Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

Chapter 01 Intercorporate Acquisitions and Investments in Other Entities
Multiple Choice Questions

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

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

0. A business combination in !hich the acquired compan "s assets and liabilities are combined !ith those of the acquiring compan into a single entit is defined as# A. +toc% acquisition $. 1everaged bu out C. +tatutor 2erger &. 3everse statutor rollup

4. In !hich of the follo!ing situations do accounting standards not require that the financial statements of the parent and subsidiar be consolidated* A. A corporation creates a ne! 100 percent o!ned subsidiar $. A corporation purchases 50 percent of the voting stoc% of another compan C. A corporation has both control and ma6orit o!nership of an unincorporated compan &. A corporation o!ns less-than a controlling interest in an unincorporated compan

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

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

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

;. $ased on the preceding information, !hat !as Conservative"s boo% value of assets transferred to +pin Compan * A. 8(40,000 $. 8(;0,000 C. 8((1,000 &. 8(01,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

9. $ased on the preceding information, !hat amount did Conservative report as its investment in +pin after the transfer of assets and liabilities* A. 81:1,000 $. 8((1,000 C. 8(;0,000 &. 8(40,000

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

&uring its inception, &evon Compan purchased land for 8100,000 and a building for 81:0,000. After e'actl 0 ears, it transferred these assets and cash of 870,000 to a ne!l created subsidiar , 3egan Compan , in e'change for 17,000 shares of 3egan"s 810 par value stoc%. &evon uses straight-line depreciation. <seful life for the building is 00 ears, !ith =ero residual value. An appraisal revealed that the building has a fair value of 8(00,000.

5. $ased on the information provided, at the time of the transfer, 3egan Compan should record# A. $uilding at 81:0,000 and no accumulated depreciation. $. $uilding at 81;(,000 and no accumulated depreciation. C. $uilding at 8(00,000 and accumulated depreciation of 8(4,000. &. $uilding at 81:0,000 and accumulated depreciation of 81:,000.

10. $ased on the information provided, !hat amount !ould be reported b &evon Compan as investment in 3egan Compan common stoc%* A. 801(,000 $. 81:0,000 C. 8000,000 &. 8170,000

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Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities

11. $ased on the preceding information, 3egan Compan !ill report A. additional paid-in capital of 80. $. additional paid-in capital of 8170,000. C. additional paid-in capital of 81;(,000. &. additional paid-in capital of 81:0,000.

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

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

3ivendell Corporation and /oster Compan merged as of @anuar 1, (0A5. ?o effect the merger, 3ivendell paid finder"s fees of 840,000, legal fees of 810,000, audit fees related to the stoc% issuance of 810,000, stoc% registration fees of 87,000, and stoc% listing application fees of 84,000.

14. $ased on the preceding information, under the acquisition method, !hat amount relating to the business combination !ould be e'pensed* A. 89(,000 $. 815,000 C. 870,000 &. 8;0,000

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000 on the date of combination.000 and fair value of 85:. <sing the preceding information.000 of stoc% issue costs are e'pensed. $.000 to a search firm for finder"s fees related to the acquisition.000 .. &.000 19.000 &. 89(.000 of stoc% issue costs are treated as a reduction in the issue price.000 1:. 89(.lummet Corporation reported the boo% value of its net assets at 8400. 80 $. 815. $ased on the preceding information. Bel ar reported assets !ith a boo% value of 8. <sing the preceding information.lummet"s net assets !as determined to be 8710. 8:.0. under the acquisition method# A.Intercorporate Acquisitions and Investments in Other Entities 17. 815. 80 $.000 C. 80 $.Chapter 01 . >hat amount !ill be recorded as good!ill b $urrough Corporation !hile recording its investment in Bel ar* A.000 C.000 to acquire all of Bel ar Compan "s net assets. 810.000 &.000 on that date. 870.000 !hen Cenith Corporation acquired 100 percent o!nership.000 of stoc% issue costs are e'pensed. $urrough Corporation paid 8:0.000 of stoc% issue costs are treated as good!ill. 1. C.000 and liabilities !ith a boo% value and fair value of 8(0.000 C. 87. ?he fair value of .000 &. $urrough also paid 80. 815. 815. 89(. 89(. !hat amount !ould have been e'pensed if the poolingof-interests method of accounting !as used* A. 1-7 . 870. !hat amount !ould have been e'pensed if the purchase method of accounting !as used* A.

000 for the acquisition* A. 840. 80 $. 8170. 870.000 C. 807. 80 $. !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8770.000 &. !hat amount of good!ill impairment !ill be recogni=ed for this unit* A.000.000 &. 8700.000 C. 8710. 8. $ased on the preceding information. $ased on the preceding information. 8(7. ?he fair value of net identifiable assets of a reporting unit of A Compan is 8000.000.000 for the acquisition* A. On A Compan "s boo%s.000 good!ill.000 $. 870. 80 $.000 (0.000 &. If the fair value of the reporting unit is subsequentl 8007. !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8700. the carr ing value of this reporting unit"s net assets is 8070.10.000 for the acquisition* A.000.Chapter 01 . 8170. if it paid 8700.000 1-. 840.000 C.lummet. . $ased on the preceding information.Intercorporate Acquisitions and Investments in Other Entities 15. !hat amount !ill be recorded b Cenith as its investment in . including 8.0.000 ((.000 &.000 C. 810.000 (1. 8400.

Information for this division follo!s# (4.000* A.000 C.000 C.000 $.000 $. $ased on the preceding information.000 &. 810. !hat !ould be the fair value of the reporting unit* A. ?he carr ing value of the reporting unit"s net assets on D Compan "s boo%s is 80(0.000 1-9 .000 &. 877. !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8157.000 to one of the reporting divisions.Chapter 01 . If the reported good!ill impairment for the unit is 810.000 &.0.000 (7.000.000 good!ill. 8010. 8. 8(50.Intercorporate Acquisitions and Investments in Other Entities (0. 800.0.000 C. 80 $. 8. 87. 8(90. 800. Empire Compan assigned good!ill of 8.000 /ollo!ing its acquisition of the net assets of &an Compan .0. !hat amount of good!ill !ill be reported for this division if its fair value is determined to be 8(00. $ased on the preceding information. 80(0.000. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90.000* A. including 870.000.

. /ollo!ing selected information is also available.000 $.700 &. !hat is the par value of .000 .ublic"s common stoc% !as trading at 8(0 per share at the time of e'change..Chapter 01 .Intercorporate Acquisitions and Investments in Other Entities (. 810 $. 87.000 C.000 &. 877. $ased on the preceding information. $ased on the preceding information. 84 1-: . 1(. 80 $. 10.000* A.ublic Equit Corporation acquired 1enore Compan through an e'change of common shares. (9. !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8(47.700 C.ublic"s common stoc%* A.0. 19. 87 &. $ased on the preceding information.000 (:. 7. !hat number of shares !as issued at the time of the e'change* A. 81 C. 8. All of 1enore"s assets and liabilities !ere immediatel transferred to .ublic Equit .

000 . 810. >ilson Compan acquired Eenus Compan "s net assets and assigned them to four separate reporting divisions..000 is recorded* A. if good!ill of 87.ursuing an inorganic gro!th strateg . !hat amount of good!ill !ill be reported for $eta at ear-end* A. 8(44. 870. 800. $ased on the preceding information.000 &. 814. !hat is the fair value of 1enore"s net assets.000 1-5 .000 C.. 8(0. !hat amount of good!ill !ill be reported for Alpha at ear-end* A.000 01. 8000. 804. 800.000 &. 80 $. $ased on the preceding information.000 C.000 $. 80 $.000 C.Chapter 01 . 8154.Intercorporate Acquisitions and Investments in Other Entities (5.000 &. >ilson assigned total good!ill of 8104.000 to the four reporting divisions as given belo!# 00. $ased on the preceding information.

000 should be recogni=ed at ear-end. !hat !ould be the total amount of good!ill that >ilson should report at ear-end* A. 8.5. II. All merger and stoc% issue costs are e'pensed. for )amma# A. and IE 1-10 . +toc% issue costs are treated as a reduction in the issue price. $ased on the preceding information.consistent !ith the acquisition method of accounting for business combinations* I. no good!ill should be reported at ear-end. &. C. Fo good!ill is ever recorded. III.000 &. III $. good!ill of 800. 00. $.000 should be recogni=ed at ear-end.000 C. II. A.000 07. $. I and II &. E'penses related to the business combination are e'pensed. no good!ill should be reported at ear-end. IE. 895. good!ill impairment of 8(0. good!ill impairment of 8(0. good!ill impairment of 817. >hich of the follo!ing observations is . &.000 should be reported at ear-end. C. 854. IE C. good!ill impairment of 800.000 should be recogni=ed at ear-end. good!ill of 800.000 should be reported at ear-end. for &elta# A.are. 80 $. $ased on the preceding information.Intercorporate Acquisitions and Investments in Other Entities 0(. $ased on the preceding information. I.000 should be recogni=ed at ear-end. 04.Chapter 01 .

$. C. 0:. 800. C. >hich of the follo!ing observations concerning Ggood!illG is FO? correct* A.000 )ood!ill. &. 800. 800. &. !hat additional item needs to be recorded and ho! !ill it be accounted for in the future* A. Once !ritten do!n.000 )ood!ill.Intercorporate Acquisitions and Investments in Other Entities 0. >hich of the follo!ing observations refers to the term differential* A. capitali=ed and amorti=ed over time 1-11 . $ig Compan acquired the follo!ing assets and liabilities of 1ittle Compan . E'cess of fair value over historical cost of net identifiable assets. E'cess of consideration e'changed over boo% value of net identifiable assets. It must be reported as a separate line item in the balance sheet.000 cash. It must be tested for impairment at least annuall . capitali=ed and tested for impairment $. $. E'cess of consideration e'changed over fair value of net identifiable assets. capitali=ed and recogni=ed over time &.Chapter 01 . E'cess of fair value over boo% value of net identifiable assets. Assuming these items are all recorded at their acquisition date fair values.000 $argain purchase. 800. )ood!ill impairment losses are recogni=ed in income from continuing operations or income before e'traordinar gains and losses.fair values listed belo!.000 $argain purchase.for 8490.. recogni=ed in current earnings C. it ma be !ritten up for recoveries. 09.

aul Corp"s income statement for (0A1* A.000 and a fair value of 8.000 &. not to e'ceed one month C. not to e'ceed one reporting period &.000 40. All necessar information about the facts of the acquisition is obtained $. purchased 50H of +harpe Corp. All necessar information about the facts of the acquisition is obtained.oint Co.Intercorporate Acquisitions and Investments in Other Entities 05.. (0A1# Bo! much net income should be reported in . . .0.Chapter 01 . On @anuar 1.7:0. &ebit )ain on revaluation of +harpe"s stoc% 8(:0.000 C. (0A1. .000 $."s voting stoc% on @ul 1. not to e'ceed one ear 1-1( .000 41. On @anuar 1.aul Corp.(0.050.000 &. All necessar information about the facts of the acquisition is obtained.(00. . Credit Investment in +harpe stoc% 87.000 C. (0A( for 87.:. 89(0.000. Credit )ain on revaluation of +harpe"s stoc% 8(:0."s voting stoc% on @anuar 1. All necessar information about the facts of the acquisition is obtained. 8090.oint records the follo!ing# A. acquired 100 percent of +am Inc. &ebit Investment in +harpe stoc% 8.rior to the acquisition. ?he length of the measurement period allo!ed to value the assets and liabilities in an acquired business combination starts on the date of acquisition and lasts until# A. (0A( .oint held a 10H equit position in +harpe Compan . ?he follo!ing information !as available as of &ecember 01. 8540.000.000 $. (0A( . 81.oint"s 10H investment in +harpe has a boo% value of 8040.

A+C :07. /A+$ 1413 .rovide a description of each contingenc C.Chapter 01 .A+C :07. &isclose the amount recogni=ed at the acquisition date &. An asset or equit &. the acquirer should do all of the follo!ing e'cept# A. ?ested for impairment periodicall 1-10 .requires contingent consideration in a business combination to be classified as# A. /A+$ 1413 .rovide documentation from the acquirer"s attorne regarding pending la!suits and loan guarantees $. &escribe the estimated range of possible undiscounted outcomes of the contingenc 44. 3ecorded at acquisition-date fair values $. Classified as intangible assets having indefinite lives C. E'pensed immediatel &. An asset or a liabilit 40. .requires that ongoing research and development pro6ects be treated in all of the follo!ing !a s e'cept# A. /or all acquired contingencies. A liabilit or equit C. An asset $.Intercorporate Acquisitions and Investments in Other Entities 4(. .

0. 1-14 .repare the 6ournal entr to record the acquisition of 2ercantile Corporation.Chapter 01 . Alas%a Corporation acquired 2ercantile Corporation"s net assets b pa ing 81.000 cash. (0A:.Intercorporate Acquisitions and Investments in Other Entities Essay Questions 47. On @anuar 1. $alance sheet data for the t!o companies and fair value information for 2ercantile Corporation immediatel before the business combination are given belo!# 3equired# .

(0A:. (.000.. 49. ?he fair value of the net assets . ?he carr ing value of +taff"s investment at &ecember 01. if an .0. 3equired# 1. ?he fair values of assets and liabilities held b three reporting units and other information related to the reporting units o!ned b +ea1ine are as follo!s# 3equired# &etermine the amount of good!ill that +ea1ine should report in its current financial statements. of impairment loss to be recogni=ed at &ecember 01. On @anuar 1. +taff"s identifiable net assets had a fair value of 8(70.000 and the fair value of the reporting unit is determined to be (.Chapter 01 . (0A:.&etermine the amount. On that date.Intercorporate Acquisitions and Investments in Other Entities 4.e'cluding good!ill. 1ine Corporation acquired all of the common stoc% of +taff Compan for 8000.000. +ea1ine Corporation is involved in the distribution of processed marine products.000. (0A:.000. 1-17 . ?he assets acquired in the purchase of +taff are considered to be a separate reporting unit of 1ine Corporation.E'plain ho! good!ill is tested for impairment for a reporting unit. is 8010.at that date is 8((0.

. B. fair value at the date of transfer. cost to the parent compan . /inancial Accounting +tandards $oard . t"-es of o gani/ational st !ct! es.-lain +iffe ent metho+s of b!siness e. C.-ansion. )iven the increased development of comple' business structures. &. +ecurities and E'change Commission . !hich of the follo!ing regulators is responsible for the continued usefulness of accounting reports* A.-ansion. an+ t"-es of ac0!isitions (. Assuming no impairment in value prior to transfer. All of the above AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e.CAO$C.ublic Compan Accounting Oversight $oard . AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e. t"-es of o gani/ational st !ct! es. assets transferred b a parent compan to another entit it has created should be recorded b the ne!l created entit at the assets"# A. an+ t"-es of ac0!isitions 1-1./A+$D.. fair value of consideration e'changed b the ne!l created entit . .+EC$. boo% value on the parent compan "s boo%s at the date of transfer.-lain +iffe ent metho+s of b!siness e.Intercorporate Acquisitions and Investments in Other Entities Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Ans!er Ie Multiple Choice Questions 1.Chapter 01 .

1everaged bu out C. In !hich of the follo!ing situations do accounting standards not require that the financial statements of the parent and subsidiar be consolidated* A. 3everse statutor rollup AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e. t"-es of o gani/ational st !ct! es. an+ t"-es of ac0!isitions 1-19 . +tatutor 2erger &. A corporation purchases 50 percent of the voting stoc% of another compan C. A corporation o!ns less-than a controlling interest in an unincorporated compan AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(# *n+e stan+ an+ e. an+ t"-es of ac0!isitions 4. A corporation creates a ne! 100 percent o!ned subsidiar $. A corporation has both control and ma6orit o!nership of an unincorporated compan D.-ansion.-ansion.-lain +iffe ent metho+s of b!siness e.Chapter 01 . t"-es of o gani/ational st !ct! es.-lain +iffe ent metho+s of b!siness e. +toc% acquisition $.Intercorporate Acquisitions and Investments in Other Entities 0. A business combination in !hich the acquired compan "s assets and liabilities are combined !ith those of the acquiring compan into a single entit is defined as# A.

Intercorporate Acquisitions and Investments in Other Entities In order to reduce the ris% associated !ith a ne! line of business. (7. Conservative Corporation established +pin Compan as a !holl o!ned subsidiar . $ased on the preceding information. !hat number of shares of 89 par value stoc% did +pin issue to Conservative* A.esence of a +iffe ential. goo+3ill. +pin recorded the follo!ing entr !hen the transaction occurred# 7.000 C. o a ba gain -! chase element4 1-1: .000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 9. :. 10.Chapter 01 .000 &. It transferred assets and accounts pa able to +pin in e'change for its common stoc%.000 $.

000 C.e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4 1-15 .000 &. 8(01.000 C. C.000. Conservative"s total assets decreased b 8(0. 8(.. !hat amount did Conservative report as its investment in +pin after the transfer of assets and liabilities* A.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(# *n+e stan+ an+ e.0.. 81:1. B.000.Chapter 01 .000 $.-ansion. t"-es of o gani/ational st !ct! es. 8((1.000 D.000. an+ t"-es of ac0!isitions 9. !hat !as Conservative"s boo% value of assets transferred to +pin Compan * A.Intercorporate Acquisitions and Investments in Other Entities .0. Conservative"s total assets decreased b 8(0.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ . 8(. $ased on the preceding information.e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4 :.-lain +iffe ent metho+s of b!siness e. Conservative"s total assets remained the same. 8(40. immediatel after the transfer. &. Conservative"s total assets increased b 87.000 $. 8(40. $ased on the preceding information. A. 8((1. $ased on the preceding information. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ .

After e'actl 0 ears.000. $ased on the information provided. 5. !ith =ero residual value. !hat amount !ould be reported b &evon Compan as investment in 3egan Compan common stoc%* A. $uilding at 81:0. it transferred these assets and cash of 870.000 and no accumulated depreciation.Chapter 01 .000.000 and accumulated depreciation of 8(4. 801(. $ased on the information provided. in e'change for 17. &evon Compan purchased land for 8100. 81:0. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ . $uilding at 8(00.000 &.000 and no accumulated depreciation.Intercorporate Acquisitions and Investments in Other Entities &uring its inception. An appraisal revealed that the building has a fair value of 8(00.000 and a building for 81:0. $uilding at 81.000 C. $. D.000 shares of 3egan"s 810 par value stoc%.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ . at the time of the transfer. 3egan Compan should record# A.000 to a ne!l created subsidiar . <seful life for the building is 00 ears. 3egan Compan . 8170.000. $uilding at 81:0.e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4 1-(0 . C.e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4 10.(. &evon uses straight-line depreciation.000 $. 8000.000 and accumulated depreciation of 81:.000.

>hich of the follo!ing situations best describes a business combination to be accounted for as a statutor merger* A. but related. one of the combining companies survives and the other loses its separate identit . AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(5 *n+e stan+ an+ e. Onl one of the combining companies survives and the other loses its separate identit . additional paid-in capital of 8170.000. $oth companies in a combination continue to operate as separate. additional paid-in capital of 81:0. C. additional paid-in capital of 81. and the original t!o companies are dissolved.-lain the +iffe ences bet3een +iffe ent fo ms of b!siness combinations4 10.-lain the +iffe ences bet3een +iffe ent fo ms of b!siness combinations4 1-(1 . one compan acquires the voting shares of the other compan and the t!o companies continue to operate as separate legal entities.Intercorporate Acquisitions and Investments in Other Entities 11.(. $. additional paid-in capital of 80. ?!o companies combine to form a ne! third compan .e-a e 'o! nal ent ies fo the c eation an+ -! chase of a b!siness entit"4 1(.000. 3egan Compan !ill report A. $ased on the preceding information. &. C. D.Chapter 01 . t!o publicl traded companies agree to share a board of directors. One compan transfers assets to another compan it has created. B. each of the combining companies is dissolved and the net assets of both companies are transferred to a ne!l created corporation. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(1 Make calc!lations an+ . AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(5 *n+e stan+ an+ e. &. legal entities. C. $.000. A statutor consolidation is a t pe of business combination in !hich# A.

000 of stoc% issue costs are treated as a reduction in the issue price. 815.esence of a +iffe ential. o a ba gain -! chase element4 1-(( .000. and stoc% listing application fees of 84. o a ba gain -! chase element4 17.Intercorporate Acquisitions and Investments in Other Entities 3ivendell Corporation and /oster Compan merged as of @anuar 1.Chapter 01 .000 of stoc% issue costs are e'pensed. 815. stoc% registration fees of 87.000.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000. audit fees related to the stoc% issuance of 810. B. 89(. $ased on the preceding information. ?o effect the merger. 3ivendell paid finder"s fees of 840. 815.000. 89(. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . goo+3ill.000 of stoc% issue costs are treated as good!ill. under the acquisition method# A. 870.000. 14. 89(. under the acquisition method. (0A5.000 of stoc% issue costs are e'pensed.0.000 C. 8.esence of a +iffe ential. C. &. !hat amount relating to the business combination !ould be e'pensed* A. $ased on the preceding information. legal fees of 810. goo+3ill.000 &.000 $.

89(.Intercorporate Acquisitions and Investments in Other Entities 1. 870. <sing the preceding information.e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4 19. !hat amount !ould have been e'pensed if the purchase method of accounting !as used* A.000 C. <sing the preceding information. 815. !hat amount !ould have been e'pensed if the poolingof-interests method of accounting !as used* A.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ .000 &. 80 $. 89(.000 D.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ . 815. 80 $.Chapter 01 .000 C. 870..e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4 1-(0 .

!hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8770. o a ba gain -! chase element4 1-(4 . 840.000 for the acquisition* A. goo+3ill.lummet Corporation reported the boo% value of its net assets at 8400. $urrough Corporation paid 8:0. 15. o a ba gain -! chase element4 . 80 B.esence of a +iffe ential. 870. $urrough also paid 80.000 C. Bel ar reported assets !ith a boo% value of 8.0. 80 $.000 and liabilities !ith a boo% value and fair value of 8(0. 8170. ?he fair value of .Chapter 01 . goo+3ill.Intercorporate Acquisitions and Investments in Other Entities 1:.000 and fair value of 85:. 810.000 on that date.lummet"s net assets !as determined to be 8710.000 on the date of combination. $ased on the preceding information.000 &.000 to a search firm for finder"s fees related to the acquisition.000 !hen Cenith Corporation acquired 100 percent o!nership.esence of a +iffe ential.000 C.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 87. 8:.000 D.000 to acquire all of Bel ar Compan "s net assets.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . >hat amount !ill be recorded as good!ill b $urrough Corporation !hile recording its investment in Bel ar* A.

000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 8700.10. !hat amount !ill be recorded b Cenith as its investment in . o a ba gain -! chase element4 (1. 80 $.000 C.lummet. if it paid 8700. 8710.esence of a +iffe ential. 870.000 $.Intercorporate Acquisitions and Investments in Other Entities (0. goo+3ill. goo+3ill.000 C.000 for the acquisition* A. $ased on the preceding information. o a ba gain -! chase element4 1-(7 . !hat amount of good!ill !ill be reported in consolidated financial statements presented immediatel follo!ing the combination if Cenith paid 8700. 8400.000 for the acquisition* A. 840.Chapter 01 . 8.000 D. $ased on the preceding information. 8170.000 &.esence of a +iffe ential.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .

8(90.0. !hat !ould be the fair value of the reporting unit* A.000. 8(50.000 &. ?he fair value of net identifiable assets of a reporting unit of D Compan is 8(90.Chapter 01 . . including 870. o a ba gain -! chase element4 (0.000 good!ill.esence of a +iffe ential. 807. 8010. ?he carr ing value of the reporting unit"s net assets on D Compan "s boo%s is 80(0. 80(0.000 B. 810.esence of a +iffe ential. o a ba gain -! chase element4 1-(.000.000 &. goo+3ill.Intercorporate Acquisitions and Investments in Other Entities ((.000 C.000 C. If the reported good!ill impairment for the unit is 810.000 good!ill.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000. 8(7. On A Compan "s boo%s. If the fair value of the reporting unit is subsequentl 8007.000. goo+3ill. the carr ing value of this reporting unit"s net assets is 8070.000. !hat amount of good!ill impairment !ill be recogni=ed for this unit* A.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . including 8. 80 $. ?he fair value of net identifiable assets of a reporting unit of A Compan is 8000.000.

goo+3ill. $ased on the preceding information.000 to one of the reporting divisions.Intercorporate Acquisitions and Investments in Other Entities /ollo!ing its acquisition of the net assets of &an Compan . !hat amount of good!ill !ill be reported for this division if its fair value is determined to be 8(00.000 D.0. 80 $. 877. $ased on the preceding information.000 C. 810.esence of a +iffe ential. 800. o a ba gain -! chase element4 1-(9 .000 D.Chapter 01 .000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 800. Empire Compan assigned good!ill of 8.0. 87.0.000* A. 8. 8.000* A.000 $. Information for this division follo!s# (4. goo+3ill. o a ba gain -! chase element4 (7.esence of a +iffe ential.000 C. !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8157.

7. 1(.esence of a +iffe ential.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .ublic Equit Corporation acquired 1enore Compan through an e'change of common shares. . 877.000 &.Chapter 01 . All of 1enore"s assets and liabilities !ere immediatel transferred to .000* A.000 C.ublic Equit .700 C. !hat number of shares !as issued at the time of the e'change* A. 8. 10.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .0. 87. goo+3ill.700 &. (9.esence of a +iffe ential. 19. 80 B. o a ba gain -! chase element4 .Intercorporate Acquisitions and Investments in Other Entities (. $ased on the preceding information. /ollo!ing selected information is also available.000 $.. !hat amount of good!ill impairment !ill be recogni=ed for this division if its fair value is determined to be 8(47.ublic"s common stoc% !as trading at 8(0 per share at the time of e'change. $ased on the preceding information. goo+3ill. o a ba gain -! chase element4 1-(: .

.000 C. o a ba gain -! chase element4 (5.000 $. goo+3ill.esence of a +iffe ential. !hat is the par value of . 8000. 81 C. >ilson assigned total good!ill of 8104. $ased on the preceding information. >ilson Compan acquired Eenus Compan "s net assets and assigned them to four separate reporting divisions.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000 to the four reporting divisions as given belo!# 1-(5 .ursuing an inorganic gro!th strateg .ublic"s common stoc%* A. 8(44.000 is recorded* A. o a ba gain -! chase element4 . 84 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000 &.esence of a +iffe ential. 8154. goo+3ill.. 87 D.Chapter 01 . 800. 810 $.Intercorporate Acquisitions and Investments in Other Entities (:. !hat is the fair value of 1enore"s net assets. $ased on the preceding information. if good!ill of 87.

000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000 should be recogni=ed at ear-end. 80 $. good!ill impairment of 800. $ased on the preceding information. goo+3ill.000 &. 804.esence of a +iffe ential. 80 B.Chapter 01 . 870. C.000 &.Intercorporate Acquisitions and Investments in Other Entities 00. &.esence of a +iffe ential. $ased on the preceding information. !hat amount of good!ill !ill be reported for Alpha at ear-end* A. o a ba gain -! chase element4 0(. no good!ill should be reported at ear-end. goo+3ill.000 C.000 should be reported at ear-end. good!ill of 800. o a ba gain -! chase element4 1-00 . $ased on the preceding information. 814. !hat amount of good!ill !ill be reported for $eta at ear-end* A. o a ba gain -! chase element4 01. for )amma# A. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 8(0. $.000 C.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . 810.000 should be recogni=ed at ear-end. goo+3ill. good!ill impairment of 8(0.esence of a +iffe ential. 800.

esence of a +iffe ential. goo+3ill.000 should be recogni=ed at ear-end. 8. C. for &elta# A. o a ba gain -! chase element4 04.000 should be reported at ear-end. good!ill impairment of 8(0.5. $ased on the preceding information. no good!ill should be reported at ear-end.000 &. $ased on the preceding information. 80 B. good!ill of 800. good!ill impairment of 817. 854.esence of a +iffe ential. !hat !ould be the total amount of good!ill that >ilson should report at ear-end* A.000 C. 895. &.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .Chapter 01 .Intercorporate Acquisitions and Investments in Other Entities 00. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .000 should be recogni=ed at ear-end. goo+3ill. o a ba gain -! chase element4 1-01 . B.

E'cess of consideration e'changed over fair value of net identifiable assets. A. o a ba gain -! chase element4 0.are. E'cess of consideration e'changed over boo% value of net identifiable assets.. II. E'penses related to the business combination are e'pensed. III. o a ba gain -! chase element4 1-0( . All merger and stoc% issue costs are e'pensed. goo+3ill. II. AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . >hich of the follo!ing observations refers to the term differential* A. and IE AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .esence of a +iffe ential. Fo good!ill is ever recorded.esence of a +iffe ential. IE. >hich of the follo!ing observations is . III $.consistent !ith the acquisition method of accounting for business combinations* I. $. E'cess of fair value over historical cost of net identifiable assets. +toc% issue costs are treated as a reduction in the issue price. IE C. goo+3ill.Intercorporate Acquisitions and Investments in Other Entities 07.Chapter 01 . I and II &. C. E'cess of fair value over boo% value of net identifiable assets. &. I.

goo+3ill. C.for 8490. It must be reported as a separate line item in the balance sheet. It must be tested for impairment at least annuall .Intercorporate Acquisitions and Investments in Other Entities 09.esence of a +iffe ential. !hat additional item needs to be recorded and ho! !ill it be accounted for in the future* A. it ma be !ritten up for recoveries. $ig Compan acquired the follo!ing assets and liabilities of 1ittle Compan .000 $argain purchase.Chapter 01 . 800. capitali=ed and tested for impairment $. o a ba gain -! chase element4 0:. 800. >hich of the follo!ing observations concerning Ggood!illG is FO? correct* A. Once !ritten do!n.000 $argain purchase. &.000 cash. capitali=ed and recogni=ed over time &. capitali=ed and amorti=ed over time AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the . recogni=ed in current earnings C.000 )ood!ill. 800.esence of a +iffe ential. $. o a ba gain -! chase element4 1-00 . )ood!ill impairment losses are recogni=ed in income from continuing operations or income before e'traordinar gains and losses. Assuming these items are all recorded at their acquisition date fair values. goo+3ill.000 )ood!ill. 800.fair values listed belo!. AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .

goo+3ill. (0A( . . Credit Investment in +harpe stoc% 87.oint records the follo!ing# A.oint Co.000 $."s voting stoc% on @ul 1.Chapter 01 . &ebit Investment in +harpe stoc% 8.(00. .000 and a fair value of 8. 8090. ?he follo!ing information !as available as of &ecember 01.000 &.000 C.(0. 89(0. . acquired 100 percent of +am Inc."s voting stoc% on @anuar 1.esence of a +iffe ential. (0A1# Bo! much net income should be reported in . o a ba gain -! chase element4 40.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .050.000 $. On @anuar 1.rior to the acquisition. (0A( .000. On @anuar 1..aul Corp.000 C.7:0. 81.000. Credit )ain on revaluation of +harpe"s stoc% 8(:0.oint held a 10H equit position in +harpe Compan .000 AACSB: Reflective Thinking AICPA: FN Meas! ement Bloom's: *n+e stan+ Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4 1-04 .000 &.aul Corp"s income statement for (0A1* A. &ebit )ain on revaluation of +harpe"s stoc% 8(:0.0. .oint"s 10H investment in +harpe has a boo% value of 8040. 8540.:. (0A1.Intercorporate Acquisitions and Investments in Other Entities 05. (0A( for 87. purchased 50H of +harpe Corp.

All necessar information about the facts of the acquisition is obtained. All necessar information about the facts of the acquisition is obtained. . not to e'ceed one reporting period D.Chapter 01 .rovide a description of each contingenc C. the acquirer should do all of the follo!ing e'cept# A. /or all acquired contingencies. . An asset or equit &. not to e'ceed one ear AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4 4(. &isclose the amount recogni=ed at the acquisition date &. An asset or a liabilit AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4 40.rovide documentation from the acquirer"s attorne regarding pending la!suits and loan guarantees $. &escribe the estimated range of possible undiscounted outcomes of the contingenc AACSB: Reflective Thinking AICPA: FN Decision Making Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4 1-07 . not to e'ceed one month C.A+C :07. An asset B.requires contingent consideration in a business combination to be classified as# A. All necessar information about the facts of the acquisition is obtained $. /A+$ 1413 . A liabilit or equit C.Intercorporate Acquisitions and Investments in Other Entities 41. All necessar information about the facts of the acquisition is obtained. ?he length of the measurement period allo!ed to value the assets and liabilities in an acquired business combination starts on the date of acquisition and lasts until# A.

Classified as intangible assets having indefinite lives C.A+C :07. 3ecorded at acquisition-date fair values $. /A+$ 1413 .requires that ongoing research and development pro6ects be treated in all of the follo!ing !a s e'cept# A.Chapter 01 . ?ested for impairment periodicall AACSB: Reflective Thinking AICPA: FN Re-o ting Bloom's: Remembe Diffic!lt": # $as" %ea ning &b'ective: (#)(8 *n+e stan+ a++itional consi+e ations associate+ 3ith b!siness combinations4 1-0.Intercorporate Acquisitions and Investments in Other Entities 44. . E'pensed immediatel &.

Intercorporate Acquisitions and Investments in Other Entities Essay Questions 47. 1-09 .0.000 cash.Chapter 01 .repare the 6ournal entr to record the acquisition of 2ercantile Corporation. (0A:. $alance sheet data for the t!o companies and fair value information for 2ercantile Corporation immediatel before the business combination are given belo!# 3equired# . On @anuar 1. Alas%a Corporation acquired 2ercantile Corporation"s net assets b pa ing 81.

Chapter 01 .e-a e 'o! nal ent ies fo +iffe ent t"-es of b!siness combinations th o!gh the ac0!isition of stock o assets4 1-0: .Intercorporate Acquisitions and Investments in Other Entities Or if the cash paid is reported net of cash received# AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 1 Me+i!m %ea ning &b'ective: (#)(6 Make calc!lations an+ .

(.Chapter 01 . Impairment loss J 870. Implied good!ill J 8(. the good!ill of that reporting unit is considered unimpaired.000 . 3equired# 1. goo+3ill.e'cluding good!ill.000 . ?he fair value of the net assets .000.esence of a +iffe ential.840. (0A:.000.000 J 840. On that date. If the fair value of the reporting unit e'ceeds its carr ing amount.0. the fair value of the reporting unit is compared !ith its carr ing amount.0. ?he assets acquired in the purchase of +taff are considered to be a separate reporting unit of 1ine Corporation. ?he implied value of its good!ill is determined as the e'cess of the fair value of the reporting unit over the fair value of its net assets e'cluding good!ill.Intercorporate Acquisitions and Investments in Other Entities 4. if the carr ing amount of the reporting unit e'ceeds its fair value.000. (0A:. impl ing impairment.&etermine the amount. of impairment loss to be recogni=ed at &ecember 01. ?he carr ing value of +taff"s investment at &ecember 01. o a ba gain -! chase element4 1-05 .?he 8010.000 fair value.000. is 8010.000.000 carr ing value e'ceeds the 8(. 1ine Corporation acquired all of the common stoc% of +taff Compan for 8000.000. ?he amount of the reporting unit"s good!ill impairment is measured as the e'cess of the carr ing amount of the unit"s good!ill over the implied value of its good!ill. if an . an impairment of the reporting unit"s good!ill is implied.0. (.8((0.000 and the fair value of the reporting unit is determined to be (. AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .E'plain ho! good!ill is tested for impairment for a reporting unit. On @anuar 1.at that date is 8((0..000 J 810. 1.?o test for the impairment of good!ill. (0A:. +taff"s identifiable net assets had a fair value of 8(70. On the other hand.

esence of a +iffe ential.Intercorporate Acquisitions and Investments in Other Entities 49. ?he fair values of assets and liabilities held b three reporting units and other information related to the reporting units o!ned b +ea1ine are as follo!s# 3equired# &etermine the amount of good!ill that +ea1ine should report in its current financial statements. o a ba gain -! chase element4 1-40 .Chapter 01 . +ea1ine Corporation is involved in the distribution of processed marine products. goo+3ill. ?otal )ood!ill reported J 890.000 AACSB: Anal"tic AICPA: FN Meas! ement Bloom's: A--l" Diffic!lt": 5 7a + %ea ning &b'ective: (#)(2 Make calc!lations an+ b!siness combination 'o! nal ent ies in the .