Acc 4131 - SB CH 2

Consolidation entry A for an acquisition-date worksheet is designed to adjust the subsidiary's assets and liabilities from _ value to fair value.

book or carrying

The recording of goodwill in a business combination may recognize that

the assets of the combining firms may act in concert to produce an expectation of enhanced profitability. the acquiring firm has transferred consideration in excess of the acquired net identifiable assets. the quality of the acquired firm's personnel may provide additional profitability.

What are the financial reporting requirements when one business organization possesses control over another business organization?

A single set of consolidated financial statements is prepared for the separate business entities tied together through common control.

Which of the following occurs in a business combination?

A single set of financial statements subsequently is prepared for all the firms under common control. A single financial reporting entity is created. One company gains control over the assets and operations of another company.

Which of the following qualify as elements of consideration transferred and thus recorded in a business combination?

Additional paid-in capital related to common stock issued by the acquirer. Common stock issued by the acquirer. Cash paid by the acquirer.

What are consolidated financial statements?

A single set of combined financial statements for multiple companies tied together through common control.

Which of the following were cited as motivations for Amazon to acquire Whole Foods Market?

Amazon gained a competitive edge against other on-line grocery distributors. Amazon effectively expanded its distribution network to include hundreds of Whole Foods stores.

Which of the following represent reasons why Tesla acquired Grohmann Engineering?

An expectation that the acquisition will increase the speed and quality of production. Expected reductions in capital expenditures required for vehicle produced. Expected integration of Grohmann's technology into Tesla's automotive business.

Which of the following are included in the first two columns of the consolidated worksheet as of the acquisition date?

Any contingent performance liability that may have accompanied the combination. An investment account in the parent's financial statement column.

How does the acquisition method treat contingent consideration when present in a business combination

As a negotiated component of the fair value of the consideration transferred.

Which of the following is a characteristic of the accounting procedure for a statutory merger or a statutory consolidation?

Because the acquired firm's accounts are combined on the surviving company's records, no further consolidation procedures are needed. Once the dissolved companies' account balances are transferred to the surviving company's records, the records of the dissolved companies are closed. On the combination date, the surviving company records on its books the assets and liabilities from each of the dissolving companies.

When a new entity is created to receive all the assets and liabilities (or capital stock) of two previous firms, this combination is referred to as a statutory _.

Blank 1: consolidation

The measurement attribute used by an acquirer to recognize an acquired firm's assets and liabilities is _ _.

Blank 1: fair Blank 2: value

The large amount of _ recognized in the Salesforce.com acquisition of MuleSoft suggests substantial synergies are expected from the combination.

Blank 1: goodwill

In its acquisition of Whole Foods Market, Amazon cited "expected improvements in technology performance and functionality" as a source of _ recognized in the combination.

Blank 1: goodwill or goodwill value

When a company acquires more than 50% of the voting stock of another firm, and the acquired firm continues its separate legal existence, the acquirer records the stock acquisition in an _ account.

Blank 1: investment or asset

What is the primary vehicle that business firms employ to exercise control over other business entities?

Control through majority voting stock ownership.

Which of the following are typical costs that accompany a business combination?

Costs incurred to register and issue securities. Secretarial and management time allocated to acquisition activity. Professional service fees for attorneys and accountants.

What is the primary measurement attribute employed in accounting for an acquired company in a newly formed business combination?

Fair value.

True or false: In a business combination, the acquiring firm increases its retained earning for the amount of the acquisition-date subsidiary retained earnings.

False

True or false: Pre-existing goodwill, when present on an acquired firm's separate balance sheet, is considered an identifiable intangible asset

False

True or false: When a parent acquires a subsidiary and records a bargain purchase gain, the gain is reported as a deferred gain on the consolidated balance sheet.

False

True or false: When an acquired firm is legally dissolved upon acquisition, the acquirer will record on its books all of the former firm's assets and liabilities at their former book values.

False

Which of the following intangibles are often recognized in a business combination?

Franchise agreements Customer relationships Patents

The acquisition method requires the recognition and measurement of which of the following?

Goodwill or a gain from bargain purchase. Any existing noncontrolling interest. The acquiree's identified assets and liabilities assumed by the acquirer.

When one business entity has a controlling financial interest in another entity, why are consolidated financial statements prepared for external reporting?

It is presumed that consolidated financial statements are necessary for a fair presentation.

Why are consolidated financial statements prepared following a business combination?

It is presumed that consolidated statements are necessary for a fair presentation. When one business entity controls the others in a business combination, a single reporting entity exists. There is a presumption that consolidated statements are more meaningful than separate company financial statements.

Which of the following represent reasons that Salesforce.com acquired MuleSoft?

MuleSoft had capabilities to help clients incorporate legacy information technology with Salesforce. MuleSoft's cloud platform will help to integrate and connect clients applications, data, and devices.

A business combination occurs and the acquired firm is legally dissolved. If the consideration transferred by the acquiring firm equals the collective fair value of the acquired firm's net identifiable asset, then

Neither goodwill nor a bargain purchase gain is recorded.

Which of the following best describes a statutory merger?

One company acquires the net assets of another company and the acquired company then is dissolved as a separate legal entity.

Which of the following is an attribute of a statutory merger?

One company directly acquires another company's assets and assumes its liabilities.

Which of the following best describes a situation where one company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity?

Statutory merger.

What is the accounting treatment of the acquired subsidiary's equity accounts in a business combination?

Subsidiary equity accounts are excluded from the accounting for the business combination.

Which of the following is a worksheet effect of consolidation entry S?

Subsidiary stockholders' equity account balances are brought to zero in consolidation.

Which of the following may be included in the calculation of the consideration transferred for a newly acquired firm?

Sum of the acquisition-date fair values of the assets transferred by the acquirer. The liabilities incurred by the acquirer to former owners of the acquiree. The equity interests issued by the acquirer in the combination.

Why is the in-process research and development (IPR&D) of an acquired subsidiary recognized as an asset?

The IPR&D has an acquisition-date fair value.

A single entity can become more profitable than the separate parent and subsidiary had been in the past through which of the following?

The ability to attract financing at lower interest rates from greater negotiating power. Diversification of business risk. Larger firms can become more efficient at delivering goods and services.

When a business combination results in a bargain purchase gain, which of the following best describes the valuation basis of the acquired firm?

The collective fair value of the net identifiable assets acquired.

When each company in a business combination maintains its separate legal existence, which of the following occurs?

The financial accounts of newly acquired subsidiary are unaffected. The acquiring company establishes a single investment account in its financial records. Each company continues to maintain an independent accounting system.

Which of the following are criteria that are essential to recognizing an intangible asset acquired in a business combination?

The intangible asset is capable of being sold or otherwise separated from the acquired enterprise. The intangible asset arises from a contractual or other legal right.

Which of the following describes a fair value exchange price in an orderly transaction between market participants?

The price that would be received from selling an asset. The price that would be paid for transferring a liability.

Before preparation of a consolidated worksheet, an acquisition-date fair value allocation schedule is typically prepared. What is the purpose of the acquisition-date fair value allocation schedule?

The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. The schedule provides supporting calculations that identify fair value adjustments required in consolidation. The schedule computes the allocated value assigned to goodwill or a bargain purchase gain

Which of the following best describes the accounting procedure for a statutory merger or statutory consolidation?

The surviving company records the assets acquired and liabilities assumed in the merger on its financial records.

What accounting procedures are appropriate when an acquired firm is dissolved immediately following a business combination?

The surviving company records the dissolved company's assets and liabilities on its financial records.

The FASB and IASB both have published standards of accounting for business combinations. Which of the following describes the relation between the two sets of business combination accounting standards?

The two sets of standard are identical in most respects. Differences exist across the two standards in accounting for a noncontrolling interest. The convergence of the two standards was designed to enhance cross-border comparability of consolidated financial statements.

Why are consolidated financial statements prepared when a business combination of two or more companies creates a single economic entity?

There is a presumption that consolidated financial statements are more meaningful than separate financial statements.

True or false: Fair value is the primary measurement attribute used in accounting for a newly acquired company in a business combination.

True

True or false: The reported balances for a business combination are the same regardless of whether the acquired firm is dissolved or not.

True

Which of the following best describes a statutory consolidation?

Two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity.

Which of the following is an attribute of a statutory consolidation?

Two or more existing companies are united under the ownership of a newly created company.

Which of the following terms is best described by the integration of successive stages of production and distribution of products?

Vertical integration.

When may majority stock ownership fail to provide control over a business entity?

When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges. When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control.

Contingent consideration is

a contractual provision to pay additional amounts to former owners of a business based upon achievements of future performance measures.

Consolidated financial statements are typically prepared when one company has

a controlling financial interest over another company.

Attorney fees paid for service provided related to a business combination are accounted for as

a current period expense.

When the consideration transferred in a business combination is less than total net fair value of the identifiable net assets received, the excess is recognized as

a gain on bargain purchase.

Costs incurred to register and issue securities in connection with a business combination are recorded as

a reduction of additional paid-in capital.

What is a business combination?

a set of separate business organizations under the control of a single company

The purpose of consolidation entry A is to

adjust the subsidiary asset and liability accounts to their acquisition-date fair value

To complete a consolidation acquisition-date worksheet,

all account balances, after adjusting for consolidation entries, are extended across to the Consolidated Total column. the "investment in subsidiary" account balance is eliminated entirely in consolidation.

Intangible assets

are common in business combinations. are required to meet specific criteria to qualify for recognition in a business combination. lack physical substance.

The second column of figures on the consolidated worksheet includes the subsidiary's assets and liabilities at their _ values.

book or carrying

In a business combination when each combining firm maintains its separate incorporation

consolidation worksheets are employed to generate financial reports for the combined economic entity. the acquiring firm utilizes an investment account to record the acquisition. each company maintains independent record keeping.

When a company acquires a majority, but less than 100% of the voting stock of another company,

each company maintains its separate legal existence.

Preexisting goodwill on a newly acquired subsidiary's books is

essentially ignored in the allocation of the consideration transferred to the subsidiary's assets and liabilities. not considered an identifiable asset by the parent.

The acquisition-date fair value allocation schedule helps to prepare the worksheet entries to adjust the subsidiary's assets from book value to _ value.

fair

What is the measurement attribute employed in determining the consideration transferred in a business combination?

fair value

Even though measurement of an intangible asset (e.g., unpatented technology or customer relationships) may lack precision, recognition of the identified intangible may result in greater

faithful representation.

When the consideration transferred in a 100% acquisition exceeds the total net fair value of the identifiable net assets received, the excess is recognized as

goodwill as an unidentifiable asset.

Consolidation entry S is a worksheet entry that

has no effect on the individual financial records of neither the parent nor the subsidiary

Size and scale are important drivers of business competitiveness because

if firms can become more efficient in delivering goods and services, they may gain a competitive advantage and become more profitable. increases in scale can produce larger profits from enhanced sales volume despite smaller profit margins.

Among the items recognized by Tesla from the Grohmann acquisition included _ assets such as developed technology, software, customer relations, and the Grohmann trade name.

intangible

Goodwill recognized in a business combination

is an asset that represents future economic benefits may capture value derived from other intangible assets not otherwise eligible for recognition may embody synergies the acquirer expects to achieve from the combination

Trademarks and trade names are examples of _-related intangible assets

marketing

When a company acquires all of the assets and liabilities of another firm and the acquired firm is dissolved as separate entity, this combination is referred to as a statutory _.

merger

In-process research and development acquired in a business combination is

tested periodically for impairment. recognized as an indefinite life intangible asset. recognized at its acquisition-date fair value.

In a business combination, when the collective fair values of the net identified assets acquired and liabilities assumed exceeds the consideration transferred,

the acquirer recognizes a gain on bargain purchase. the fair value of the net identifiable assets becomes the valuation basis for the acquired firm.

When the collective fair value of the net identified assets acquired and liabilities assumed exceeds the consideration transferred,

the acquirer recognizes a gain on bargain purchase. the fair value of the net identifiable assets becomes the valuation basis for the acquired firm.

In preparing the journal entry to record a merger, the acquiring firm includes

the assets acquired and liabilities assumed at fair value.

In financial reporting for a bargain purchase business combination

the collective fair value of the identifiable net assets becomes the acquired firm's valuation basis. a gain is reported on the acquiring firm's income statement.

For a 100% business acquisition where dissolution of the acquired firm does not occur, the parent company records on its books

the fair value of the acquired firm in an investment account.

When an acquired firm's legal status is dissolved in a business combination, the acquiring firm's entry to record the combination includes

the fair value of the consideration transferred. the individual fair values of the assets acquired and liabilities assumed.

When a business combination is accompanied by contingent consideration to be paid by the parent upon completion of specified performance metrics, the journal entry to record the combination includes

the fair value of the contingent consideration in the investment account as part of the overall consideration transferred. a liability for the fair value of the contingent consideration.

When the fair value of a 100% acquired subsidiary's net identifiable assets exceeds the consideration transferred,

the identifiable assets of the acquired subsidiary are reported in the acquisition-date consolidated balance sheet at fair value. the parent records a bargain purchase gain on its books. a bargain purchase gain is reported in the consolidated income statement in the period of the acquisition.

In a business combination when each combining firm remains a legally incorporated separate entity

the parent company employs consolidated worksheet entries to help prepare a set of consolidated financial statements. the acquiring firm does not physically record the acquired firm's separate assets and liabilities.

Consolidation entry S brings subsidiary stockholders' equity account balances to zero because

they represent ownership interests held by the parent and thus are not outstanding equity.

The goal of the FASB/IASB joint project on accounting for business combinations was to

to develop a standard that includes a common set of principles to produce decision-useful information and minimizing exceptions to those principles.

True or false: Acquisition-date fair values are used to measure assets acquired and liabilities assumed across all business combinations.

true