Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Chapter 01 Intercorporate Acquisitions and Investments in Other Entities

Multiple Choice Questions

In order to reduce the risk associated with a new line of business, Conservative Corporation established pin Compan! as a wholl! owned subsidiar!" It transferred assets and accounts pa!able to pin in e#chan$e for its common stock" pin recorded the followin$ entr! when the transaction occurred%

1" &ased on the precedin$ information, what number of shares of '( par value stock did pin issue to Conservative) A" 10,000 &" (,000 C" *,000 +" ,-,000

," &ased on the precedin$ information, what was Conservative.s book value of assets transferred to pin Compan!) A" ',/0,000 &" ',10,000 C" ',,1,000 +" ',01,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0" &ased on the precedin$ information, what amount did Conservative report as its investment in pin after the transfer of assets and liabilities) A" '1*1,000 &" ',,1,000 C" ',10,000 +" ',/0,000

/" &ased on the precedin$ information, immediatel! after the transfer, A" Conservative.s total assets decreased b! ',0,000" &" Conservative.s total assets decreased b! ',0,000" C" Conservative.s total assets increased b! '-1,000" +" Conservative.s total assets remained the same"

+urin$ its inception, +evon Compan! purchased land for '100,000 and a buildin$ for '1*0,000" After e#actl! 0 !ears, it transferred these assets and cash of '-0,000 to a newl! created subsidiar!, 2e$an Compan!, in e#chan$e for 1-,000 shares of 2e$an.s '10 par value stock" +evon uses strai$ht-line depreciation" 3seful life for the buildin$ is 00 !ears, with 4ero residual value" An appraisal revealed that the buildin$ has a fair value of ',00,000"

-" &ased on the information provided, at the time of the transfer, 2e$an Compan! should record% A" &uildin$ at '1*0,000 and no accumulated depreciation" &" &uildin$ at '11,,000 and no accumulated depreciation" C" &uildin$ at ',00,000 and accumulated depreciation of ',/,000" +" &uildin$ at '1*0,000 and accumulated depreciation of '1*,000"

1" &ased on the information provided, what amount would be reported b! +evon Compan! as investment in 2e$an Compan! common stock) A" '01,,000 &" '1*0,000 C" '000,000 +" '1-0,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

(" &ased on the precedin$ information, 2e$an Compan! will report A" additional paid-in capital of '0" &" additional paid-in capital of '1-0,000" C" additional paid-in capital of '11,,000" +" additional paid-in capital of '1*0,000"

*" &urrou$h Corporation concluded that the fair value of 5el!ar Compan! was '*0,000 and paid that amount to acquire all of its net assets" 5el!ar reported assets with a book value of '10,000 and fair value of '6*,000 and liabilities with a book value and fair value of ',0,000 on the date of combination" &urrou$h also paid '0,000 to a search firm for finder.s fees related to the acquisition" 7hat amount will be recorded as $oodwill b! &urrou$h Corporation while recordin$ its investment in 5el!ar) A" '0 &" '-,000 C" '*,000 +" '10,000

8lummet Corporation reported the book value of its net assets at '/00,000 when 9enith Corporation acquired 100 percent ownership" :he fair value of 8lummet.s net assets was determined to be '-10,000 on that date"

6" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '--0,000 for the acquisition) A" '0 &" '-0,000 C" '1-0,000 +" '/0,000

10" &ased on the precedin$ information, what amount will be recorded b! 9enith as its investment in 8lummet, if it paid '-00,000 for the acquisition) A" '110,000 &" '/00,000 C" '-00,000 +" '-10,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

11" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '-00,000 for the acquisition) A" '0 &" '-0,000 C" '1-0,000 +" '/0,000

Octane Compan! and &io Compan! have announced terms of an e#chan$e a$reement under which Octane will issue 10,000 shares of its '- par value common stock to acquire all of &io.s assets" Octane shares are tradin$ at ',*, and &io.s '10 par value shares are tradin$ at '1-" 5istorical cost and fair value balance sheet data on ;anuar! 1, ,00*, are as follows%

1," &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for &uildin$s and Equipment <net= in the combined compan!.s balance sheet) A" '000,000 &" '0(0,000 C" '000,000 +" '0/0,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

10" &ased on the information provided, what amount will be reported for Common tock in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" ',00,000 &" ',-0,000 C" '000,000 +" ',10,000

1/" &ased on the information provided, what amount will be reported for Additional 8aid-In Capital in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" '10,000 &" '*0,000 C" '010,000 +" ',60,000

1-" &ased on the information provided, what amount of $oodwill will be reported immediatel! followin$ the business combination in the combined compan!.s balance sheet) A" '0 &" '-0,000 C" '/0,000 +" '10-,000

11" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for 2etained Earnin$s in the combined compan!.s balance sheet) A" '1(0,000 &" ',,-,000 C" '11-,000 +" ',10,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1(" :he fair value of net identifiable assets of a reportin$ unit of > Compan! is '000,000" On > Compan!.s books, the carr!in$ value of this reportin$ unit.s net assets is '0-0,000, includin$ '10,000 $oodwill" If the fair value of the reportin$ unit is '00-,000, what amount of $oodwill impairment will be reco$ni4ed for this unit) A" '0 &" '10,000 C" ',-,000 +" '0-,000

1*" :he fair value of net identifiable assets of a reportin$ unit of ? Compan! is ',(0,000" :he carr!in$ value of the reportin$ unit.s net assets on ? Compan!.s books is '0,0,000, includin$ '-0,000 $oodwill" If the reported $oodwill impairment for the unit is '10,000, what would be the fair value of the reportin$ unit) A" '0,0,000 &" '010,000 C" ',(0,000 +" ',60,000

@ollowin$ its acquisition of the net assets of +an Compan!, Empire Compan! assi$ned $oodwill of '10,000 to one of the reportin$ divisions" Information for this division follows%

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

16" &ased on the precedin$ information, what amount of $oodwill will be reported for this division if its fair value is determined to be ',00,000) A" '0 &" '10,000 C" '00,000 +" '10,000

,0" &ased on the precedin$ information, what amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be '16-,000) A" '-,000 &" '00,000 C" '10,000 +" '--,000

,1" &ased on the precedin$ information, what amount of amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be ',/-,000) A" '0 &" '00,000 C" '10,000 +" '--,000

8ublic Equit! Corporation acquired Aenore Compan! throu$h an e#chan$e of common shares" All of Aenore.s assets and liabilities were immediatel! transferred to 8ublic Equit!" 8ublic.s common stock was tradin$ at ',0 per share at the time of e#chan$e" @ollowin$ selected information is also available"

1-(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

,," &ased on the precedin$ information, what number of shares was issued at the time of the e#chan$e) A" -,000 &" 1(,-00 C" 1,,-00 +" 10,000

,0" &ased on the precedin$ information, what is the par value of 8ublic.s common stock) A" '10 &" '1 C" '+" '/

,/" &ased on the precedin$ information, what is the fair value of Aenore.s net assets, if $oodwill of '-1,000 is recorded) A" '001,000 &" ',//,000 C" '16/,000 +" '000,000

8ursuin$ an inor$anic $rowth strate$!, 7ilson Compan! acquired Benus Compan!.s net assets and assi$ned them to four separate reportin$ divisions" 7ilson assi$ned total $oodwill of '10/,000 to the four reportin$ divisions as $iven below%

1-*

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

,-" &ased on the precedin$ information, what amount of $oodwill will be reported for Alpha at !ear-end) A" '0 &" ',0,000 C" '00,000 +" '10,000

,1" &ased on the precedin$ information, what amount of $oodwill will be reported for &eta at !ear-end) A" '0 &" '1/,000 C" '0/,000 +" '-0,000

,(" &ased on the precedin$ information, for Camma% A" no $oodwill should be reported at !ear-end" &" $oodwill impairment of '00,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of ',0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '00,000 should be reported at !ear-end"

,*" &ased on the precedin$ information, for +elta% A" no $oodwill should be reported at !ear-end" &" $oodwill impairment of '1-,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of ',0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '00,000 should be reported at !ear-end"

,6" &ased on the precedin$ information, what would be the total amount of $oodwill that 7ilson should report at !ear-end) A" '0 &" '16,000 C" '(6,000 +" '6/,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

2ivendell Corporation and @oster Compan! mer$ed as of ;anuar! 1, ,006" :o effect the mer$er, 2ivendell paid finder.s fees of '/0,000, le$al fees of '10,000, audit fees related to the stock issuance of '10,000, stock re$istration fees of '-,000, and stock listin$ application fees of '/,000"

00" &ased on the precedin$ information, under the acquisition method, what amount relatin$ to the business combination would be e#pensed) A" '(,,000 &" '16,000 C" '-0,000 +" '10,000

01" &ased on the precedin$ information, under the acquisition method% A" '(,,000 of stock issue costs are treated as $oodwill" &" '16,000 of stock issue costs are treated as a reduction in the issue price" C" '16,000 of stock issue costs are e#pensed" +" '(,,000 of stock issue costs are e#pensed"

0," 3sin$ the precedin$ information, what amount would have been e#pensed if the purchase method of accountin$ was used) A" '0 &" '16,000 C" '-0,000 +" '(,,000

00" 3sin$ the precedin$ information, what amount would have been e#pensed if the poolin$of-interests method of accountin$ was used) A" '0 &" '16,000 C" '-0,000 +" '(,,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0/" 7hich of the followin$ observations is <are= consistent with the acquisition method of accountin$ for business combinations) I" E#penses related to the business combination are e#pensed" II" tock issue costs are treated as a reduction in the issue price" III" All mer$er and stock issue costs are e#pensed" IB" Do $oodwill is ever recorded" A" III &" IB C" I and II +" I, II, and IB

0-" 7hich of the followin$ situations best describes a business combination to be accounted for as a statutor! mer$er) A" &oth companies in a combination continue to operate as separate, but related, le$al entities" &" Onl! one of the combinin$ companies survives and the other loses its separate identit!" C" :wo companies combine to form a new third compan!, and the ori$inal two companies are dissolved" +" One compan! transfers assets to another compan! it has created"

01" A statutor! consolidation is a t!pe of business combination in which% A" one of the combinin$ companies survives and the other loses its separate identit!" &" one compan! acquires the votin$ shares of the other compan! and the two companies continue to operate as separate le$al entities" C" two publicl! traded companies a$ree to share a board of directors" +" each of the combinin$ companies is dissolved and the net assets of both companies are transferred to a newl! created corporation"

0(" 7hich of the followin$ observations refers to the term differential) A" E#cess of consideration e#chan$ed over fair value of net identifiable assets" &" E#cess of fair value over book value of net identifiable assets" C" E#cess of consideration e#chan$ed over book value of net identifiable assets" +" E#cess of fair value over historical cost of net identifiable assets"

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0*" 7hich of the followin$ observations concernin$ E$oodwillE is DO: correct) A" Once written down, it ma! be written up for recoveries" &" It must be tested for impairment at least annuall!" C" Coodwill impairment losses are reco$ni4ed in income from continuin$ operations or income before e#traordinar! $ains and losses" +" It must be reported as a separate line item in the balance sheet"

06" Assumin$ no impairment in value prior to transfer, assets transferred b! a parent compan! to another entit! it has created should be recorded b! the newl! created entit! at the assets.% A" cost to the parent compan!" &" book value on the parent compan!.s books at the date of transfer" C" fair value at the date of transfer" +" fair value of consideration e#chan$ed b! the newl! created entit!"

Essay Questions

/0" On ;anuar! 1, ,00*, Aine Corporation acquired all of the common stock of taff Compan! for '000,000" On that date, taff.s identifiable net assets had a fair value of ',-0,000" :he assets acquired in the purchase of taff are considered to be a separate reportin$ unit of Aine Corporation" :he carr!in$ value of taff.s investment at +ecember 01, ,00*, is '010,000" :he fair value of the net assets <e#cludin$ $oodwill= at that date is ',,0,000 and the fair value of the reportin$ unit is determined to be ,10,000" 2equired% 1= E#plain how $oodwill is tested for impairment for a reportin$ unit" ,= +etermine the amount, if an!, of impairment loss to be reco$ni4ed at +ecember 01, ,00*"

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/1" 5a!nes Corporation entered into an a$reement with +ie$o Compan! to establish 5F+ 8artnership" 5a!nes a$reed to transfer the followin$ assets to 5F+ for *0 percent ownership, and +ie$o a$reed to transfer '1,0,000 cash to the partnership for ,0 percent ownership"

2equired% 1" Cive the Gournal entries that 5a!nes Corporation and +ie$o Compan! recorded for their transfer of assets and accounts pa!able to 5F+ 8artnership" Cive the Gournal entries that 5F+ recorded for its receipt of assets and accounts pa!able from 5a!nes and +ie$o"

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/," Envire Corporation acquired all the assets and liabilities of C@C Corporation b! issuin$ shares of its common stock On ;anuar! 1, ,006" 8artial balance sheet data for the companies prior to the business combination and immediatel! followin$ the combination is provided%

2equired% 7hat number of shares did Envire issue for this acquisition) At what price was Envire stock tradin$ when stock was issued for this acquisition) 7hat was the fair value of the net assets held b! C@C at the date of combination) 7hat amount of $oodwill will be reported b! the combined entit! immediatel! followin$ the combination) 7hat balance in retained earnin$s will the combined entit! report immediatel! followin$ the combination)

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/0" On ;anuar! 1, ,00*, Alaska Corporation acquired Hercantile Corporation.s net assets b! pa!in$ '110,000 cash" &alance sheet data for the two companies and fair value information for Hercantile Corporation immediatel! before the business combination are $iven below%

2equired% 8repare a combined balance sheet immediatel! followin$ the acquisition"

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

//" eaAine Corporation is involved in the distribution of processed marine products" :he fair values of assets and liabilities held b! three reportin$ units and other information related to the reportin$ units owned b! eaAine are as follows%

2equired% +etermine the amount of $oodwill that eaAine should report in its current financial statements"

Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Answer Ie!

Multiple Choice Questions

1-11

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

In order to reduce the risk associated with a new line of business, Conservative Corporation established pin Compan! as a wholl! owned subsidiar!" It transferred assets and accounts pa!able to pin in e#chan$e for its common stock" pin recorded the followin$ entr! when the transaction occurred%

1" &ased on the precedin$ information, what number of shares of '( par value stock did pin issue to Conservative) A" 10,000 &" (,000 C. *,000 +" ,-,000

AACSB: Analytic AICPA: Measurement

," &ased on the precedin$ information, what was Conservative.s book value of assets transferred to pin Compan!) A" ',/0,000 &" ',10,000 C" ',,1,000 D. ',01,000

AACSB: Analytic AICPA: Measurement

1-1(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0" &ased on the precedin$ information, what amount did Conservative report as its investment in pin after the transfer of assets and liabilities) A. '1*1,000 &" ',,1,000 C" ',10,000 +" ',/0,000

AACSB: Analytic AICPA: Measurement

/" &ased on the precedin$ information, immediatel! after the transfer, A" Conservative.s total assets decreased b! ',0,000" B. Conservative.s total assets decreased b! ',0,000" C" Conservative.s total assets increased b! '-1,000" +" Conservative.s total assets remained the same"

AACSB: Analytic AICPA: Measurement

+urin$ its inception, +evon Compan! purchased land for '100,000 and a buildin$ for '1*0,000" After e#actl! 0 !ears, it transferred these assets and cash of '-0,000 to a newl! created subsidiar!, 2e$an Compan!, in e#chan$e for 1-,000 shares of 2e$an.s '10 par value stock" +evon uses strai$ht-line depreciation" 3seful life for the buildin$ is 00 !ears, with 4ero residual value" An appraisal revealed that the buildin$ has a fair value of ',00,000"

-" &ased on the information provided, at the time of the transfer, 2e$an Compan! should record% A" &uildin$ at '1*0,000 and no accumulated depreciation" &" &uildin$ at '11,,000 and no accumulated depreciation" C" &uildin$ at ',00,000 and accumulated depreciation of ',/,000" D. &uildin$ at '1*0,000 and accumulated depreciation of '1*,000"

AACSB: Analytic AICPA: Measurement

1-1*

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1" &ased on the information provided, what amount would be reported b! +evon Compan! as investment in 2e$an Compan! common stock) A. '01,,000 &" '1*0,000 C" '000,000 +" '1-0,000

AACSB: Analytic AICPA: Measurement

(" &ased on the precedin$ information, 2e$an Compan! will report A" additional paid-in capital of '0" &" additional paid-in capital of '1-0,000" C. additional paid-in capital of '11,,000" +" additional paid-in capital of '1*0,000"

AACSB: Analytic AICPA: Measurement

*" &urrou$h Corporation concluded that the fair value of 5el!ar Compan! was '*0,000 and paid that amount to acquire all of its net assets" 5el!ar reported assets with a book value of '10,000 and fair value of '6*,000 and liabilities with a book value and fair value of ',0,000 on the date of combination" &urrou$h also paid '0,000 to a search firm for finder.s fees related to the acquisition" 7hat amount will be recorded as $oodwill b! &urrou$h Corporation while recordin$ its investment in 5el!ar) A" '0 B. '-,000 C" '*,000 +" '10,000

AACSB: Analytic AICPA: Measurement

8lummet Corporation reported the book value of its net assets at '/00,000 when 9enith Corporation acquired 100 percent ownership" :he fair value of 8lummet.s net assets was determined to be '-10,000 on that date"

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

6" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '--0,000 for the acquisition) A" '0 &" '-0,000 C" '1-0,000 D. '/0,000

AACSB: Analytic AICPA: Measurement

10" &ased on the precedin$ information, what amount will be recorded b! 9enith as its investment in 8lummet, if it paid '-00,000 for the acquisition) A" '110,000 &" '/00,000 C" '-00,000 D. '-10,000

AACSB: Analytic AICPA: Measurement

11" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '-00,000 for the acquisition) A. '0 &" '-0,000 C" '1-0,000 +" '/0,000

AACSB: Analytic AICPA: Measurement

1-,0

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Octane Compan! and &io Compan! have announced terms of an e#chan$e a$reement under which Octane will issue 10,000 shares of its '- par value common stock to acquire all of &io.s assets" Octane shares are tradin$ at ',*, and &io.s '10 par value shares are tradin$ at '1-" 5istorical cost and fair value balance sheet data on ;anuar! 1, ,00*, are as follows%

1," &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for &uildin$s and Equipment <net= in the combined compan!.s balance sheet) A" '000,000 &" '0(0,000 C. '000,000 +" '0/0,000

AACSB: Analytic AICPA: Measurement

10" &ased on the information provided, what amount will be reported for Common tock in the combined compan!.s balance sheet immediatel! followin$ the business combination) A. ',00,000 &" ',-0,000 C" '000,000 +" ',10,000

AACSB: Analytic AICPA: Measurement

1-,1

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1/" &ased on the information provided, what amount will be reported for Additional 8aid-In Capital in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" '10,000 &" '*0,000 C" '010,000 D. ',60,000

AACSB: Analytic AICPA: Measurement

1-" &ased on the information provided, what amount of $oodwill will be reported immediatel! followin$ the business combination in the combined compan!.s balance sheet) A" '0 &" '-0,000 C. '/0,000 +" '10-,000

AACSB: Analytic AICPA: Measurement

11" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for 2etained Earnin$s in the combined compan!.s balance sheet) A. '1(0,000 &" ',,-,000 C" '11-,000 +" ',10,000

AACSB: Analytic AICPA: Measurement

1-,,

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1(" :he fair value of net identifiable assets of a reportin$ unit of > Compan! is '000,000" On > Compan!.s books, the carr!in$ value of this reportin$ unit.s net assets is '0-0,000, includin$ '10,000 $oodwill" If the fair value of the reportin$ unit is '00-,000, what amount of $oodwill impairment will be reco$ni4ed for this unit) A" '0 &" '10,000 C. ',-,000 +" '0-,000

AACSB: Analytic AICPA: Measurement

1*" :he fair value of net identifiable assets of a reportin$ unit of ? Compan! is ',(0,000" :he carr!in$ value of the reportin$ unit.s net assets on ? Compan!.s books is '0,0,000, includin$ '-0,000 $oodwill" If the reported $oodwill impairment for the unit is '10,000, what would be the fair value of the reportin$ unit) A" '0,0,000 B. '010,000 C" ',(0,000 +" ',60,000

AACSB: Analytic AICPA: Measurement

@ollowin$ its acquisition of the net assets of +an Compan!, Empire Compan! assi$ned $oodwill of '10,000 to one of the reportin$ divisions" Information for this division follows%

1-,0

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

16" &ased on the precedin$ information, what amount of $oodwill will be reported for this division if its fair value is determined to be ',00,000) A" '0 &" '10,000 C" '00,000 D. '10,000

AACSB: Analytic AICPA: Measurement

,0" &ased on the precedin$ information, what amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be '16-,000) A" '-,000 &" '00,000 C" '10,000 D. '--,000

AACSB: Analytic AICPA: Measurement

,1" &ased on the precedin$ information, what amount of amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be ',/-,000) A. '0 &" '00,000 C" '10,000 +" '--,000

AACSB: Analytic AICPA: Measurement

1-,/

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

8ublic Equit! Corporation acquired Aenore Compan! throu$h an e#chan$e of common shares" All of Aenore.s assets and liabilities were immediatel! transferred to 8ublic Equit!" 8ublic.s common stock was tradin$ at ',0 per share at the time of e#chan$e" @ollowin$ selected information is also available"

,," &ased on the precedin$ information, what number of shares was issued at the time of the e#chan$e) A" -,000 &" 1(,-00 C. 1,,-00 +" 10,000

AACSB: Analytic AICPA: Measurement

,0" &ased on the precedin$ information, what is the par value of 8ublic.s common stock) A" '10 &" '1 C" 'D. '/

AACSB: Analytic AICPA: Measurement

,/" &ased on the precedin$ information, what is the fair value of Aenore.s net assets, if $oodwill of '-1,000 is recorded) A" '001,000 &" ',//,000 C. '16/,000 +" '000,000

AACSB: Analytic AICPA: Measurement

1-,-

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

8ursuin$ an inor$anic $rowth strate$!, 7ilson Compan! acquired Benus Compan!.s net assets and assi$ned them to four separate reportin$ divisions" 7ilson assi$ned total $oodwill of '10/,000 to the four reportin$ divisions as $iven below%

,-" &ased on the precedin$ information, what amount of $oodwill will be reported for Alpha at !ear-end) A" '0 B. ',0,000 C" '00,000 +" '10,000

AACSB: Analytic AICPA: Measurement

,1" &ased on the precedin$ information, what amount of $oodwill will be reported for &eta at !ear-end) A" '0 &" '1/,000 C. '0/,000 +" '-0,000

AACSB: Analytic AICPA: Measurement

1-,1

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

,(" &ased on the precedin$ information, for Camma% A. no $oodwill should be reported at !ear-end" &" $oodwill impairment of '00,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of ',0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '00,000 should be reported at !ear-end"

AACSB: Analytic AICPA: Measurement

,*" &ased on the precedin$ information, for +elta% A" no $oodwill should be reported at !ear-end" B. $oodwill impairment of '1-,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of ',0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '00,000 should be reported at !ear-end"

AACSB: Analytic AICPA: Measurement

,6" &ased on the precedin$ information, what would be the total amount of $oodwill that 7ilson should report at !ear-end) A" '0 B. '16,000 C" '(6,000 +" '6/,000

AACSB: Analytic AICPA: Measurement

2ivendell Corporation and @oster Compan! mer$ed as of ;anuar! 1, ,006" :o effect the mer$er, 2ivendell paid finder.s fees of '/0,000, le$al fees of '10,000, audit fees related to the stock issuance of '10,000, stock re$istration fees of '-,000, and stock listin$ application fees of '/,000"

1-,(

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

00" &ased on the precedin$ information, under the acquisition method, what amount relatin$ to the business combination would be e#pensed) A" '(,,000 &" '16,000 C. '-0,000 +" '10,000

AACSB: Analytic AICPA: Measurement

01" &ased on the precedin$ information, under the acquisition method% A" '(,,000 of stock issue costs are treated as $oodwill" B. '16,000 of stock issue costs are treated as a reduction in the issue price" C" '16,000 of stock issue costs are e#pensed" +" '(,,000 of stock issue costs are e#pensed"

AACSB: Analytic AICPA: Measurement

0," 3sin$ the precedin$ information, what amount would have been e#pensed if the purchase method of accountin$ was used) A. '0 &" '16,000 C" '-0,000 +" '(,,000

AACSB: Analytic AICPA: Measurement

00" 3sin$ the precedin$ information, what amount would have been e#pensed if the poolin$of-interests method of accountin$ was used) A" '0 &" '16,000 C" '-0,000 D. '(,,000

AACSB: Analytic AICPA: Measurement

1-,*

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0/" 7hich of the followin$ observations is <are= consistent with the acquisition method of accountin$ for business combinations) I" E#penses related to the business combination are e#pensed" II" tock issue costs are treated as a reduction in the issue price" III" All mer$er and stock issue costs are e#pensed" IB" Do $oodwill is ever recorded" A" III &" IB C. I and II +" I, II, and IB

AACSB: Reflective Thinking AICPA: Reporting

0-" 7hich of the followin$ situations best describes a business combination to be accounted for as a statutor! mer$er) A" &oth companies in a combination continue to operate as separate, but related, le$al entities" B. Onl! one of the combinin$ companies survives and the other loses its separate identit!" C" :wo companies combine to form a new third compan!, and the ori$inal two companies are dissolved" +" One compan! transfers assets to another compan! it has created"

AACSB: Reflective Thinking AICPA: ecision Making

01" A statutor! consolidation is a t!pe of business combination in which% A" one of the combinin$ companies survives and the other loses its separate identit!" &" one compan! acquires the votin$ shares of the other compan! and the two companies continue to operate as separate le$al entities" C" two publicl! traded companies a$ree to share a board of directors" D. each of the combinin$ companies is dissolved and the net assets of both companies are transferred to a newl! created corporation"

AACSB: Reflective Thinking AICPA: ecision Making

1-,6

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

0(" 7hich of the followin$ observations refers to the term differential) A" E#cess of consideration e#chan$ed over fair value of net identifiable assets" &" E#cess of fair value over book value of net identifiable assets" C. E#cess of consideration e#chan$ed over book value of net identifiable assets" +" E#cess of fair value over historical cost of net identifiable assets"

AACSB: Reflective Thinking AICPA: Reporting

0*" 7hich of the followin$ observations concernin$ E$oodwillE is DO: correct) A. Once written down, it ma! be written up for recoveries" &" It must be tested for impairment at least annuall!" C" Coodwill impairment losses are reco$ni4ed in income from continuin$ operations or income before e#traordinar! $ains and losses" +" It must be reported as a separate line item in the balance sheet"

AACSB: Reflective Thinking AICPA: Reporting

06" Assumin$ no impairment in value prior to transfer, assets transferred b! a parent compan! to another entit! it has created should be recorded b! the newl! created entit! at the assets.% A" cost to the parent compan!" B. book value on the parent compan!.s books at the date of transfer" C" fair value at the date of transfer" +" fair value of consideration e#chan$ed b! the newl! created entit!"

AACSB: Reflective Thinking AICPA: ecision Making

Essay Questions

1-00

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/0" On ;anuar! 1, ,00*, Aine Corporation acquired all of the common stock of taff Compan! for '000,000" On that date, taff.s identifiable net assets had a fair value of ',-0,000" :he assets acquired in the purchase of taff are considered to be a separate reportin$ unit of Aine Corporation" :he carr!in$ value of taff.s investment at +ecember 01, ,00*, is '010,000" :he fair value of the net assets <e#cludin$ $oodwill= at that date is ',,0,000 and the fair value of the reportin$ unit is determined to be ,10,000" 2equired% 1= E#plain how $oodwill is tested for impairment for a reportin$ unit" ,= +etermine the amount, if an!, of impairment loss to be reco$ni4ed at +ecember 01, ,00*" 1= :o test for the impairment of $oodwill, the fair value of the reportin$ unit is compared with its carr!in$ amount" If the fair value of the reportin$ unit e#ceeds its carr!in$ amount, the $oodwill of that reportin$ unit is considered unimpaired" On the other hand, if the carr!in$ amount of the reportin$ unit e#ceeds its fair value, an impairment of the reportin$ unit.s $oodwill is implied" :he amount of the reportin$ unit.s $oodwill impairment is measured as the e#cess of the carr!in$ amount of the unit.s $oodwill over the implied value of its $oodwill" :he implied value of its $oodwill is determined as the e#cess of the fair value of the reportin$ unit over the fair value of its net assets e#cludin$ $oodwill" ," :he '010,000 carr!in$ value e#ceeds the ',10,000 fair value, impl!in$ impairment" Implied $oodwill J ',10,000 - ',,0,000 J '/0,000" Impairment loss J '-0,000 - '/0,000 J '10,000"

AACSB: Analytic! Communication AICPA: Measurement

1-01

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/1" 5a!nes Corporation entered into an a$reement with +ie$o Compan! to establish 5F+ 8artnership" 5a!nes a$reed to transfer the followin$ assets to 5F+ for *0 percent ownership, and +ie$o a$reed to transfer '1,0,000 cash to the partnership for ,0 percent ownership"

2equired% 1" Cive the Gournal entries that 5a!nes Corporation and +ie$o Compan! recorded for their transfer of assets and accounts pa!able to 5F+ 8artnership" Cive the Gournal entries that 5F+ recorded for its receipt of assets and accounts pa!able from 5a!nes and +ie$o"

1-0,

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

1" ;ournal Entr! K 5a!nes

;ournal Entr! K +ie$o

," ;ournal entr! recorded b! 5F+ partnership for receipt of assets and accounts pa!able%

AACSB: Analytic AICPA: Measurement

1-00

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/," Envire Corporation acquired all the assets and liabilities of C@C Corporation b! issuin$ shares of its common stock On ;anuar! 1, ,006" 8artial balance sheet data for the companies prior to the business combination and immediatel! followin$ the combination is provided%

2equired% 7hat number of shares did Envire issue for this acquisition) At what price was Envire stock tradin$ when stock was issued for this acquisition) 7hat was the fair value of the net assets held b! C@C at the date of combination) 7hat amount of $oodwill will be reported b! the combined entit! immediatel! followin$ the combination) 7hat balance in retained earnin$s will the combined entit! report immediatel! followin$ the combination) 1" Dumber of shares J 00,000 <110,000 K 100,000 J 10,000L 10,000M', par= ," tock price J '* <Increase in par value and paid-in capital J ,/0,000L ,/0,000M00,000 shares= 0" @air value of net assets J ',,(,000 <',-,000 N ',,,000 N '--,000 N ',-0,000= - <',-,000 N '100,000= /" Coodwill J '10,000 <',/0,000 - ',,(,000= -" 2etained earnin$s balance J '10-,000

1-0/

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

AACSB: Analytic AICPA: Measurement

1-0-

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

/0" On ;anuar! 1, ,00*, Alaska Corporation acquired Hercantile Corporation.s net assets b! pa!in$ '110,000 cash" &alance sheet data for the two companies and fair value information for Hercantile Corporation immediatel! before the business combination are $iven below%

2equired% 8repare a combined balance sheet immediatel! followin$ the acquisition"

1-01

Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

AACSB: Analytic AICPA: Measurement

//" eaAine Corporation is involved in the distribution of processed marine products" :he fair values of assets and liabilities held b! three reportin$ units and other information related to the reportin$ units owned b! eaAine are as follows%

2equired% +etermine the amount of $oodwill that eaAine should report in its current financial statements"

:otal Coodwill reported J '(0,000

AACSB: Analytic AICPA: Measurement

1-0(