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Advanced Accounting 10th Edition By Fischer -Test Bank
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Chapter 3—Consolidated Statements: Subsequent to Acquisition MULTIPLE CHOICE Scenario 3-1 Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000. On the purchase date, invent...

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  • 19 augustus 2023
  • 612
  • 2023/2024
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Voorbeeld van de inhoud

,Chapter 1—Business Combinations: New Rules for a Long-Standing Business Practice


MULTIPLE CHOICE

1. An economic advantage of a business combination includes
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Coordinated marketing campaigns.
d. Horizontally combining levels within the marketing chain.
ANS: C DIF: E OBJ: 1-1

2. A tax advantage of business combination can occur when the existing owner of a company sells out
and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANS: B DIF: E OBJ: 1-1

3. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has acquired a majority of the subsidiary's common stock.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's outstanding bonds and
debentures.
ANS: B DIF: M OBJ: 1-2

4. Company B acquired the net assets of Company S in exchange for cash. The acquisition price exceeds
the fair value of the net assets acquired. How should Company B determine the amounts to be reported
for the plant and equipment, and for long-term debt of the acquired Company S?

Plant and Equipment Long-Term Debt
a. Fair value S's carrying amount
b. Fair value Fair value
c. S's carrying amount Fair value
d. S's carrying amount S's carrying amount

ANS: B DIF: E OBJ: 1-4

5. Publics Company acquired the net assets of Citizen Company during 20X5. The purchase price was
$800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity
securities and $400,000 in liabilities. The fair value of Citizen assets on the acquisition date was as
follows:

Current assets $ 800,000
Noncurrent assets 600,000
$1,400,000

How should Publics account for the $200,000 difference between the fair value of the net assets
acquired, $1,000,000, and the cost, $800,000?
a. Retained earnings should be reduced by $200,000.


1-1

, b. Current assets should be recorded at $685,000 and noncurrent assets recorded at $515,000.
c. A $200,000 gain on acquisition of business should be recognized
d. A deferred credit of $200,000 should be set up and subsequently amortized to future net
income over a period not to exceed 40 years.
ANS: C DIF: M OBJ: 1-4

6. ABC Co. is acquiring XYZ Inc. XYZ has the following intangible assets:

Patent on a product that is deemed to have no useful life $10,000.
Customer list with an observable fair value of $50,000.
A 5-year operating lease with favorable terms with a discounted present value of $8,000.
Identifiable R & D of $100,000.

ABC will record how much for acquired Intangible Assets from the purchase of XYZ Inc?
a. $168,000
b. $58,000
c. $158,000
d. $150,000
ANS: C DIF: D OBJ: 1-4

7. Vibe Company purchased the net assets of Atlantic Company in a business combination accounted for
as a purchase. As a result, goodwill was recorded. For tax purposes, this combination was considered
to be a tax-free merger. Included in the assets is a building with an appraised value of $210,000 on the
date of the business combination. This asset had a net book value of $70,000, based on the use of
accelerated depreciation for accounting purposes. The building had an adjusted tax basis to Atlantic
(and to Vibe as a result of the merger) of $120,000. Assuming a 36% income tax rate, at what amount
should Vibe record this building on its books after the purchase?
a. $120,000
b. $134,400
c. $140,000
d. $210,000
ANS: D DIF: M OBJ: 1-4

8. Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less liabilities assumed.
b. sum of the fair values assigned to tangible and identifiable intangible assets acquired less
liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less liabilities assumed.
d. book value of an acquired company.
ANS: B DIF: M OBJ: 1-4

9. When an acquisition of another company occurs, FASB recommends disclosing all of the following
EXCEPT:
a. goodwill assigned to each reportable segment.
b. information concerning contingent consideration including a description of the
arrangements and the range of outcomes
c. results of operations for the current period if both companies had remained separate.
d. A qualitative description of factors that make up the goodwill recognized
ANS: C DIF: M OBJ: 1-6




1-2

, 10. Cozzi Company is being purchased and has the following balance sheet as of the purchase date:

Current assets $200,000 Liabilities $ 90,000
Fixed assets 180,000 Equity 290,000
Total $380,000 Total $380,000

The price paid for Cozzi's net assets is $500,000. The fixed assets have a fair value of $220,000, and
the liabilities have a fair value of $110,000. The amount of goodwill to be recorded in the purchase is
____.
a. $0
b. $150,000
c. $170,000
d. $190,000
ANS: D DIF: M OBJ: 1-4

11. Separately identified intangible assets are accounted for by amortizing:
a. exclusively by using impairment testing.
b. based upon a pattern that reflects the benefits conveyed by the asset.
c. over the useful economic life less residual value using only the straight-line method.
d. over a period not to exceed a maximum of 40 years.
ANS: B DIF: E OBJ: 1-4

12. While performing a goodwill impairment test, the company had the following information:

Estimated implied fair value of reporting unit (without goodwill) $420,000
Existing net book value of reporting unit (without goodwill) $380,000
Book value of goodwill $ 60,000

Based upon this information the proper conclusion is:
a. The existing net book value plus goodwill is in excess of the implied fair value, therefore,
no adjustment is required.
b. The existing net book value plus goodwill is less than the implied fair value plus goodwill,
therefore, no adjustment is required.
c. The existing net book value plus goodwill is in excess of the implied fair value, therefore,
goodwill needs to be decreased.
d. The existing net book value is less than the estimated implied fair value; therefore,
goodwill needs to be decreased.
ANS: C DIF: D OBJ: 1-7

13. Balter Inc. acquired Jersey Company on January 1, 20X5. When the purchase occurred Jersey
Company had the following information related to fixed assets:

Land $ 80,000
Building 200,000
Accumulated Depreciation (100,000)
Equipment 100,000
Accumulated Depreciation (50,000)

The building has a 10-year remaining useful life and the equipment has a 5-year remaining useful life.
The fair value of the assets on that date were:

Land $100,000


1-3

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