate a credit balance
b. Assume an acquisition business combination took place at December 31,
20X1. 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.
c. Compute consolidated cash at the completion of the acquisition.
1269) $1,350. 1270) $1,085.
1271) $1,110. 1272) $870. 1273) $845.
1274) AACSB: Analytic
1275) AICPA FN: Measurement 1276) Blooms: Apply
1277) Difficulty: 2 Medium 1278) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1279) The financial balances for the Atwood Company and the Franz
Company as of December 31, 20X1, are presented below. Also included are
the fair values for Franz Company's net assets.
1280) Note: Parenthesis indicate a credit balance
1281) Assume an acquisition business combination took place at December
31, 20X1. 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.
1282) Compute consolidated expenses at the date of the acquisition.
1283) $2,760. 1284) $2,770.
1285) $2,785. 1286) $3,380.
1287) $3,390.
i. AACSB: Analytic 1288) AICPA FN: Measurement i. Blooms: Apply
ii. Difficulty: 2 Medium 1289) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1290) 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.
1291) Note: Parenthesis indicate a credit balance
1292) 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).
1293) Compute the investment to be recorded at date of acquisition.
1294) $1,750.
1295) $1,755. 1296) $1,725. 1297) $1,760.
1298) $1,765.
1299) AACSB: Analytic 1300) AICPA FN: Measurement
1301) Blooms: Apply 1302) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
B. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1303) 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.
1304) Note: Parenthesis indicate a credit balance
1305) 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).
1306) Compute consolidated inventory at date of acquisition.
1307) $1,650.
1308) $1,810. 1309) $1,230. 1310) $580.
1311) $1,830.
1312) AACSB: Analytic 1313) AICPA FN: Measurement
1314) Blooms: Apply 1315) Difficulty: 2 Medium
1316) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1317) 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.
1318) Note: Parenthesis indicate a credit balance
1319) 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).
1320) Compute consolidated land at date of acquisition.
1321) $2,060.
1322) $1,800. 1323) $260. 1324) $2,050.
1325) $2,070.
1326) AACSB: Analytic 1327) AICPA FN: Measurement
1328) Blooms: Apply 1329) Difficulty: 2 Medium
1330) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1331) 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.
1332) Note: Parenthesis indicate a credit balance
1333) 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).
1334) Compute consolidated buildings (net) at date of acquisition.
1335) $2,450.
1336) $2,340. 1337) $1,800. 1338) $650.
1339) $1,690.
1340) AACSB: Analytic 1341) AICPA FN: Measurement
1342) Blooms: Apply 1343) Difficulty: 2 Medium
1344) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1345) 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.
1346) Note: Parenthesis indicate a credit balance
1347) 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).
1348) Compute consolidated goodwill at date of acquisition.
1349) $440. 1350) $442. 1351) $450. 1352) $455.
1353) $452.
1354) AACSB: Analytic 1355) AICPA FN: Measurement
1356) Blooms: Apply 1357) Difficulty: 2 Medium
1358) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1359) 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.
1360) Note: Parenthesis indicate a credit balance
1361) 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).
1362) Compute consolidated equipment at date of acquisition.
1363) $400. 1364) $660. 1365) $1,060. 1366) $1,040.
1367) $1,050.
1368) AACSB: Analytic 1369) AICPA FN: Measurement
1370) Blooms: Apply 1371) Difficulty: 2 Medium
1372) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1373) 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.
1374) Note: Parenthesis indicate a credit balance
1375) 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).
1376) Compute consolidated retained earnings as a result of this acquisition.
1377) $1,160.
1378) $1,170. 1379) $1,265. 1380) $1,280.
1381) $1,650.
1382) AACSB: Analytic 1383) AICPA FN: Measurement
1384) Blooms: Apply 1385) Difficulty: 3 Hard
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1386) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1387) 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.
1388) Note: Parenthesis indicate a credit balance
1389) 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).
1390) Compute consolidated revenues at date of acquisition.
1391) $3,540.
1392) $2,880. 1393) $1,170. 1394) $1,650.
1395) $4,050.
1396) AACSB: Analytic 1397) AICPA FN: Measurement
1398) Blooms: Apply 1399) Difficulty: 2 Medium
1400) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1401) 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.
1402) Note: Parenthesis indicate a credit balance
1403) 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).
1404) Compute consolidated expenses at date of acquisition.
1405) $2,735.
1406) $2,760. 1407) $2,770. 1408) $2,785.
1409) $3,380.
1410) AACSB: Analytic 1411) AICPA FN: Measurement
1412) Blooms: Apply 1413) Difficulty: 2 Medium
1414) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1415) 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.
1416) Note: Parenthesis indicate a credit balance
1417) 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).
1418) Compute the consolidated cash upon completion of the acquisition.
1419) $1,350.
1420) $1,110. 1421) $1,080. 1422) $1,085.
1423) $635.
1424) AACSB: Analytic 1425) AICPA FN: Measurement
1426) Blooms: Apply 1427) Difficulty: 2 Medium
1428) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1429) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1430) The book values for both Flynn and Macek as of January 1, 20X1
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.
1431) By how much will Flynn's additional paid-in capital increase as a
result of this acquisition?
1432) $150. 1433) $160. 1434) $230. 1435) $350. 1436) $360.
1437) AACSB: Analytic
1438) AICPA FN: Measurement 1439) Blooms: Apply
1440) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1441) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. 1442) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place.
1443) Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
1444) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for goodwill as a result of this acquisition?
1445) $30. 1446) $55. 1447) $65. 1448) $175. 1449) $200.
1450) AACSB: Analytic
1451) AICPA FN: Measurement 1452) Blooms: Apply
1453) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 1454) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. 1455) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution
takes place.
1456) Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
1457) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1458) The book values for both Flynn and Macek as of January 1, 20X1
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.
1459) What amount will be reported for consolidated receivables?
1460) $660. 1461) $640. 1462) $500. 1463) $460.
1464) $480.
1465) AACSB: Analytic
1466) AICPA FN: Measurement 1467) Blooms: Apply
1468) Difficulty: 2 Medium 1469) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1470) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated inventory?
1471) $1,000. 1472) $960. 1473) $920. 1474) $660. 1475) $620.
1476) AACSB: Analytic
1477) AICPA FN: Measurement 1478) Blooms: Apply
1479) Difficulty: 2 Medium 1480) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1481) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1482) The book values for both Flynn and Macek as of January 1, 20X1
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.
1483) What amount will be reported for consolidated buildings (net)?
1484) $1,420. 1485) $1,260. 1486) $1,140. 1487) $1,480. 1488) $1,200.
1489) AACSB: Analytic
1490) AICPA FN: Measurement 1491) Blooms: Apply
1492) Difficulty: 2 Medium 1493) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1494) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated equipment (net)?
1495) $385. 1496) $335. 1497) $435. 1498) $460. 1499) $360.
1500) AACSB: Analytic
1501) AICPA FN: Measurement 1502) Blooms: Apply
1503) Difficulty: 2 Medium 1504) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1505) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1506) The book values for both Flynn and Macek as of January 1, 20X1
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.
1507) What amount will be reported for consolidated long-term liabilities?
1508) $1,520. 1509) $1,480. 1510) $1,440. 1511) $1,180. 1512) $1,100.
1513) AACSB: Analytic
1514) AICPA FN: Measurement 1515) Blooms: Apply
1516) Difficulty: 2 Medium 1517) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1518) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated common stock?
1519) $1,000. 1520) $1,080. 1521) $1,200. 1522) $1,280. 1523) $1,360.
1524) AACSB: Analytic
1525) AICPA FN: Measurement 1526) Blooms: Apply
1527) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 1528) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1529) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1530) The book values for both Flynn and Macek as of January 1, 20X1
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.
1531) Assuming the combination is accounted for as a purchase, what
amount will be reported for consolidated retained earnings?
1532) $1,830.
1533) $1,350.
1534) $1,080. 1535) $1,560. 1536) $1,535.
1537) AACSB: Analytic
1538) AICPA FN: Measurement 1539) Blooms: Apply
1540) Difficulty: 2 Medium 1541) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and
pooling of interest methods of accounting for past business combinations. Understand the effects that persist today in
financial statements from the use of these legacy methods.
1542) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated retained earnings?
1543) $1,065. 1544) $1,080. 1545) $1,525. 1546) $1,535. 1547) $1,560.
1548) AACSB: Analytic
1549) AICPA FN: Measurement 1550) Blooms: Apply
1551) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the
acquisition method. 1552) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1553) Flynn acquires 100 percent of the outstanding voting shares of
Macek Company on January 1, 20X1. 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.
1554) The book values for both Flynn and Macek as of January 1, 20X1
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.
1555) What amount will be reported for consolidated additional paid-in capital?
1556) $365. 1557) $350. 1558) $360. 1559) $375. 1560) $345.
1561) AACSB: Analytic
1562) AICPA FN: Measurement 1563) Blooms: Apply
1564) Difficulty: 3 Hard a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1565) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1566) Flynn acquires 100 percent of the outstanding voting shares of Macek
Company on January 1, 20X1. 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.
a. The book values for both Flynn and Macek as of January 1, 20X1 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.
b. What amount will be reported for consolidated cash after the
acquisition is completed?
1567) $475. 1568) $500. 1569) $555. 1570) $580. 1571) $875.
1572) AACSB: Analytic
1573) AICPA FN: Measurement 1574) Blooms: Apply
1575) Difficulty: 3 Hard 1576) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1577) Essay Questions
1578) What term is used to refer to a business combination in which only
one of the original companies continues to exist?
1579) The appropriate term is statutory merger.
1580) AACSB: Reflective thinking 1581) AICPA FN: Measurement
1582) Blooms: Remember 1583) Difficulty: 2 Medium
a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of
business combinations.
1584) How are stock issuance costs accounted for in an
acquisition business combination?
1585) Stock issuance costs reduce the balance in the acquirer's
Additional Paid-In Capital in an acquisition business combination.
1586) AACSB: Reflective thinking
1587) AICPA FN: Measurement 1588) Blooms: Remember 1589) Difficulty: 2 Medium
1590) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1591) What is the primary difference between recording an acquisition when the
subsidiary is dissolved and when separate incorporation is maintained?
a. When the subsidiary is dissolved, the acquirer records in its books
the fair value of individual assets and liabilities acquired as well as
the resulting goodwill from the acquisition. However, when separate
incorporation is maintained, the acquirer only records the total fair
value of assets and liabilities acquired, as well as the resulting
goodwill, in one account as an investment.
1592) AACSB: Reflective thinking
1593) AICPA FN: Measurement 1594) Blooms: Remember 1595) Difficulty: 2 Medium
1596) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1597) How are direct combination costs accounted for in an acquisition transaction?
a. In an acquisition, direct combination costs are expensed in the
period of the acquisition.
1598) AACSB: Reflective thinking
1599) AICPA FN: Measurement 1600) Blooms: Remember 1601) Difficulty: 2 Medium
1602) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1603) Peterman Co. owns 55% of Samson Co. Under what circumstances
would Peterman not be required to prepare consolidated financial
statements?
1604) Peterman would not be required to prepare consolidated financial
statements if control of Samson is temporary or if, despite majority
ownership, Peterman does not have control over Samson. A lack of control
might exist if Samson is in a country that imposes restrictions on Peterman's
actions.
1605) AACSB: Reflective thinking
1606) AICPA FN: Measurement 1607) Blooms: Understand 1608) Difficulty: 2 Medium
a. Learning Objective: 02-02 Recognize when consolidation of financial information into a single set of
statements is necessary. Learning Objective: 02-03 Define the term business combination and differentiate
across various forms of business combinations.
1609) How would you account for in-process research and development
acquired in a business combination accounted for as an acquisition?
1610) In-Process Research and Development is capitalized as an asset
of the combination and reported as intangible assets with indefinite lives
subject to impairment reviews.
1611) AACSB: Reflective thinking
1612) AICPA FN: Measurement 1613) Blooms: Remember 1614) Difficulty: 2 Medium
a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a
business combination.
1615) Elon Corp. obtained all of the common stock of Finley Co., paying slightly
less than the fair value of Finley's net assets acquired. How should the
difference between the consideration transferred and the fair value of the net
assets be treated if the transaction is accounted for as an acquisition?
a. The difference between the consideration transferred and the fair
value of the net assets acquired is recognized as a gain on bargain
purchase.
1616) AACSB: Reflective thinking
1617) AICPA FN: Measurement 1618) Blooms: Remember 1619) Difficulty: 2 Medium
1620) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1621) For acquisition accounting, why are assets and liabilities of
the subsidiary consolidated at fair value?
a. The acquisition transaction is assumed to occur through an orderly
transaction between market participants at the measurement date of the
acquisition. Thus identified assets and liabilities acquired have been
assigned fair value for the transfer to the acquirer and this is a relevant
and faithful representation for consolidation.
1622) AACSB: Reflective thinking
1623) AICPA FN: Measurement 1624) Blooms: Remember 1625) Difficulty: 2 Medium
1626) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1627) 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?
1628) While the Goodwill does not appear on the Parent company's
books, it is implied as part of the account called Investment in
Subsidiary. During the consolidation process, the Investment account is
broken down into its component parts. Goodwill, along with other items
such as subsidiary fair value adjustments, is then shown separately as
part of the consolidated financial statement balances.
1629) AACSB: Reflective thinking
1630) AICPA FN: Measurement 1631) Blooms: Understand 1632) Difficulty: 2 Medium
a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a
business combination.
1633) How are direct combination costs, contingent consideration,
and a bargain purchase reflected in recording an acquisition
transaction?
1634) The acquisition method embraces a fair value concept as measured
by the fair value of consideration transferred. (1) Direct combination costs are
expensed as incurred; (2) Contingent consideration obligations are
recognized at their present value of the potential obligation as part of the
acquisition consideration transferred; (3) When a bargain purchase occurs,
the acquirer measures and recognizes the fair values of each of the assets
acquired and liabilities assumed at the date of the combination, and as a
result a gain on the bargain purchase is recognized at the acquisition date.
1635) AACSB: Reflective thinking
1636) AICPA FN: Measurement 1637) Blooms: Remember 1638) Difficulty: 2 Medium
a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 1639) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1640) How is contingent consideration accounted for in an
acquisition business combination transaction?
a. The fair value approach of the acquisition method views contingent
payments as part of the consideration transferred. Under this view,
contingencies have a value to those who receive the consideration and
represent measurable obligations of the acquirer. The amount of the
contingent consideration is measured as the expected present value of a
potential payment and increases the investment value recorded.
1641) AACSB: Reflective thinking
1642) AICPA FN: Measurement 1643) Blooms: Remember 1644) Difficulty: 2 Medium
1645) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1646) How are bargain purchases accounted for in an
acquisition business transaction?
a. A bargain purchase results when the collective fair values of the net
identified assets acquired and liabilities assumed exceed the fair value of
consideration transferred. The assets and liabilities acquired are recorded at
their fair values and the bargain purchase is recorded as a Gain on Bargain
Purchase.
1647) AACSB: Reflective thinking
1648) AICPA FN: Measurement 1649) Blooms: Remember 1650) Difficulty: 2 Medium
1651) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1652) Describe the accounting for direct costs, indirect costs, and issuance
costs under the acquisition method of accounting for a business
combination.
1653) Direct and indirect combination costs are expensed and
issuance costs reduce the otherwise fair value of the consideration
issued under the acquisition method of accounting for business
combinations.
1654) AACSB: Reflective thinking
1655) AICPA FN: Measurement 1656) Blooms: Remember 1657) Difficulty: 2 Medium
1658) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1659) What is the difference in consolidated results between a
business combination whereby the acquired company is dissolved, and
a business combination whereby separate incorporation is maintained?
1660) There is no difference in consolidated results.
1661) AACSB: Reflective thinking 1662) AICPA FN: Measurement
1663) Blooms: Remember 1664) Difficulty: 1 Easy
a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1665) Short Answer Questions
1666) Bale Co. acquired Silo Inc. on December 31, 20X1, 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 issue costs to effect the combination.
a. Required:
b. What is consolidated net income for 20X1?
c. Note: Silo's net income does not affect consolidated net income until
after the date of acquisition. The combination costs belong to Bale
only.
1667) AACSB: Analytic
1668) AICPA FN: Measurement 1669) Blooms: Apply
1670) Difficulty: 2 Medium 1671) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the
accounts of two companies that form a business combination if dissolution does not take place.
1672) Fine Co. issued its common stock in exchange for the common
stock of Dandy Corp. in an acquisition. At the date of the combination, Fine
had land with a book value of $480,000 and a fair value of $620,000.
Dandy had land with a book value of $170,000 and a fair value of
$190,000.
1673) Required:
1674) What was the consolidated balance for Land in a consolidated
balance sheet prepared at the date of the acquisition combination?
1675) AACSB: Analytic
1676) AICPA FN: Measurement 1677) Blooms: Apply
1678) Difficulty: 2 Medium 1679) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1680) Jernigan Corp. had the following account balances at 12/1/10:
a. 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.
b. Inglewood Inc. acquired all of the outstanding common shares of
Jernigan by issuing 20,000 shares of common stock having a $6 par
value, but a $66 fair value. Stock issuance costs amounted to $12,000.
c. Required:
d. Prepare a fair value allocation and goodwill schedule at the
date of the acquisition.
i. AACSB: Analytic
1681) AICPA FN: Measurement i. Blooms: Apply
1682) Difficulty: 2 Medium 1683) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1684) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1685) Salem Co. had the following account balances as of December 1, 2010:
1686) 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.
1687) Determine the balance for Goodwill that would be included in a
December 1, 2010, consolidation.
1688) AACSB: Analytic
1689) AICPA FN: Measurement 1690) Blooms: Apply
1691) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1692) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1693) 111. Salem Co. had the following account balances as of December 1, 2010:
a. 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.
b. Assume that Bellington paid cash of $2.8 million. No stock is issued. c. An additional $50,000 is paid in direct combination costs.
d. Required:
e. For Goodwill, determine what balance would be included in a
December 1, 2010 consolidation.
1694) AACSB: Analytic 1695) AICPA FN: Measurement
1696) Blooms: Apply 1697) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1698) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place.
1699) On January 1, 2011, Chester Inc. acquired 100% of Festus Corp.'s
outstanding common stock by exchanging 37,500 shares of Chester's $2
par value common voting stock. On January 1, 2011, Chester's voting
common stock had a fair value of $40 per share. Festus' voting common
shares were selling for $6.50 per share. Festus' balances on the acquisition
date, just prior to acquisition are listed below.
1700) Required:
1701) Compute the value of the Goodwill account on the date of acquisition, 1/1/11.
1702) AACSB: Analytic
1703) AICPA FN: Measurement 1704) Blooms: Apply
1705) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1706) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two
companies that form a business combination if dissolution does not take place.
1707) The financial statements for Jode Inc. and Lakely Corp., just prior to
their combination, for the year ending December 31, 2010, follow. Lakely's
buildings were undervalued on its financial records by $60,000.
a. On December 31, 2010, Jode issued 54,000 new shares of its $10 par
value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000
to an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely. Lakely
will retain its incorporation.
b. Prepare the journal entries to record (1) the issuance of stock by Jode
and (2) the payment of the combination costs.
c. Entry One - To record the issuance of common stock by Jode to
execute the purchase.
d. Entry Two - To record the combination costs.
1708) AACSB: Analytic
1709) AICPA FN: Measurement 1710) Blooms: Apply
1711) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1712) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition
and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a
gain on bargain purchase. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1713) The financial statements for Jode Inc. and Lakely Corp., just prior to
their combination, for the year ending December 31, 2010, follow. Lakely's
buildings were undervalued on its financial records by $60,000.
a. On December 31, 2010, Jode issued 54,000 new shares of its $10 par
value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000
to an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely.
Lakely will retain its incorporation.
b. Required:
c. Determine consolidated net income for the year ended December 31, 2010.
1714) AACSB: Analytic 1715) AICPA FN: Measurement
1716) Blooms: Apply 1717) Difficulty: 2 Medium
A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
i. combination if dissolution does not take place.
1718) The financial statements for Jode Inc. and Lakely Corp., just
prior to their combination, for the year ending December 31, 2010,
follow. Lakely's buildings were undervalued on its financial records by
$60,000.
1719) On December 31, 2010, Jode issued 54,000 new shares of its $10
par value stock in exchange for all the outstanding shares of Lakely. Jode's
shares had a fair value on that date of $35 per share. Jode paid $34,000 to
an investment bank for assisting in the arrangements. Jode also paid
$24,000 in stock issuance costs to effect the acquisition of Lakely. Lakely
will retain its incorporation.
1720) Determine consolidated Additional paid-in Capital at December 31, 2010.
1721) AACSB: Analytic
1722) AICPA FN: Measurement 1723) Blooms: Apply
1724) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1725) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase.
A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that
form a business combination if dissolution does not take place.
1726) The following are preliminary financial statements for Black Co.
and Blue Co. for the year ending December 31, 20X1.
1727) On December 31, 20X1 (subsequent to the preceding statements),
Black exchanged 10,000 shares of its $10 par value common stock for all
of the outstanding shares of Blue. Black's stock on that date has a fair
value of $50 per share. Black was willing to issue 10,000 shares of stock
because Blue's land was appraised at $204,000. Black also paid $14,000 to
several attorneys and accountants who assisted in creating this
combination.
1728) Required:
1729) Assuming that these two companies retained their separate legal
identities, prepare a consolidation worksheet as of December 31, 20X1
assuming the transaction is treated as a purchase combination.
1730) Bargain Purchase Acquisition Consolidation Worksheet
i. AACSB: Analytic ii. AICPA FN: Measurement iii. Blooms: Apply
1731) Difficulty: 3 Hard 1732) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1733) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a
business combination if dissolution does not take place.
1734) The following are preliminary financial statements for Black Co. and Blue Co. for
the year ending December 31, 20X1 prior to Black's acquisition of Blue.
a. On December 31, 20X1 (subsequent to the preceding statements),
Black exchanged 10,000 shares of its $10 par value common stock for
all of the outstanding shares of Blue. Black's stock on that date has a
fair value of $60 per share. Black was willing to issue 10,000 shares of
stock because Blue's land was appraised at $204,000. Black also paid
$14,000 to several attorneys and accountants who assisted in creating
this combination.
b. Required:
c. Assuming that these two companies retained their separate legal
identities, prepare a consolidation worksheet as of December 31,
20X1 after the acquisition transaction is completed.
d. Acquisition Consolidation Worksheet
1735) AACSB: Analytic 1736) AICPA FN: Measurement
1737) Blooms: Apply 1738) Difficulty: 3 Hard
a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
b. Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase. A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that
form a business combination if dissolution does not take place.
1739) For each of the following situations, select the best letter answer to reflect the
effect of the numbered item on the acquirer's accounting entry at the date of
combination when separate incorporation will be maintained. Items (4) and
a. (6) require two selections.
1740) Increase Investment account. 1741) Decrease Investment account. 1742) Increase Liabilities. 1743) Increase Common stock. 1744) Decrease common stock. 1745) Increase Additional paid-in capital. 1746) Decrease Additional paid-in capital. 1747) Increase Retained earnings 1748) Decrease Retained earnings
A. Direct costs. B. Indirect costs. C. Stock issue costs. D. Contingent consideration. E. Bargain purchase. F. In-process research and development acquired.
b. I; (2) I; (3) G; (4) A, C; (5) H; (6) A, I
1749) AACSB: Reflective thinking
1750) AICPA FN: Measurement 1751) Blooms: Understand 1752) Difficulty: 2 Medium
i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
1753) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and
allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on
bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if
dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts
of two companies that form a business combination if dissolution does not take place. B. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a
business i. combination.