ACCT 4370 Final

Topco owns 60% of the voting common stock of Midco and 40% of the voting common stock of Botco. Topco wishes to gain control of Botco by having Midco buy shares of Botco's voting stock. Which one of the following minimum levels of ownership of Botco must Midco additionally need to obtain in order for Topco to have controlling interest of Botco's voting stock? 11% 17% 26% 50+%

11

Pine Company acquired goods for resale from its manufacturing subsidiary, Strawco, at Strawco's cost to manufacture of $12,000. Pine subsequently resold the goods to a nonaffiliate for $18,000. Which one of the following is the amount of the elimination that will be needed as a result of the intercompany inventory transaction? $-0- $6,000 $12,000 $18,000

12000

On October 1, 200X, Parco acquired 100% controlling interest of Setco in a legal acquisition. There were no other transactions between the entities during 200X. The two companies reported the following net incomes/(losses) for the periods shown: Parco Setco 1/1/0X - 9/30/0X $125,000 $40,000 10/1/0X - 12/31/0X 30,000 ($15,000) Which one of the following would be the amount of income recognized by Parco in its consolidated financial statements for the year ended December 31, 200X? $140,000 $155,000 $180,000 $210,000

140000

On July 1, 2009, Lazer, Inc. acquired all of the assets, with a fair value of $400,000, and liabilities, with a fair value of $150,000, of Tipco, Inc. for $250,000 cash. In addition, Lazer paid $20,000 in legal and accounting fees for the combination and expects to pay $50,000 to close one of Tipco's plants and relocate its employees. Which one of the following is the amount of liability that Lazer should recognize in recording the business combination? $- 0 - (no liability) $150,000 $170,000 $200,000

150,000

Windco, Inc. acquired 100% of the voting common stock of Trace, Inc. by transferring the following consideration to Trace's shareholders: Cash $100,000 5,000 new shares of Windco's $10 par common stock $ 50,000 (par) (which is less than 1% of Windco's outstanding stock) In addition, Windco paid $12,000 direct cost of carrying out the combination. At the date of the acquisition, Windco's common stock was selling in an active market for $18 per share. Also, at the date of the acquisition, Trace had the following assets and liabilities with the book values and fair values shown: Book Value Market Value Accounts Receivable $ 20,000 $ 20,000 Property and Equipment 80,000 100,000 Land 60,000 80,000 Other Assets 40,000 40,000 Total Assets $200,000 $240,000 Accounts Payable $ 15,000 $ 15,000 Other Short-term Debt 10,000 10,000 Long-term Debt 35,000 35,000 Total Liabilities $ 60,000 $ 60,000 Which one of the following is the fair value of Trace's net assets at the date of the business combination? $140,000 $180,000 $192,000 $240,000

180,000

Which one of the following levels of voting ownership is normally assumed to convey significant influence over an investee? 0% - 10%. 20% - 50%. 50% - 100%. 100%.

20% - 50%.

On December 1, 200X, Betaco agreed to be acquired 100% by Alphaco at a cost equal to Betaco's book value. The combination was initiated at that time, and the closing date for the acquisition was December 31, 200X. Both firms have December 31 fiscal year-ends. There were no other transactions between the firms during 200X or 200Y. Each firm had the following net incomes for the periods shown: Alphaco Betaco 1/1/0X-11/30/0X $20,000 $5,000 12/1/0X-12/31/0X 4,000 1,000 1/1/0Y-1/31/0Y 2,000 3,000 Which one of the following is the consolidated net income that Alphaco should recognize for 200X? $24,000 $25,000 $29,000 $30,000

24000

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of intercompany sales that should be eliminated for 200X consolidated statements? $27,000 $24,000 $18,000 $12,000

27000

On August 31, 2005, Wood Corp. issued 100,000 shares of its $20 par value common stock for the net assets of Pine, Inc. in a business combination accounted for by the acquisition method. The fair value of Wood's common stock on August 31 was $36 per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the equity securities amounted to $80,000. No goodwill was involved in the purchase. What should Wood capitalize as the cost of acquiring Pine's net assets? $3,600,000 $3,680,000 $3,760,000 $3,840,000

3,600,000

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of ending inventory that should be eliminated for consolidated statements? $3,000 $6,000 $9,000 $15,000

3000

An investor will report an investment in its financial statements using a different method than it uses to carry the investment on its books if its minimum ownership of the investee is: 10+%. 20+%. 50+%. 100%.

50+%.

On December 1, 200X, Betaco agreed to be acquired 100% by Alphaco at a cost equal to Betaco's book value. The combination was initiated at that time, and the closing date for the acquisition was December 31, 200X. Both firms have December 31 fiscal year-ends. There were no other transactions between the firms during 200X or 200Y. Each firm had the following net incomes for the periods shown: Alphaco Betaco 1/1/0X-11/30/0X $20,000 $5,000 12/1/0X-12/31/0X 4,000 1,000 1/1/0Y-1/31/0Y 2,000 3,000 Which one of the following is the amount of consolidated net income that should be recognized for January 200Y? $2,000 $3,000 $5,000 $10,000

5000

Damon Co. purchased 100% of the outstanding common stock of Smith Co. in an acquisition by issuing 20,000 shares of its $1 par common stock that had a fair value of $10 per share and providing contingent consideration that had a fair value of $10,000 on the acquisition date. Damon also incurred $15,000 in direct acquisition costs. On the acquisition date, Smith had assets with a book value of $200,000, a fair value of $350,000, and related liabilities with a book and fair value of $70,000. What amount of gain should Damon report related to this transaction? $ 55,000 $ 70,000 $ 80,000 $250,000

70,000

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000, and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income? $900,000 $940,000 $960,000 $1,000,000

900000

At the closing date of a business combination, goodwill was recognized. During the subsequent measurement period, additional identifiable assets were properly recognized as part of the business combination. If no other changes occurred during the measurement period, which one of the following would be the effect, if any, of the additional assets recognized on the amount of goodwill recognized in the combination? No change in the amount of goodwill recognized An increase in the amount of goodwill recognized A decrease in the amount of goodwill recognized An increase or decrease in the amount of goodwill recognized, depending on the underlying reason(s) for the goodwill

A decrease in the amount of goodwill recognized

Which one of the following items acquired in a business combination is least likely to require that the acquirer reconsider the acquiree's classification? A debt investment classified as held-to-maturity by the acquiree A debt investment classified as held-for-trading by the acquiree A lease classified as a sales-type capital lease by the acquiree A derivative instrument used for speculative purposes by the acquiree

A lease classified as a sales-type capital lease by the acquiree

Which one of the following assets recognized in a business combination will require that the amount recognized be amortized over future periods? An asset arising from a contingency A reacquired right asset An indemnification asset A contingent consideration asset

A reacquired right asset

Which one of the following would be subject to the acquisition accounting requirements of ASC 805, Business Combinations? Formation of a joint venture Acquisition of a manufacturing entity by a holding company Acquisition of a for-profit entity by a not-for-profit organization Combination of entities under common control

Acquisition of a manufacturing entity by a holding company

Which one of the following will occur on consolidated financial statements if an intercompany inventory transaction is not eliminated? An understatement of sales. An overstatement of sales. An understatement of purchases. An overstatement of accounts receivable.

An overstatement of sales.

How should the acquirer recognize a bargain purchase in a business acquisition? As negative goodwill in the statement of financial position As goodwill in the statement of financial position As a gain in earnings at the acquisition date As a deferred gain that is amortized into earnings over the estimated future periods benefited

As a gain in earnings at the acquisition date

Which of the following occurrences in a business combination, if any, identify circumstances that require extensive disclosures in the period of the combination? I. The existence of a noncontrolling interest. II. Achieving control in step acquisition. Neither I nor II. I only. II only. Both I and II.

Both I and II.

Zipco, Inc. acquired 100% of the voting stock of Narco, Inc. with an acquisition date of March 31, 2009. During the following three months, Zipco learned the following: I. A major credit customer of Narco had declared bankruptcy on March 1, 2009, but the adverse effect on Narco's accounts receivable had not been recognized in the amount of accounts receivable recognized in the acquisition date amounts. II. Narco had a lawsuit against it that existed at the acquisition date of the combination but was not recognized on Narco's books or in the liabilities recognized at the acquisition date. Analysis determined that it was more likely than not that the party that brought the lawsuit would win a material judgment against Narco/Zipco. Which of these items of new information, if any, should be recognized in accounting for the business combination? Neither I nor II. I only. II only. Both I and II.

Both I and II.

The requirements of ASC 805, Business Combinations, apply to all of the following business combinations except for which one? Combination between financial institutions The acquisition of a foreign entity by a U.S. entity Combination between not-for-profit organizations The acquisition of a group of assets that constitutes a business

Combination between not-for-profit organizations

In which one of the following cases is Company A most likely to be the acquirer of Company B in a business combination? Company A owns 80% of Company B's long-term debt. Company A owns 40% of Company B's voting stock and 40% of Company C's voting stock, which owns 20% of Company B's voting stock. Company A owns 35% of Company B's voting stock and 60% of Company C's voting stock, which owns 20% of Company B's voting stock. Company A owns 40% of Company B's outstanding bonds and 20% of Company B's voting stock.

Company A owns 35% of Company B's voting stock and 60% of Company C's voting stock, which owns 20% of Company B's voting stock.

Company Z is formed to consolidate three preexisting entities: Companies W, X, and Y. Company Z pays cash to acquire the net assets of Company W and issues debt to acquire the net assets of Company X. Company Z acquires all of the stock of Company Y in the market for cash. Which one of the companies is most likely the acquirer in the business combination? Company W Company X Company Y Company Z

Company Z

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct? Consolidated financial statements should be prepared for both Star and Sun. Consolidated financial statements should only be prepared by Star and not by Sun. After consolidation, the accounts of both Star and Sun should be changed to reflect the consolidated totals for future ease in reporting. After consolidation, the accounts of both Star and Sun should be combined together into one general ledger accounting system for future ease in reporting.

Consolidated financial statements should only be prepared by Star and not by Sun.

Penn, Inc., a manufacturing company, owns 75% of the common stock of Sell, Inc., an investment company. Sell owns 60% of the common stock of Vane, Inc., an insurance company. In Penn's consolidated financial statements, should consolidation accounting or equity method accounting be used for Sell and Vane? Consolidation used for Sell and equity method used for Vane. Consolidation used for both Sell and Vane. Equity method used for Sell and consolidation used for Vane. Equity method used for both Sell and Vane.

Consolidation used for both Sell and Vane.

Which one of the following items that was acquired in a business combination is most likely to be accounted for using post-combination accounting requirements specific for the item? Plant and equipment Debt investments held-to-maturity Contingency-based assets Patents

Contingency-based assets

Under IFRS, which of the following would not be recognized as part of a business combination? Contingent asset Contingent liability Goodwill Fair value of the consideration transferred

Contingent asset

Which one of the following, incurred by an acquiring entity in carrying out a business combination, would not be included in the cost of an acquired entity? Cash paid as consideration in the combination Fair value of liabilities incurred in the combination Cost of legal fees to carry out the combination Fair value of contingent consideration at the acquisition date

Cost of legal fees to carry out the combination

Plant Company acquired controlling interest in Seed Company in a legal acquisition. Which one of the following could not be part of the entry to record the acquisition? Debit: Investment in Seed Company Debit: Goodwill Credit: Cash Credit: Common stock

Debit: Goodwill

A company acquires another company for $3,000,000 in cash, $10,000,000 in stock, and the following contingent consideration: $1,000,000 after Year 1, $1,000,000 after Year 2, and $500,000 after year 3, if earnings of the subsidiary exceed $10,000,000 in each of the three years. The fair value of the contingent -based consideration portion is $2,100,000. What is the total consideration transferred for this business combination? $15,500,000 $15,100,000 $13,000,000 $5,100,000

$15,100,000

On September 29, Year 5, Wall Co. paid $860,000 for all of the issued and outstanding common stock of Hart Corp. On that date, the carrying amounts of Hart's recorded assets and liabilities were $800,000 and $180,000, respectively. Hart's recorded assets and liabilities had fair values of $840,000 and $140,000, respectively. In Wall's September 30, Year 5, balance sheet, what amount should be reported as goodwill? $20,000 $160,000 $180,000 $240,000

$160,000

In recording its acquisition of Lambda, Inc., Omega, Inc. properly recognized a contingent consideration liability of $28,000 associated with a possible payment based on a target amount of post-combination cash flow from operations. Shortly after the combination, but during the measurement period, the national economy experienced a significant downturn which made it unlikely that the target amount would be reached. As a consequence, at the end of Omega's fiscal period, the liability was properly revalued to a fair value of $9,000. Which one of the following is the amount of gain or loss that will be recognized in income as a result of the reevaluation of the contingent liability? $ - 0 - (no gain or loss) $19,000 gain $19,000 loss $ 9,000 loss

$19,000 gain

Windco, Inc. acquired 100% of the voting common stock of Trace, Inc. by transferring the following consideration to Trace's shareholders: Cash $100,000 5,000 new shares of Windco's $10 par common stock $ 50,000 (par) (which is less than 1% of Windco's outstanding stock) In addition, Windco paid $12,000 direct cost of carrying out the combination. At the date of the acquisition, Windco's common stock was selling in an active market for $18 per share. Also, at the date of the acquisition, Trace had the following assets and liabilities with the book values and fair values shown: Book Value Market Value Accounts Receivable $ 20,000 $ 20,000 Property and Equipment 80,000 100,000 Land 60,000 80,000 Other Assets 40,000 40,000 Total Assets $200,000 $240,000 Accounts Payable $ 15,000 $ 15,000 Other Short-term Debt 10,000 10,000 Long-term Debt 35,000 35,000 Total Liabilities $ 60,000 $ 60,000 Which one of the following is the amount that Windco should treat as its cost consideration for the acquisition of Trace? $150,000 $162,000 $190,000 $202,000

$190,000

On May 1, 2017, Hico, Inc. acquired 20% of the voting securities of Lowco, Inc. for $400,000 cash. The investment did not give Hico significant influence over Lowco and was carried at fair value with unrealized gains and losses recorded in earnings. On July 1, 2018, Hico acquired the remaining 80% of Lowco's voting securities in a business combination for $1,800,000 cash. At that time, Hico's original 20% investment in Lowco had a fair value of $450,000. At what amount should Hico record as the total fair value of Lowco as a result of the business combination? $1,350,000 $1,800,000 $2,200,000 $2,250,000

$2,250,000

On July 1, Dill, Inc. exchanged 10,000 shares of its common stock for all 20,000 shares of Ledo, Inc.'s outstanding common stock. Dill's stock is closely held and seldom traded; it has a par value of $10 per share and a book value of $12 per share. Ledo's stock is traded in an active market and has a par value of $5 per share, a book value of $8 per share, and a market price of $11 per share. Which one of the following amounts is most likely the appropriate value of Dill's investment in Ledo? $100,000 $110,000 $120,000 $220,000

$220,000

Seashell Corp. was organized to consolidate Sea Company and Shell Company in a business combination. Seashell issued 25,000 shares of its $10 par value common stock in exchange for all of the outstanding common stock of Sea and Shell. At the time of the consolidation, the fair value of Sea's and Shell's assets and liabilities are equal to their book values. The shareholders' equity accounts of Sea and Shell on the date of the consolidation were: Sea Shell Total Common stock, at par $100,000 $200,000 $300,000 Additional paid-in capital 50,000 75,000 125,000 Retained Earnings 22,500 47,500 70,000 Totals $172,500 $322,500 $495,000 Which of the following is the balance in Seashell's additional paid-in capital account immediately following its issuing common stock to effect the consolidation? $-0- $50,000 $125,000 $245,000

$245,000

Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be Allocated on a pro rata basis to the nonmonetary assets acquired. Capitalized as part of goodwill and tested annually for impairment. Capitalized as an other asset and amortized over five years. Expensed as incurred in the current period.

Expensed as incurred in the current period.

Per IFRS, intangible assets acquired in a business combination should be initially measured at: Fair value at the acquisition date. Purchase price excluding any discounts. Purchase price excluding import duties. Amortized cost.

Fair value at the acquisition date.

Under which one of the following circumstances will goodwill be recognized in a business combination carried out as a legal merger? Book value of net assets acquired > Cost of investment Fair value of net assets acquired > Book value of net assets acquired Fair value of net assets acquired > Cost of investment Fair value of net assets acquired < Cost of investment

Fair value of net assets acquired < Cost of investment

Zooco, Inc. acquired 40% of the voting stock of Stubco, Inc. on September 1, 2008, and accounted for the investment using the equity method of accounting. On May 1, 2009, Zooco acquired an additional 20% of Stubco's voting stock to achieve a business combination. Which one of the following is the value Zooco should use to measure its original 40% investment in Stubco when recording the combination? Original cost, September 1, 2008 Carrying value, May 1, 2009 Fair value, May 1, 2009 40% of Stubco's book value, May 1, 2009

Fair value, May 1, 2009

In a business combination accounted for as an acquisition, the fair value of the identifiable net assets acquired exceeds the fair value of the consideration paid by the acquirer and the fair value of the noncontrolling interest in the acquiree. The excess fair value of net assets over investment value should be reported as a: Gain. Reduction of the values assigned to current assets and a deferred credit ("Negative Goodwill") for any unallocated portion. Reduction of the values assigned to non-financial assets and a gain for any unallocated portion. Pro-rata reduction of the values assigned to current and noncurrent assets.

Gain

Which one of the following kinds of accounts is least likely to be eliminated through an eliminating entry on the consolidating worksheet? Receivables. Investment. Goodwill. Payables.

Goodwill.

For the purpose of consolidating financial interests, a majority voting interest is deemed to be 50% of the directly or indirectly owned outstanding voting shares of another entity. 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity. Greater than 50% of the directly or indirectly owned outstanding voting shares of another. Greater than 50% of the directly or indirectly owned outstanding voting shares and at least 50% of the directly or indirectly owned outstanding nonvoting shares of another entity.

Greater than 50% of the directly or indirectly owned outstanding voting shares of another.

If provisional amounts are reported for items recognized in a business combination, which of the following kinds of information must be disclosed? I. The reasons why the accounting is incomplete. II. The amount of adjustment(s) made to the provisional amounts during the period. III. The date at which each provisional amount is expected to be resolved. I and II only. II only. I and III only. I, II, and III.

I and II only.

Which of the following statements concerning the acquisition of a business is/are correct? I. Most consideration transferred to effect a business combination should be measured at fair value. II. Contingent consideration should be included in the cost of an acquired business at fair value existing on the acquisition date. III. The cost of carrying out a business combination should be included in the cost of an acquired business. I only. I and II only. I and III only. I, II, and III.

I and II only.

When a new entity is formed to effect a business combination, which of the following statements, if any, is/are correct? I. A legal consolidation has occurred. II. The new entity is always the acquirer in the business combination. Neither I nor II. I only. II only. Both I and II.

I only.

Which of the following contingencies that exist on the acquisition date should be recognized by the acquirer in a business combination? I. A contractual contingency to provide warranty services to prior customers of the acquiree. II. An outstanding lawsuit against the acquiree for which an expert legal authority believes there is a 20% probability that the suit will be successful. Neither I nor II. I only. II only. Both I and II.

I only.

Which of the following statements concerning the acquisition date of a business combination is/are correct? I. The acquisition date may be before the closing date. II. The acquisition date may be on the closing date. III. The acquisition date may be after the closing date. I and II only. II only. II and III only. I, II, and III.

I, II, and III

When a bargain purchase occurs in a business combination, which of the following types of information must be disclosed in the period of the combination? I. The amount of gain recognized. II. The income statement line item that includes the gain. III. A description of the basis for the bargain purchase amount. I only. I and II only. I and III only. I, II, and III.

I, II, and III.

When goodwill is recognized in a business combination, which of the following types of information about that goodwill must be disclosed? I. A quantitative description of the factors that make up the goodwill. II. The amount of goodwill that is expected to be deductible for tax purposes. III. The amount of goodwill allocated to each reportable segment. I and II only. I and III only. II and III only. I, II, and III.

I, II, and III.

When using the acquisition method of accounting for a business combination, which of the following statements concerning the measurement period is/are correct? I. It provides time for the acquiring entity to identify assets acquired and liabilities assumed that existed as of the acquisition date. II. It provides time for the acquiring entity to determine the fair value of assets acquired and liabilities assumed that existed as of the acquisition date. III. It should not exceed one year from the acquisition date. I and II only. I and III only. II and III, only. I, II, and III.

I, II, and III.

Which of the following are requirements of using the acquisition method of accounting for a business combination? I. Determining the acquiring entity. II. Determining the acquisition date of the business combination. III. Determining the cost of the acquisition. I only. I and II only. I and III only. I, II, and III.

I, II, and III.

Which of the following general types of information about a business combination must be disclosed? I. The primary reason for a business combination. II. How the acquirer gained control of the business. III. The acquisition-date fair value of consideration transferred and each major class of asset acquired and liability assumed. I and II only. I and III only. II and III only. I, II, and III.

I, II, and III.

Which of the following information that exists at the date of an acquisition will be needed to carry out the consolidating process? I. Book values of a subsidiary's assets and liabilities. II. Fair values of a subsidiary's assets and liabilities. III. Parent's cost of its investment in the subsidiary. I, II, and III. I and II, only. II and III, only. III only.

I, II, and III.

Which of the following statements, if any, concerning the preparation of consolidated financial statements is/are correct? I. The consolidating process is carried out on the books of the parent entity. II. The consolidated financial statements report two or more legal entities as though they are a single economic entity. I only. II only. Both I and II. Neither I nor II.

II only.

Consolidated financial statements are based on the concept that: In the preparation of financial statements, legal form takes precedence over economic substance. In the preparation of financial statements, economic substance takes precedence over legal form. Financial information should be presented separately for each legal entity. Separate financial statements are more meaningful than consolidated financial statements.

In the preparation of financial statements, economic substance takes precedence over legal form.

Pine Company acquired all of the assets and liabilities of Straw Company for cash in a legal merger. Which one of the following would not be recognized by Pine on its books in recording the business combination? Accounts receivable. Investment in Straw. Intangible asset—Patent. Accounts payable.

Investment in Straw.

Which of the following statements, if any, concerning a noncontrolling interest in an acquiree is/are correct? I. The value assigned to a noncontrolling interest in an acquiree should be based on the proportional share of that interest in the net assets of the acquiree. II. The fair value per share of the noncontrolling interest in an acquiree must be the same as the fair value per share of the controlling (acquirer) interest. Both I and II. I only. II only. Neither I nor II.

Neither I nor II.

Which of the following statements, if any, concerning the accounting for business combinations is/are correct? I. All business combinations in the U.S. are subject to the acquisition accounting requirements of ASC 805, Business Combinations. II. The acquisition accounting requirements of ASC 805, Business Combinations, are identical to those of IFRS #3, Business Combinations. Neither I nor II. I only. II only. Both I and II.

Neither I nor II.

AICPA.090104FAR-SIM The results of the consolidating process are recorded in the books of the: Parent Subsidiary Yes Yes Yes No No Yes No No

No No

The terms of a business combination can provide that former shareholders of the acquired firm may receive additional compensation based on post-combination earnings or post-combination market share price. Would additional compensation based on such earnings or market price be considered an additional cost of the business combination? Based on Earnings Based on Share Price Yes Yes Yes No No Yes No No

No No

In which of the legal forms of business combination does more than one entity survive? Merger Consolidation Acquisition Yes Yes Yes Yes Yes No Yes No No No No Yes

No No Yes

Under GAAP, which of the following can be issued as the primary form of public financial statement disclosure for a parent and its subsidiaries? Parent only Statement Separate Parent and Subsidiary Statements Consolidated Statements Yes Yes Yes Yes No No No Yes Yes No No Yes

No No Yes

In which of the following circumstances of a business combination, if any, could the recognition of a gain occur at the time of the combination? Investment Value > Fair Value of Net Assets Investment Value < Fair Value of Net Assets Yes Yes Yes No No Yes No No

No Yes

AICPA.090105FAR-SIM Which one of the following kinds of eliminations, if any, will be required in every consolidating process? Intercompany Receivables/Payables Intercompany Investment Intercompany Revenues/Expenses Yes Yes Yes Yes No Yes No Yes No Yes Yes No

No Yes No

In which of the following legal forms of business combination are two or more entities combined into one new entity? Merger Consolidation Acquisition Yes Yes Yes Yes Yes No No Yes No No No Yes

No Yes No

Which of the following is/are acceptable methods to account for a business combination? Purchase Method Acquisition Method Pooling of Interests Method Yes Yes Yes Yes Yes No Yes No No No Yes No

No Yes No

Which one of the following correctly describes the maximum length of the measurement period for a business combination? The acquisition date of the business combination The end of the annual fiscal period in which the combination occurs One year from the acquisition date of the combination Indefinite, until all information about accounts and amounts is known

One year from the acquisition date of the combination

Which one of the following payments by an acquirer in a business combination is most likely to be a part of the cost in recording a business combination transaction? Payment by the acquirer to settle a trade payable due to the acquired entity Payment by the acquirer to the acquiree's management personnel to remain with the firm for one year following the business combination Payment by the acquirer to the acquiree for a valid patent not previously recognized by the acquiree Payment by the acquirer to reimburse the acquiree for cost it incurred in carrying out the business combination

Payment by the acquirer to the acquiree for a valid patent not previously recognized by the acquiree

Aceco has significant investments in three separate entities. These investments are: 1. 40% ownership of the voting stock of Kapco. 2. 60% ownership of the voting stock of Placo. 3. 100% ownership of the voting stock of Simco Which of Aceco's investments would be consolidated with Aceco in its consolidated financial statements? Simco only. Placo and Simco. Kapco, Placo, and Simco. Kapco only.

Placo and Simco.

Which one of the following is not necessarily a post-combination characteristic of a legal acquisition? The combining firms remain separate legal entities. A parent-subsidiary relationship exists. The acquiring firm owns 100% of the voting stock of the acquired firm. The combining firms are under common economic control.

The acquiring firm owns 100% of the voting stock of the acquired firm.

The acquisition date of a business combination is generally which one of the following? The effective date The closing date The settlement date The recording date

The closing date

If a business combination is effected through an exchange of equity interests, assuming all other factors are equal, which one of the following independent circumstances would not indicate the likely acquirer in a business combination? The combining entity whose owners have the larger portion of voting rights in the combined entity The combining entity whose owners have the ability to select or remove a voting majority of the governing body of the combined entity The combining entity whose debt-holders have the larger portion of the debt of the combined entity The combining entity whose former management dominates the combined entity

The combining entity whose debt-holders have the larger portion of the debt of the combined entity

In which of the following circumstances will goodwill be recognized in a business combination? The acquired entity had the asset "Goodwill" on its books immediately prior to the business combination. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the book value of the acquired entity's net assets. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the fair value of the acquired entity's net assets. The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is less than the fair value of the acquired entity's net assets.

The fair value of the investment by the acquiring entity and any noncontrolling interest in the acquired entity is greater than the fair value of the acquired entity's net assets.

Consolidated financial statements are typically prepared when one company has a controlling financial interest in another unless: The subsidiary is a finance company. The fiscal year-ends of the two companies are more than three months apart. The subsidiary is in bankruptcy. The two companies are in unrelated industries, such as manufacturing and real estate.

The subsidiary is in bankruptcy.

Under IFRS, the asset goodwill may be recognized When it is acquired in a business combination. When it is internally generated or acquired by purchase. When it is clear that it exists and has value. When it has future economic benefits.

When it is acquired in a business combination.

Which one of the following circumstances will not impact directly the adjustments, eliminations, or related amounts in the consolidating process? Whether the parent company is a manufacturing firm or a service firm. Whether the parent uses the cost or equity method to carry the investment in a subsidiary on its books. Whether the parent owns 100% or less than 100% of the subsidiary. Whether transactions between the affiliated entities originate with the parent or with a subsidiary.

Whether the parent company is a manufacturing firm or a service firm.

Changes in the fair value of contingent consideration transferred in a business combination resulting from occurrences after the acquisition date should be recognized as a gain or loss in the current income when the contingent consideration is classified as An Asset or a Liability An Equity Item Yes Yes Yes No No Yes No No

Yes No

The choice of methods that a parent uses on its books to account for its investment in a subsidiary will affect the: Consolidating Process Consolidated Financial Statements Yes Yes Yes No No Yes No No

Yes No

In which of the following legal forms of business combination are the assets and liabilities of an acquired entity or entities recorded on the books of the acquiring entity? Merger Acquisition Consolidation Yes Yes Yes Yes Yes No Yes No Yes No Yes No

Yes No Yes

A business combination is accounted for using the acquisition method. Which of the following should be deducted in determining the combined corporation's net income for the current period? Direct Costs Of Acquisition General Expenses Related to Acquisition Yes Yes Yes No No Yes No No

Yes Yes

AICPA.070729FAR-P1-FA The preparation of consolidated statements likely will require the following information about the subsidiary's assets and liabilities at the date of acquisition: Book Value Fair Value Yes No No Yes Yes Yes No No

Yes Yes

An entity must disclose information about a business combination it carries out if the acquisition date occurs: During the Reporting Period After the Reporting Period but Before Statements are Released Yes Yes Yes No No Yes No No

Yes Yes

An obligation of an acquirer to pay contingent consideration to the former owners of an acquired entity in a business combination can be recognized as which of the following? A Liability An Equity Item Yes Yes Yes No No Yes No No

Yes Yes

Consolidated financial statements can be prepared for a business combination that was accounted for using which of the following accounting methods? Acquisition Method Pooling of Interests Method Yes Yes Yes No No Yes No No

Yes Yes

Following a business combination accomplished through a legal acquisition, transactions between the affiliated entities can originate with the/a: Parent Company Subsidiary Company Yes Yes Yes No No Yes No No

Yes Yes

Which of the following can be overstated on consolidated financial statements if intercompany inventory balances on-hand at the end of a period are not eliminated? Consolidated Income Consolidated Loss Yes Yes Yes No No Yes No No

Yes Yes

Which of the following kinds of intangible assets on the books of an acquired entity immediately before a business combination would be recognized by the acquiring entity? Future benefits that derive from legal rights Future benefits that can be separately sold Yes Yes Yes No No Yes No No

Yes Yes

Which one of the following methods, if any, may a parent use on its books to carry an investment in a subsidiary that it will consolidate? Cost Method Equity Method Yes Yes Yes No No Yes No No

Yes Yes

In which of the following legal forms of business combination does at least one preexisting entity cease to exist? Merger Consolidation Acquisition Yes Yes Yes Yes Yes No Yes No No No No Yes

Yes Yes No

Generally, which of the following items acquired in a business combination should be measured at fair value? Identifiable Assets Acquired Liabilities Assumed Noncontrolling Interest Yes Yes No Yes No No Yes No Yes Yes Yes Yes

Yes Yes Yes

If the parent uses the cost method to account for its investment in a subsidiary, the parent will recognize: the parent's share of the subsidiary's net income. the parent's share of the subsidiary's dividends. amortization of parent's excess cost of investment over the book value of the subsidiary. the parent's share of the subsidiary's net loss.

the parent's share of the subsidiary's dividends.

Dunn Corp. owns 100% of Grey Corp.'s common stock. On January 2, year 2, Dunn sold to Grey for $40,000 machinery with a carrying amount of $30,000. Grey is depreciating the acquired machinery over a 5-year life by the straight-line method. The net adjustments to compute year 2 and year 3 consolidated income before income tax would be an increase (decrease) of Year 2 Year 3 $ (8,000) $ 2,000 $ (8,000) $ 0 $ (10,000) $ 2,000 $ (10,000) $ 0

$ (8,000) $ 2,000

In recording its acquisition of Lambda, Inc., Omega, Inc. properly recognized a contingent consideration liability of $28,000 associated with a possible payment based on a target amount of post-combination cash flow from operations. Shortly after the combination, but during the measurement period, the national economy experienced a significant downturn which made it unlikely that the target amount would be reached. As a consequence, at the end of Omega's fiscal period, the liability was properly revalued to a fair value of $9,000. Which one of the following is the amount of increase or decrease, if any, in the consideration paid to acquire Lambda that results from the change in the fair value of the contingent liability? $ - 0 - (no increase or decrease) $19,000 increase $19,000 decrease $ 9,000 decrease

$ - 0 - (no increase or decrease)

Wagner, a holder of a $1,000,000 Palmer, Inc. bond, collected the interest due on March 31, year 2, and then sold the bond to Seal, Inc. for $975,000. On that date, Palmer, a 100% owner of Seal, had a $1,075,000 carrying amount for this bond. What was the effect of Seal's purchase of Palmer's bond on the retained earnings and noncontrolling interest amounts reported in the March 31, year 3 consolidated balance sheet? Retained earnings Noncontrolling interest $ 100,000 increase $ 0 $ 75,000 increase $ 25,000 increase $ 0 $ 25,000 increase $ 0 $ 100,000 increase

$ 100,000 increase $ 0

On November 30, year 2, Eagle, Incorporated purchased for cash at $25 per share all 300,000 shares of the outstanding common stock of Perch Company. Perch's balance sheet at November 30, year 2, showed a book value of $6,000,000. Additionally, the fair value of Perch's property, plant, and equipment on November 30, year 2, was $800,000 in excess of its book value. What amount, if any, will be shown in the balance sheet as "Goodwill" in the November 30, year 2 consolidated balance sheet of Eagle, Incorporated, and its wholly owned subsidiary, Perch Company? $0 $ 700,000 $ 800,000 $1,500,000

$ 700,000

On January 1, 20x6 Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) which were $100,000 in excess of the carrying amount. Those plant assets had a 10-year remaining life, depreciated on a straight-line basis. The fair value of the 20% noncontrolling interest in Shaw was properly determined to be $200,000 at that time. For the year ended December 31, 20x6, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. Which one of the following is the amount of goodwill that should be recognized as a result of the business combination? $ 43,000 $ 75,000 $ 95,000 $175,000

$ 75,000

Beni Corp. acquired 100% of Carr Corp.'s outstanding capital stock for $430,000 cash. Immediately before the acquisition, the balance sheets of both corporations reported the following: Beni Carr Assets $2,000,000 $ 750,000 Liabilities $ 750,000 $ 400,000 Common stock 1,000,000 310,000 Retained earnings 250,000 40,000 Liabilities and stockholders' equity $2,000,000 $ 750,000 At the date of acquisition, the fair value of Carr's assets was $50,000 more than the aggregate carrying amounts. In the consolidated balance sheet prepared immediately after the acquisition, the consolidated stockholders' equity should amount to $1,680,000 $1,650,000 $1,600,000 $1,250,000

$1,250,000

Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in a purchase-business combination. The market value of Sayon's common stock is $12. Legal and consulting fees incurred in relationship to the purchase are $110,000. Registration and issuance costs for the common stock are $35,000. What should be recorded in Sayon's additional paid-in capital account for this business combination? $1,545,000 $1,400,000 $1,365,000 $1,255,000

$1,365,000

The separate condensed balance sheets and income statements of Purl Corp. and its wholly owned subsidiary, Scott Corp., are as follows: BALANCE SHEETS December 31, year 2 Purl Scott Assets Current assets: Cash $ 80,000 $ 60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Total current assets 310,000 135,000 Property, plant, and equipment (net) 625,000 280,000 Investment in Scott (equity method) 400,000 — Total assets $1,335,000 $ 415,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 160,000 $ 95,000 Accrued liabilities 110,000 30,000 Total current liabilities 270,000 125,000 Stockholders' equity: Common stock ($10 par) 300,000 50,000 Additional paid-in capital — 10,000 Retained earnings 765,000 230,000 Total stockholders' equity 1,065,000 290,000 Total liabilities and stockholders' equity $1,335,000 $ 415,000 INCOME STATEMENTS For the year ended December 31, year 2 Purl Scott Sales $2,000,000 $750,000 Cost of goods sold 1,540,000 500,000 Gross margin 460,000 250,000 Operating expenses 260,000 150,000 Operating income 200,000 100,000 Equity in earnings of Scott 70,000 — Income before income taxes 270,000 100,000 Provision for income taxes 60,000 30,000 Net income $ 210,000 $ 70,000 Additional information: • On January 1, year 2, Purl purchased for $360,000 all of Scott's $10 par, voting common stock. On January 1, year 2, the fair value of Scott's assets and liabilities equaled their carrying amount of $410,000 and $160,000, respectively, except that the fair values of certain items identifiable in Scott's inventory were $10,000 more than their carrying amounts. These items were still on hand at December 31, year 2. Goodwill is determined to be unimpaired at December 31, year 2. • During year 2, Purl and Scott paid cash dividends of $100,000 and $30,000, respectively. For tax purposes, Purl receives the 100% exclusion for dividends received from Scott. • There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's recording of its share of Scott's earnings. • Both Purl and Scott paid income taxes at the rate of 30%. In the December 31, year 2 consolidated financial statements of Purl and its subsidiary, total assets should be $1,740,000 $1,460,000 $1,350,000 $1,325,000

$1,460,000

BCC-0017 Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.'s outstanding common stock. At the date of the transaction, Key's nonvoting preferred stock had a market value of $100 per share, and Lev's tangible net assets had a book value of $60,000. In addition, Key issued 100 shares of its nonvoting preferred stock to an individual as a finder's fee for arranging the transaction. As a result of this capital transaction, Key's total net assets would increase by $0. $ 60,000. $100,000. $110,000.

$100,000.

Key Corp. issued 1,000 shares of its nonvoting preferred stock for all of Lev Corp.'s outstanding common stock. At the date of the transaction, Key's nonvoting preferred stock had a market value of $100 per share, and Lev's tangible net assets had a book value of $60,000. In addition, Key issued 100 shares of its nonvoting preferred stock to an individual as a finder's fee for arranging the transaction. As a result of this capital transaction, Key's total net assets would increase by $0. $ 60,000. $100,000. $110,000.

$100,000.

Pine Company acquired goods for resale from its manufacturing subsidiary, Strawco, at Strawco's cost to manufacture of $12,000. Pine subsequently resold the goods to a nonaffiliate for $18,000. Which one of the following is the amount of the elimination that will be needed as a result of the intercompany inventory transaction? $-0- $6,000 $12,000 $18,000

$12,000

Vulture Corp. owns 100% of the outstanding common stock of Dove, Inc. On December 31, year 1, Dove sold equipment with an original cost of $275,000 and accumulated depreciation of $150,000 to Vulture for $200,000. On the December 31, year 1 consolidated balance sheet, the equipment should be reported at $275,000 $200,000 $140,000 $125,000

$125,000

On January 2 of the current year, Peace Co. paid $310,000 to purchase 75% of the voting shares of Surge Co. Peace reported retained earnings of $80,000, and Surge reported contributed capital of $300,000 and retained earnings of $100,000. The purchase differential was attributed to depreciable assets with a remaining useful life of 10 years. Peace used the equity method in accounting for its investment in Surge. Surge reported net income of $20,000 and paid dividends of $8,000 during the current year. Peace reported income, exclusive of its income from Surge, of $30,000 and paid dividends of $15,000 during the current year. What amount will Peace report as dividends declared and paid in its current year's consolidated statement of retained earnings? $8,000 $15,000 $21,000 $23,000

$15,000

Grant, Inc. has current receivables from affiliated companies at December 31, year 2, as follows: • A $50,000 cash advance to Adams Corporation. Grant owns 30% of the voting stock of Adams and accounts for the investment by the equity method. • A receivable of $160,000 from Bullard Corporation for administrative and selling services. Bullard is 100% owned by Grant and is included in Grant's consolidated statements. • A receivable of $100,000 from Carpenter Corporation for merchandise sales on open account. Carpenter is a 90% owned, unconsolidated subsidiary of Grant. In the current assets section of its December 31, year 2 consolidated balance sheet, Grant should report accounts receivable from investees in the total amount of $ 90,000 $140,000 $150,000 $310,000

$150,000

On September 29, year 2, Wall Co. paid $860,000 for all the issued and outstanding common stock of Hart Corp. On that date, the carrying amounts of Hart's recorded assets and liabilities were $800,000 and $180,000, respectively. Hart's recorded assets and liabilities had fair values of $840,000 and $140,000, respectively. In Wall's September 30, year 2 balance sheet, what amount should be reported as goodwill? $20,000 $160,000 $180,000 $240,000

$160,000

On October 1, 2008, Potato Company acquired 100% of the voting stock of Spud Company in a legal acquisition. Potato chose to account for its investment in Spud on its books using the cost method. Spud had the following incomes and dividends for the periods shown: 10/1 − 12/31/08 1/1 − 12/31/09 Net Income $3,000 $15,000 Dividends Declared/Paid 1,000 3,000 In its December 31, 2009, consolidating process, which one of the following is the amount of the reciprocity entry Potato will make on the consolidating worksheet? $2,000 $3,000 $14,000 $18,000

$2,000

Bell, Inc. owns 60% of Dart Corporation's common stock. On December 31, 20X6, Dart is indebted to Bell for a $200,000 cash advance. In preparing the consolidated balance sheet on that date, what amount of the advance should be eliminated? $-0- $80,000 $120,000 $200,000

$200,000

The separate condensed balance sheets and income statements of Purl Corp. and its wholly owned subsidiary, Scott Corp., are as follows: BALANCE SHEETS December 31, year 2 Purl Scott Assets Current assets: Cash $ 80,000 $ 60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Total current assets 310,000 135,000 Property, plant, and equipment (net) 625,000 280,000 Investment in Scott (equity method) 400,000 — Total assets $1,335,000 $ 415,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 160,000 $ 95,000 Accrued liabilities 110,000 30,000 Total current liabilities 270,000 125,000 Stockholders' equity: Common stock ($10 par) 300,000 50,000 Additional paid-in capital — 10,000 Retained earnings 765,000 230,000 Total stockholders' equity 1,065,000 290,000 Total liabilities and stockholders' equity $1,335,000 $ 415,000 INCOME STATEMENTS For the year ended December 31, year 2 Purl Scott Sales $2,000,000 $750,000 Cost of goods sold 1,540,000 500,000 Gross margin 460,000 250,000 Operating expenses 260,000 150,000 Operating income 200,000 100,000 Equity in earnings of Scott 70,000 — Income before income taxes 270,000 100,000 Provision for income taxes 60,000 30,000 Net income $ 210,000 $ 70,000 Additional information: • On January 1, year 2, Purl acquired for $360,000 all of Scott's $10 par, voting common stock. On January 1, year 2, the fair value of Scott's assets and liabilities equaled their carrying amount of $410,000 and $160,000, respectively, except that the fair values of certain items identifiable in Scott's inventory were $10,000 more than their carrying amounts. These items were still on hand at December 31, year 2. Goodwill is determined to be unimpaired at December 31, year 2. • During year 2, Purl and Scott paid cash dividends of $100,000 and $30,000, respectively. For tax purposes, Purl receives the 100% exclusion for dividends received from Scott. • There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's recording of its share of Scott's earnings. • Both Purl and Scott paid income taxes at the rate of 30%. In the December 31, year 2, consolidated financial statements of Purl and its subsidiary, net income should be $270,000 $210,000 $190,000 $170,000

$210,000

On January 1, year 2, Ritt Corp. acquired 50,000 shares of Shaw Corp. stock which represented 80% of Shaw's $10 par common stock for $19.50 per share. On the date of acquisition, the fair value of the 12,500 shares representing the noncontrolling interest in Shaw was $18 per share. On this date, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts. For the year ended December 31, year 2, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, year 2, consolidated balance sheet, noncontrolling interest should be reported at $200,000 $225,000 $233,000 $238,000

$238,000

On January 1, 20x1 Ritt Corp. purchased 80% of Shaw Corp.'s $10 par common stock for $975,000. Ritt's cost reflects an appropriate fair value measure for all of Shaw's outstanding common stock. The original cost to the noncontrolling investors for the 20% of Shaw's common stock not acquired by Ritt was $200,000. At the date of Ritt's purchase, the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) which were $100,000 in excess of the carrying amount. Which one of the following is the amount of noncontrolling interest that should be reported in a consolidated balance sheet prepared immediately following the business combination? $125,000 $200,000 $220,000 $243,750

$243,750

Thyme, Inc. owns 16,000 of Sage Co.'s 20,000 outstanding common shares. The carrying value of Sage's equity is $500,000. Sage subsequently issues an additional 5,000 previously unissued shares for $200,000 to an outside party that is unrelated to either Thyme or Sage. What is the total noncontrolling interest after the additional shares are issued? $140,000 $172,000 $252,000 $300,000

$252,000

BCC-0022 On January 1, year 2, Neel Corp. issued 400,000 additional shares of $10 par value common stock in exchange for all of Pym Corp.'s common stock. Immediately before this business combination, Neel's stockholders' equity was $16,000,000 and Pym's stockholders' equity was $8,000,000. On January 1, year 2, the fair value of Neel's common stock was $20 per share, and the fair value of Pym's net assets was $8,000,000. Neel's net income for the year ended December 31, year 2, exclusive of any consideration of Pym, was $2,500,000. Pym's net income for the year ended December 31, year 2, was $600,000. During year 2 Neel paid dividends of $900,000. Neel had no business transactions with Pym in year 2. Assuming that this business combination is appropriately accounted for as a business acquisition, consolidated stockholders' equity at December 31, year 2, should be $17,600,000 $18,200,000 $26,200,000 $27,100,000

$26,200,000

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of intercompany sales that should be eliminated for 200X consolidated statements? $27,000 $24,000 $18,000 $12,000

$27,000

During 200X, Papa Company sold inventory, which cost it $18,000, to its subsidiary, Sonnyco, for $27,000. At the end of 200X, Sonnyco had $9,000 of the intercompany goods still on its books. The balance had been resold to unaffiliated customers for $24,000. Which one of the following is the amount of ending inventory that should be eliminated for consolidated statements? $3,000 $6,000 $9,000 $15,000

$3,000

At December 31, year 2, Spud Corp. owned 80% of Jenkins Corp.'s common stock and 90% of Thompson Corp.'s common stock. Jenkins' year 2 net income was $100,000 and Thompson's year 2 net income was $200,000. Thompson and Jenkins had no intercompany ownership or transactions during year 2. Combined year 2 financial statements are being prepared for Thompson and Jenkins in contemplation of their sale to an outside party. In the combined income statement, combined net income should be reported at $210,000 $260,000 $280,000 $300,000

$300,000

On April 1, year 2, Union Company paid $1,600,000 for all the issued and outstanding common stock of Cable Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Cable Corporation on April 1, year 2, were as follows: Cash $ 160,000 Inventory 480,000 Property, plant and equipment (net) 960,000 Liabilities (360,000) On April 1, year 2, it was determined that Cable's inventory had a fair value of $460,000, and the property, plant and equipment (net) had a fair value of $1,040,000. What is the amount of goodwill resulting from the business combination? $0 $ 20,000 $300,000 $360,000

$300,000

Clark Co. had the following transactions with affiliated parties during year 1: 1) Sales of $60,000 to Dean, Inc., with $20,000 gross profit. Dean had $15,000 of this inventory on hand at year-end. Clark owns a 15% interest in Dean and does not exert significant influence. 2) Purchases of raw materials totaling $240,000 from Kent Corp., a wholly owned subsidiary. Kent's gross profit on the sale was $48,000. Clark had $60,000 of this inventory remaining on December 31, year 1. Before eliminating entries, Clark had consolidated current assets of $320,000. What amount should Clark report in its December 31, year 1 consolidated balance sheet for current assets? $320,000 $317,000 $308,000 $303,000

$308,000

Lion, Inc. owns 60% of Gray Corp.'s common stock. On December 31, 2005, Gray owes Lion $400,000 for a cash advance. In preparing the consolidated balance sheet on that date, what amount of the advance should be eliminated? $400,000 $240,000 $160,000 $0

$400,000

On April 1, year 2, Hart, Inc. paid $1,700,000 for all the issued and outstanding common stock of Ray Corp. On that date the costs and fair values of Ray's recorded assets and liabilities were as follows: Cost Fair value Cash $ 160,000 $ 160,000 Inventory 480,000 460,000 Property, plant, and equipment (net) 980,000 1,505,000 Liabilities (360,000) (360,000) Net assets $1,260,000 $1,300,000 In Hart's March 31, year 3 balance sheet, what is the amount of goodwill that should be reported as a result of this business combination, assuming that goodwill is not impaired? $390,000 $400,000 $429,000 $440,000

$400,000

The separate condensed balance sheets and income statements of Purl Corp. and its wholly owned subsidiary, Scott Corp., are as follows: BALANCE SHEETS December 31, year 2 Purl Scott Assets Current assets: Cash $ 80,000 $ 60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Total current assets 310,000 135,000 Property, plant, and equipment (net) 625,000 280,000 Investment in Scott (equity method) 400,000 — Total assets $1,335,000 $ 415,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 160,000 $ 95,000 Accrued liabilities 110,000 30,000 Total current liabilities 270,000 125,000 Stockholders' equity: Common stock ($10 par) 300,000 50,000 Additional paid-in capital — 10,000 Retained earnings 765,000 230,000 Total stockholders' equity 1,065,000 290,000 Total liabilities and stockholders' equity $1,335,000 $ 415,000 INCOME STATEMENTS For the year ended December 31, year 2 Purl Scott Sales $2,000,000 $750,000 Cost of goods sold 1,540,000 500,000 Gross margin 460,000 250,000 Operating expenses 260,000 150,000 Operating income 200,000 100,000 Equity in earnings of Scott 70,000 — Income before income taxes 270,000 100,000 Provision for income taxes 60,000 30,000 Net income $ 210,000 $ 70,000 Additional information: • On January 1, year 2, Purl purchased for $360,000 all of Scott's $10 par, voting common stock. On January 1, year 2, the fair value of Scott's assets and liabilities equaled their carrying amount of $410,000 and $160,000, respectively, except that the fair values of certain items identifiable in Scott's inventory were $10,000 more than their carrying amounts. These items were still on hand at December 31, year 2. Goodwill is determined to be unimpaired at December 31, year 2. • During year 2, Purl and Scott paid cash dividends of $100,000 and $30,000, respectively. For tax purposes, Purl receives the 100% exclusion for dividends received from Scott. • There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's recording of its share of Scott's earnings. • Both Purl and Scott paid income taxes at the rate of 30%. In the December 31, year 2 consolidated financial statements of Purl and its subsidiary, total current assets should be $455,000 $445,000 $310,000 $135,000

$455,000

If on the date of consolidation a 70% owned subsidiary has $50,000 in interest payable due to its parent, the amount that should be eliminated is: $- 0 - $15,000 $35,000 $50,000

$50,000

AICPA.090463FAR-SIM On December 31, 2008, Pico acquired $250,000 par value of the outstanding $1,000,000 bonds of its subsidiary, Sico, in the market for $200,000. On that date, Sico had a $100,000 premium on its total bond liability. Which one of the following is the amount of premium or discount on Pico's investment in Sico's bonds? $250,000 premium $100,000 premium $50,000 premium $50,000 discount

$50,000 discount

On March 1, year 1, Agront Corporation issued 10,000 shares of its $1 par value common stock for all of the outstanding stock of Barcelo Corporation, when the fair market value of Agront's stock was $50 per share. In addition, Agront made the following payments in connection with this business combination: Finder's and consultant's fees $20,000 SEC registration costs 7,000 Agront's acquisition cost would be capitalized at $0. $500,000. $520,000. $527,000.

$500,000.

Parco owns 100% of its subsidiary, Subco, which it acquired at book value. It carries its investment in Subco on its books using the equity method of accounting. At the beginning of its 2009 fiscal year, the investment in Subco account was $552,000. During 2009, Subco reported the following: Net Income $42,000 Dividends Declared/Paid 12,000 There were no other transactions between the firms in 2009. In preparing its 2009 fiscal year consolidated statements, which one of the following is the amount of the investment eliminating entry that Parco will make as a result of its ownership of Subco? $552,000 $582,000 $594,000 $606,000

$552,000

Nolan owns 100% of the capital stock of both Twill Corp. and Webb Corp. Twill purchases merchandise inventory from Webb at 140% of Webb's cost. During year 2, merchandise that cost Webb $40,000 was sold to Twill. Twill sold all of this merchandise to unrelated customers for $81,200 during year 2. In preparing combined financial statements for year 2, Nolan's bookkeeper disregarded the common ownership of Twill and Webb. By what amount was unadjusted revenue overstated in the combined income statement for year 2? $16,000 $40,000 $56,000 $81,200

$56,000

Zest Co. owns 100% of Cinn, Inc. On January 2, 1999, Zest sold equipment with an original cost of $80,000 and a carrying amount of $48,000 to Cinn for $72,000. Zest had been depreciating the equipment over a five-year period using straight-line depreciation with no residual value. Cinn is using straight-line depreciation over three years with no residual value. In Zest's December 31, 1999, consolidating worksheet, by what amount should depreciation expense be decreased? $0 $8,000 $16,000 $24,000

$8,000

Tulip Co. owns 100% of Daisy Co.'s outstanding common stock. Tulip's cost of goods sold for the year totals $600,000, and Daisy's cost of goods sold totals $400,000. During the year, Tulip sold inventory costing $60,000 to Daisy for $100,000. By the end of the year, all transferred inventory was sold to third parties. What amount should be reported as cost of goods sold in the consolidated statement of income? $900,000 $940,000 $960,000 $1,000,000

$900,000

Bard Co. owned several subsidiaries at December 31. The following table shows each subsidiary's total liabilities, excluding intercompany transactions, and percentage of stock owned by Bard: Subsidiary Total liabilities % owned Brock Co. $4,000,000 70 Harlson Co. 2,000,000 48 Porter Co. 7,000,000 80 Nortin Co. 5,000,000 100 What amount should Bard include as liabilities in its consolidated balance sheet at December 31? $ 5,000,000 $12,000,000 $16,000,000 $18,000,000

16,000,000

Assume that on January 2, Company P recognized a $3,000 gain on the sale of a depreciable fixed asset to its subsidiary, Company S. Company S will depreciate the asset using straight-line depreciation over the remaining three-year life of the asset. What amount of intercompany gain will be eliminated from P's retained earnings at the end of the year following the year of the intercompany fixed asset transactions? $- 0 - $1,000 $2,000 $3,000

2,000

On April 1, year 2, Hart, Inc. paid $1,700,000 for all the issued and outstanding common stock of Ray Corp. On that date the costs and fair values of Ray's recorded assets and liabilities were as follows: Cost Fair value Cash $ 160,000 $ 160,000 Inventory 480,000 460,000 Property, plant, and equipment (net) 980,000 1,505,000 Liabilities (360,000) (360,000) Net assets $1,260,000 $1,300,000 In Hart's March 31, year 3 balance sheet, what is the amount of goodwill that should be reported as a result of this business combination, assuming that goodwill is not impaired? $390,000 $400,000 $429,000 $440,000

400,000

On 1/1/Y2, Rolan Corp. issued 10,000 shares of common stock in exchange for all of Sandin Corp.'s outstanding stock. Condensed balance sheets of Rolan and Sandin immediately prior to the combination are as follows: Rolan Sandin Total assets $1,000,000 $500,000 Liabilities $ 300,000 $150,000 Common stock 200,000 100,000 Retained earnings 500,000 250,000 Total equities $1,000,000 $500,000 Rolan's common stock had a market price of $60 per share on January 1, year 2. The market price of Sandin's stock was not readily ascertainable. Rolan's investment in Sandin's stock will be stated in Rolan's balance sheet immediately after the combination in the amount of $100,000. $350,000. $500,000. $600,000.

600,000

Par Corp. owns 60% of Sub Corp.'s outstanding capital stock. On May 1, year 2, Par advanced Sub $70,000 in cash, which was still outstanding at December 31, year 2. What portion of this advance should be eliminated in the preparation of the December 31, year 2, consolidated balance sheet? $70,000 $42,000 $28,000 $0

70,000

The separate condensed balance sheets and income statements of Purl Corp. and its wholly owned subsidiary, Scott Corp., are as follows: BALANCE SHEETS December 31, year 2 Purl Scott Assets Current assets: Cash $ 80,000 $ 60,000 Accounts receivable (net) 140,000 25,000 Inventories 90,000 50,000 Total current assets 310,000 135,000 Property, plant, and equipment (net) 625,000 280,000 Investment in Scott (equity method) 400,000 — Total assets $1,335,000 $ 415,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 160,000 $ 95,000 Accrued liabilities 110,000 30,000 Total current liabilities 270,000 125,000 Stockholders' equity: Common stock ($10 par) 300,000 50,000 Additional paid-in capital — 10,000 Retained earnings 765,000 230,000 Total stockholders' equity 1,065,000 290,000 Total liabilities and stockholders' equity $1,335,000 $ 415,000 INCOME STATEMENTS For the year ended December 31, year 2 Purl Scott Sales $2,000,000 $750,000 Cost of goods sold 1,540,000 500,000 Gross margin 460,000 250,000 Operating expenses 260,000 150,000 Operating income 200,000 100,000 Equity in earnings of Scott 70,000 — Income before income taxes 270,000 100,000 Provision for income taxes 60,000 30,000 Net income $ 210,000 $ 70,000 Additional information: • On January 1, year 2, Purl purchased for $360,000 all of Scott's $10 par, voting common stock. On January 1, year 2, the fair value of Scott's assets and liabilities equaled their carrying amount of $410,000 and $160,000, respectively, except that the fair values of certain items identifiable in Scott's inventory were $10,000 more than their carrying amounts. These items were still on hand at December 31, year 2. Goodwill is determined to be unimpaired at December 31, year 2. • During year 2, Purl and Scott paid cash dividends of $100,000 and $30,000, respectively. For tax purposes, Purl receives the 100% exclusion for dividends received from Scott. • There were no intercompany transactions, except for Purl's receipt of dividends from Scott and Purl's recording of its share of Scott's earnings. • Both Purl and Scott paid income taxes at the rate of 30%. In the December 31, year 2, consolidated financial statements of Purl and its subsidiary, total retained earnings should be $985,000 $825,000 $795,000 $765,000

765,000

Pride, Inc. owns 80% of Simba, Inc.'s outstanding common stock. Simba, in turn, owns 10% of Pride's outstanding common stock. What percentage of the common stock cash dividends declared by the individual companies should be reported as dividends declared in the consolidated financial statements? Dividends declared by Pride Dividends declared by Simba 90% 0% 90% 20% 100% 0% 100% 20%

90% 0%

In a business combination accounted for as an acquisition, the fair values of the identifiable assets acquired exceeds the acquisition price. The excess fair value should be reported as a Deferred credit. Reduction of the values assigned to current assets and a deferred credit for any unallocated portion. A bargain purchase. Pro rata reduction of the values assigned to current and noncurrent assets.

A bargain purchase.

Ownership of 51% of the outstanding voting stock of a company would usually result in The use of the cost method. The use of the lower of cost or market method. The use of the equity method. A consolidation.

A consolidation.

The relative amount of intangible assets on the individual entity financial statements.

A consolidation.

On June 30, year 2, Needle Corporation purchased for cash at $10 per share all 100,000 shares of the outstanding common stock of Thread Company. The total appraised value of identifiable assets less liabilities of Thread was $1,400,000 at June 30, year 2, including the appraised value of Thread's property, plant, and equipment (its only noncurrent asset) of $250,000. The consolidated income statement of Needle Corporation and its wholly owned subsidiary for the year ended June 30, year 2, should reflect A gain from bargain purchase of $400,000. Goodwill of $150,000. A deferred credit (negative goodwill) of $400,000. Goodwill of $400,000.

A gain from bargain purchase of $400,000.

Alpha Company is in the process of determining whether the carrying amounts of the long-lived assets and identifiable intangibles acquired in a business combination are recoverable. Alpha accounted for the business combination under the acquisition method and allocated part of the acquisition price to goodwill. In determining the recoverability of the long-lived assets and the identifiable intangibles acquired in the business combination, the goodwill should be Allocated to the long-lived assets and identifiable intangible assets. Ignored. Allocated only to the identifiable intangible assets. Allocated only to the long-lived assets.

Allocated to the long-lived assets and identifiable intangible assets.

On October 1, Company × acquired for cash all of the outstanding common stock of Company Y. Both companies have a December 31 year-end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income of Company × for 3 months and Company Y for 3 months. Company × for 12 months and Company Y for 3 months. Company × for 12 months and Company Y for 12 months. Company × for 12 months; but no income from Company Y until Company Y distributes a dividend.

Company × for 12 months and Company Y for 3 months.

An intercompany depreciable fixed asset transaction resulted in an intercompany gain. Which one of the following is least likely to be reflected in the consolidated financial statements prepared at the end of the period in which the intercompany transaction occurred? Consolidated income will be less than the sum of the incomes of the separate companies being combined. Consolidated assets will be less than the sum of the assets of the separate companies being combined. Consolidated depreciation expense will be more than the sum depreciation expense of the separate companies being combined. Consolidated accumulated depreciation will be more than the sum of accumulated depreciation of the separate companies being combined.

Consolidated depreciation expense will be more than the sum depreciation expense of the separate companies being combined.

Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers, and prepare separate financial statements. Sun requires stand-alone financial statements. Which of the following statements is correct? Consolidated financial statements should be prepared for both Star and Sun. Consolidated financial statements should only be prepared by Star and not by Sun. After consolidation, the accounts of both Star and Sun should be changed to reflect the consolidated totals for future ease in reporting. After consolidation, the accounts of both Star and Sun should be combined together into one general-ledger accounting system for future ease in reporting.

Consolidated financial statements should only be prepared by Star and not by Sun.

Assume that in acquiring a subsidiary, the parent determined that several depreciable assets had a fair value greater than book value. If the parent accounts for its investment in the subsidiary using the equity method, what effect will the amortization of the excess fair value over the book value of the subsidiary's assets have on the following parent's accounts? Investment in Subsidiary Equity Revenue from Subsidiary Increase Increase Increase Decrease Decrease Increase Decrease Decrease

Decrease Decrease

Assume that in acquiring a subsidiary, the parent determined there were several depreciable assets of the subsidiary that had a fair value less than book value. What effect will this fair value less than book value of the subsidiary's assets have on the following accounts in the preparation of consolidated statements? Depreciable Assets Depreciation Expense Increase Increase Increase Decrease Decrease Increase Decrease Decrease

Decrease Decrease

On January 1, 20X1, Prim, Inc. acquired all the outstanding common shares of Scarp, Inc. for cash equal to the book value of the stock. The carrying amount of Scarp's assets and liabilities approximated their fair values, except that the carrying amount of its building was more than fair value. In preparing Prim's 20X1 consolidated income statement, which of the following adjustments would be made? Depreciation expense would be decreased, and goodwill would be recognized. Depreciation expense would be increased, and goodwill would be recognized. Depreciation expense would be decreased, and no goodwill would be recognized. Depreciation expense would be increased, and no goodwill would be recognized.

Depreciation expense would be decreased, and goodwill would be recognized.

Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination accounted for as a business acquisition carried out by exchanging cash for common stock? Historic cost Book value Cost plus any excess of purchase price over book value of asset acquired Fair value

Fair value

Company X acquired for cash all of the outstanding common stock of Company Y. How should Company X determine in general the amounts to be reported for the inventories and long-term debt acquired from Company Y? Inventories Long-term debt Fair value Fair value Fair value Recorded value Recorded value Fair value Recorded value Recorded value

Fair value Fair value

During 2008, Popco acquired 80% of the voting stock of Sonco in a legal acquisition. Which one of the following is least likely to be a type of intercompany balance that results from transactions between Popco and Sonco during 2009? Receivable. Inventory. Goodwill. Revenue.

Goodwill.

Assume that in acquiring a subsidiary, the parent determined there were several depreciable assets of the subsidiary that had a fair value greater than book value. What effect will the excess fair value over book value of the subsidiary's assets have on the following accounts in the preparation of consolidated statements? Depreciable Assets Depreciation Expense Increase Increase Increase Decrease Decrease Increase Decrease Decrease

Increase Increase

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company's consolidated balance sheet? No effect on either retained earnings or minority interest. No effect on retained earnings and a decrease in minority interest. Decrease in both retained earnings and minority interest. A decrease in retained earnings and no effect on minority interest.

No effect on retained earnings and a decrease in minority interest.

For consolidated purposes, what effect will the intercompany sale of a fixed asset at a profit or at a loss have on depreciation expense recognized by the buying affiliate? At a Profit At a Loss Overstate Overstate Overstate Understate Understate Overstate Understate Understate

Overstate Understate

AICPA.090442FAR-SIM When a parent company uses the cost method on its books to carry its investment in a subsidiary, which one of the following will be recorded by the parent on its books? Parent's share of subsidiary's net income/net loss. Parent's amortization of goodwill resulting from excess investment cost over fair value of subsidiary's net assets. Parent's share of subsidiary's cash dividends declared. Parent's depreciation of excess investment cost over book values of subsidiary's net assets.

Parent's share of subsidiary's cash dividends declared.

A subsidiary, acquired for cash in a business combination, owned equipment with a market value in excess of book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would treat this excess as Goodwill. Plant and equipment. Retained earnings. Deferred credits.

Plant and equipment.

During year 2 the Henderson Company purchased the net assets of John Corporation for $800,000. On the date of the transaction, John had no long-term investments in marketable securities, deferred assets, or prepaid assets and had $100,000 of liabilities. The fair value of John's assets when acquired were as follows: Current assets $ 400,000 Noncurrent assets 600,000 $1,000,000 How should the $100,000 difference between the fair value of the net assets acquired ($900,000) and the cost ($800,000) be accounted for by Henderson? The $100,000 difference should be recorded as a gain in the period of acquisition. The noncurrent assets should be recorded at $500,000. The current assets should be recorded at $360,000, and the noncurrent assets should be recorded at $540,000. A deferred credit of $100,000 should be set up and then amortized to income over a period not to exceed 40 years.

The $100,000 difference should be recorded as a gain in the period of acquisition.

In identifying the acquiring entity in a business combination, all of the following factors should be considered except: The relative voting rights in the combined entity after the combination. The relative amount of intangible assets on the individual entity financial statements. The composition of the governing body of the combined entity. The terms of the exchange of equity securities.

The relative amount of intangible assets on the individual entity financial statements.

Which one of the following is not a characteristic associated with intercompany transactions? Intercompany transactions must be eliminated in the consolidating process. Gains and losses must be eliminated in the consolidating process. Transactions that originate with a subsidiary must be eliminated in the consolidating process. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.

Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.

Water Co. owns 80% of the outstanding common stock of Fire Co. On December 31, 2005, Fire sold equipment to Water at a price in excess of Fire's carrying amount but less than its original cost. On a consolidated balance sheet on December 31, 2005, the carrying amount of the equipment should be reported at: Water's original cost. Fire's original cost. Water's original cost less Fire's recorded gain. Water's original cost less 80% of Fire's recorded gain.

Water's original cost less Fire's recorded gain.

Which one of the following is not a characteristic of intercompany bonds? Intercompany bonds may occur on the date of a business combination or subsequent to a business combination. When bonds become intercompany, it is as though the bonds have been retired for consolidated purposes. Intercompany bonds can result in the recognition of a gain or a loss for consolidating purposes. When bonds become intercompany, they are written off of the books of the issuing affiliate and the investing affiliate.

When bonds become intercompany, they are written off of the books of the issuing affiliate and the investing affiliate.

If a parent uses the equity method on its books to account for its investment in a subsidiary, which one of the following will result in an increase in the investment account on the parent's books? Subsidiary Reports Income Subsidiary Declares Dividend Yes Yes Yes No No Yes No No

Yes No

In the preparation of consolidated financial statements, which of the following sources of transactions should be eliminated? Transactions with Affiliates Transactions with Non-affiliates Yes Yes Yes No No Yes No No

Yes No

Parco sells goods to its subsidiary, Subco, which in turn sells the goods to Noco, an unaffiliated firm. Which of these transactions, if any, should be eliminated in the consolidating process? Parco to Subco Subco to Noco Yes Yes Yes No No Yes No No

Yes No

A business combination is accounted for appropriately as a business acquisition. Which of the following should be deducted in determining the combined corporation's net income for the current period? Direct costs of acquisition General expenses related to acquisition Yes No Yes Yes No Yes No No

Yes Yes

Combined statements may be used to present the results of operations of Unconsolidated Subsidiaries Companies under common management Yes Yes Yes No No Yes No No

Yes Yes

If a parent uses the equity method on its books to carry its investment in a subsidiary, which one of the following current year entries (made by the parent) must be reversed on the consolidating worksheet? Income from Subsidiary Dividends from Subsidiary Yes Yes Yes No No Yes No No

Yes Yes

In which of the following ownership arrangements would intercompany bonds exist? Parent Owns Subsidiary Bonds Subsidiary Owns Parent Bonds Yes Yes Yes No No Yes No No

Yes Yes

Which of the following can be overstated on consolidated financial statements if intercompany fixed asset balances on-hand at the end of a period are not eliminated? Consolidated Income Consolidated Loss No No No Yes Yes No Yes Yes

Yes Yes

Windco, Inc. acquired 100% of the voting common stock of Trace, Inc. by transferring the following consideration to Trace's shareholders: Cash $100,000 5,000 new shares of Windco's $10 par common stock $ 50,000 (par) (which is less than 1% of Windco's outstanding stock) In addition, Windco paid $12,000 direct cost of carrying out the combination. At the date of the acquisition, Windco's common stock was selling in an active market for $18 per share. Also, at the date of the acquisition, Trace had the following assets and liabilities with the book values and fair values shown: Book Value Market Value Accounts Receivable $ 20,000 $ 20,000 Property and Equipment 80,000 100,000 Land 60,000 80,000 Other Assets 40,000 40,000 Total Assets $200,000 $240,000 Accounts Payable $ 15,000 $ 15,000 Other Short-term Debt 10,000 10,000 Long-term Debt 35,000 35,000 Total Liabilities $ 60,000 $ 60,000 Which one of the following is the amount of gain Windco will recognize in connection with its acquisition of Trace? $ - 0 - (no gain) $10,000 $40,000 $80,000

$ - 0 - (no gain)

On July 1, 2009, Nexto, Inc. had the following summarized balance sheet with the book values and fair values shown: Book Value Fair Value Accounts Receivable (net) $ 40,000 $ 40,000 Inventories 80,000 80,000 Plant and Equipment (net) 160,000 200,000 Land 120,000 160,000 TOTAL ASSETS $400,000 $480,000 Accounts Payable $ 20,000 $ 20,000 Short-term Note 30,000 30,000 Bonds Payable 70,000 70,000 TOTAL LIABILITIES $120,000 $120,000 On that date, Pesto, Inc. acquired 100% of Nexto's voting stock from its shareholders by paying the following consideration: Cash $200,000 10,000 newly-issued shares of Pesto's $10 par common stock 100,000 (par) Prior to the combination, Pesto had 1,000,000 shares of voting stock outstanding trading in an active market at $15 per share. Pesto paid $25,000 for legal and accounting fees to carry out the combination. Which one of the following is the amount of goodwill or bargain purchase gain that Pesto should recognize as a result of its acquisition of Nexto? Goodwill Bargain Purchase Gain $10,000 $- 0 - $15,000 $- 0 - $- 0 - $10,000 $- 0 - $60,000

$- 0 - $10,000

AICPA.081261FAR-SIM Seashell Corp. was organized to consolidate Sea Company and Shell Company in a business combination. Seashell issued 25,000 shares of its $10 par value common stock in exchange for all of the outstanding common stock of Sea and Shell. At the time of the consolidation, the fair market value of Sea's and Shell's assets and liabilities are equal to their book values. The shareholders' equity accounts of Sea and Shell on the date of the consolidation were: Sea Shell Total Common stock, at par $100,000 $200,000 $300,000 Additional paid-in capital 50,000 75,000 125,000 Retained Earnings 22,500 47,500 70,000 Totals $172,500 $322,500 $495,000 What is the balance in Seashell's additional retained earnings account immediately following its issuing common stock to effect the consolidation? $-0- $70,000 $195,000 $245,000

$-0-

Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in an acquisition-business combination. The market value of Sayon's common stock is $12 per share. Legal and consulting fees incurred in relation to the acquisition are $110,000 paid in cash. Registration and issuance costs for the common stock are $35,000. What should be recorded in Sayon's additional paid-in capital account for this business combination? $1,545,000 $1,400,000 $1,365,000 $1,255,000

$1,365,000

On December 31, Year 1, Andover Co. acquired Barrelman, Inc. Before the acquisition, a product lawsuit seeking $10 million in damages was filed against Barrelman. As of the acquisition date, Andover believed that it was probable that a liability existed and that the fair value of the liability was $5 million. What amount should Andover record as a liability as of December 31, Year 1? $0 $5,000,000 $7,500,000 $10,000,000

$5,000,000

Seashell Corp. was organized to consolidate Sea Company and Shell Company in a business combination. Seashell issued 25,000 shares of its newly authorized $10 par value common stock in exchange for all of the outstanding common stock of Sea and Shell. At the time of the consolidation, the fair value of Sea's and Shell's assets and liabilities are equal to their book values. The shareholders' equity accounts of Sea and Shell on the date of the consolidation were: Sea Shell Total Common stock, at par $100,000 $200,000 $300,000 Additional paid-in capital 50,000 75,000 125,000 Retained Earnings 22,500 47,500 70,000 Totals $172,500 $322,500 $495,000 Which one of the following is the amount of goodwill Seashell would recognize upon issuing its common stock to effect the consolidation? $-0- $50,000 $195,000 $245,000

$50,000