Ch 1 Advanced Accounting

47) Which of the following observations concerning "goodwill" is NOT correct? A) Once written down, it may be written up for recoveries. B) It must be tested for impairment at least annually. C) A goodwill impairment loss must be reported as a separate line item within income from continuing operations unless it relates to discontinued operations. D) It must be reported as a separate line item in the balance sheet.

A

48) Big Company acquired the following assets and liabilities of Little Company (fair values listed below) for $470,000 cash. Inventory $ 70,000 Land 100,000 Blding & Equip 320,000 Current Liab 50,000 Assuming these items are all recorded at their acquisition date fair values, what additional item needs to be recorded and how will it be accounted for in the future? A) $30,000 Goodwill, capitalized and tested for impairment B) $30,000 Bargain purchase, recognized in current earnings C) $30,000 Bargain purchase, capitalized and recognized over time D) $30,000 Goodwill, capitalized and amortized over time

A

49) 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 A. Fair value Fair value B. Fair value Recorded value C. Recorded value Fair value D. Recorded value Recorded value A) Option A B) Option B C) Option C D) Option D

A

At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000. 8) Based on the information provided, at the time of the transfer, Selvick Company should record A) the building at $220,000 and accumulated depreciation of $44,000. B) the building at $220,000 with no accumulated depreciation. C) the building at $176,000 with no accumulated depreciation. D) the building at $250,000 with no accumulated depreciation.

A

During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. 6) Based on the information provided, what amount would be reported by Devon Company as investment in Regan Company common stock? A) $312,000 B) $180,000 C) $330,000 D) $150,000

A

Following its acquisition of the net assets of Dan Company, Empire Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Fair Value Cash $20,000 $20,000 Inventory 35,000 40,000 Equip 125,000 160,000 Goodwill 60,000 A/P 30,000 30,000 32) Based on the preceding information, what amount of goodwill impairment will be recognized for this division if its fair value is determined to be $195,000? A) $15,000 B) $30,000 C) $60,000 D) $55,000

A

Following its acquisition of the net assets of Dan Company, Empire Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Fair Value Cash $20,000 $20,000 Inventory 35,000 40,000 Equip 125,000 160,000 Goodwill 60,000 A/P 30,000 30,000 33) Based on the preceding information, what amount of amount of goodwill impairment will be recognized for this division if its fair value is determined to be $245,000? A) $0 B) $5,000 C) $60,000 D) $55,000

A

In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: Cash and receivables 23,000 Inventory 15,000 Land 30,000 Buildings 100,000 Equipment 95,000 Accounts Payable 20,000 Accum Depr—Buildings 32,000 Accum Depr—Equip 30,000 Common Stock 56,000 Additional Paid-In Capital 125,000 15) Based on the preceding information, what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities? A) $181,000 B) $221,000 C) $263,000 D) $243,000

A

Miguel Corporation and Forest Company merged as of January 1, 20X3. Miguel paid finder's fees of $36,000 and legal fees of $8,000. Miguel also paid audit fees related to the stock issuance of $12,000, stock registration fees of $7,000, and stock listing application fees of $3,000. 20) Based on the preceding information, under the acquisition method A) $22,000 of stock issue costs are treated as a reduction in the issue price. B) $22,000 of stock issue costs are expensed. C) $66,000 of stock issue costs are classified as goodwill. D) $66,000 of stock issue costs are expensed.

A

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively. 39) Based on the preceding information, what is the fair value of Seel's net assets if goodwill of $20,000 is recorded in the acquisition? A) $430,000 B) $470,000 C) $540,000 D) $580,000

A

Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. 25) Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $500,000 for the acquisition? A) $0 B) $50,000 C) $150,000 D) $40,000

A

21) Burrough Corporation paid $80,000 to acquire all of Helyar Company's net assets. Helyar reported assets with a book value of $60,000 and fair value of $98,000 and liabilities with a book value and fair value of $23,000 on the date of combination. Burrough also paid $3,000 to a search firm for finder's fees related to the acquisition. What amount will be recorded as goodwill by Burrough Corporation while recording its investment in Helyar? A) $0 B) $5,000 C) $8,000 D) $13,000

B

1) Assuming no impairment in value prior to transfer, assets transferred by a parent company to another entity it has created should be recorded by the newly created entity at the assets': A) cost to the parent company. B) book value on the parent company's books at the date of transfer. C) fair value at the date of transfer. D) fair value of consideration exchanged by the newly created entity.

B

29) The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, which includes $60,000 of goodwill. If the fair value of the reporting unit as a whole is $335,000, what amount of goodwill impairment will be recognized for this unit? A) $0 B) $15,000 C) $25,000 D) $35,000

B

11) Which of the following situations best describes a business combination to be accounted for as a statutory merger? A) Both companies in a combination continue to operate as separate, but related, legal entities. B) Only one of the combining companies survives and the other loses its separate identity. C) Two companies combine to form a new third company, and the original two companies are dissolved. D) One company transfers assets to another company it has created.

B

30) The fair value of net identifiable assets of a reporting unit of Y Company is $270,000. The carrying value of the reporting unit's net assets on Y Company's books is $320,000, including $50,000 of goodwill before any impairment. If the reported goodwill impairment for the unit is $10,000, what would be the fair value of the entire reporting unit? A) $320,000 B) $310,000 C) $270,000 D) $290,000

B

At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000. 10) Based on the preceding information, Selvick Company will report additional paid-in capital of A) $125,000. B) $176,000. C) $220,000. D) $250,000.

B

In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: Cash and receivables 23,000 Inventory 15,000 Land 30,000 Buildings 100,000 Equipment 95,000 Accounts Payable 20,000 Accum Depr—Buildings 32,000 Accum Depr—Equip 30,000 Common Stock 56,000 Additional Paid-In Capital 125,000 16) Based on the preceding information, immediately after the transfer, A) Conservative's total assets decreased by $23,000. B) Conservative's total assets decreased by $20,000. C) Conservative's total assets increased by $56,000. D) Conservative's total assets remained the same.

B

Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the book value of Jupiter's net assets was $250,000. The fair value of Jupiter's net assets was $280,000 on the acquisition date. 28) Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Mercury paid $275,000 for the acquisition? A) ($5,000) B) $0 C) $5,000 D) $25,000

B

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively. 38) Based on the preceding information, what is the par value of Nash's common stock? A) $1 B) $5 C) $6 D) $18

B

Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000. 18) Based on the preceding information, under the acquisition method: A) $72,000 of stock issue costs are treated as goodwill. B) $19,000 of stock issue costs are treated as a reduction in the paid-in capital. C) $19,000 of stock issue costs are expensed. D) $72,000 of stock issue costs are expensed.

B

Public Equity Corporation acquired Lenore Company through an exchange of common shares. All of Lenore's assets and liabilities were immediately transferred to Public Equity. Public's common stock was trading at $20 per share at the time of exchange. Following selected information is also available. B4 acquis After acquis PV shares o/s $200,000 $250,000 Add'l PIC $350,000 $550,000 34) Based on the preceding information, what number of shares was issued at the time of the exchange? A) 5,000 B) 17,500 C) 12,500 D) 10,000

C

Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the book value of Jupiter's net assets was $250,000. The fair value of Jupiter's net assets was $280,000 on the acquisition date. 27) Based on the preceding information, what amount will be recorded by Mercury as its investment in Jupiter if it paid $275,000 for the acquisition? A) $250,000 B) $275,000 C) $280,000 D) $300,000

C

Miguel Corporation and Forest Company merged as of January 1, 20X3. Miguel paid finder's fees of $36,000 and legal fees of $8,000. Miguel also paid audit fees related to the stock issuance of $12,000, stock registration fees of $7,000, and stock listing application fees of $3,000. 19) Based on the preceding information, under the acquisition method, what amount relating to the business combination would be expensed? A) $22,000 B) $36,000 C) $44,000 D) $66,000

C

22) Simmons Corporation paid $170,000 to acquire all of Bush Company's net assets. Bush reported assets with a book value of $189,000 and a fair value of $206,000 and liabilities with a book value and fair value of $48,000 on the date of the combination. Simmons also paid $8,000 to a search firm for finder's fees related to the acquisition. What amount will be recorded as goodwill by Simmons Corporation when recording its investment in Bush? A) $29,000 B) $20,000 C) $12,000 D) $10,000

C

3) A business combination in which the acquired company's assets and liabilities are combined with those of the acquiring company into a single entity is defined as: A) Stock acquisition B) Leveraged buyout C) Statutory Merger D) Reverse statutory rollup

C

45) Which of the following observations is(are) consistent with the acquisition method of accounting for business combinations? I. Expenses related to the business combination are expensed. II. Stock issue costs are treated as a reduction in the issue price. III. All merger and stock issue costs are expensed. IV. No goodwill is ever recorded. A) III B) IV C) I and II D) I, II, and IV

C

46) Which of the following observations refers to the term differential? A) Excess of consideration exchanged over fair value of net identifiable assets. B) Excess of fair value over book value of net identifiable assets. C) Excess of consideration exchanged over book value of net identifiable assets. D) Excess of fair value over historical cost of net identifiable assets.

C

At its inception, Peacock Company purchased land for $50,000 and a building for $220,000. After exactly 4 years, it transferred these assets and cash of $75,000 to a newly created subsidiary, Selvick Company, in exchange for 25,000 shares of Selvick's $5 par value stock. Peacock uses straight-line depreciation. When purchased, the building had a useful life of 20 years with no expected salvage value. An appraisal at the time of the transfer revealed that the building has a fair value of $250,000. 9) Based on the information provided, what amount would be reported by Peacock Company as investment in Selvick Company common stock? A) $125,000 B) $250,000 C) $301,000 D) $345,000

C

During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. 7) Based on the preceding information, Regan Company will report A) additional paid-in capital of $0. B) additional paid-in capital of $150,000. C) additional paid-in capital of $162,000. D) additional paid-in capital of $180,000.

C

In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: Cash and receivables 23,000 Inventory 15,000 Land 30,000 Buildings 100,000 Equipment 95,000 Accounts Payable 20,000 Accum Depr—Buildings 32,000 Accum Depr—Equip 30,000 Common Stock 56,000 Additional Paid-In Capital 125,000 13) Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative? A) 10,000 B) 7,000 C) 8,000 D) 25,000

C

Mercury Corporation acquired 100 percent of the stock of Jupiter Company when the book value of Jupiter's net assets was $250,000. The fair value of Jupiter's net assets was $280,000 on the acquisition date. 26) Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Mercury paid $295,000 for the acquisition? A) $0 B) $5,000 C) $15,000 D) $45,000

C

Public Equity Corporation acquired Lenore Company through an exchange of common shares. All of Lenore's assets and liabilities were immediately transferred to Public Equity. Public's common stock was trading at $20 per share at the time of exchange. Following selected information is also available. B4 acquis After acquis PV shares o/s $200,000 $250,000 Add'l PIC $350,000 $550,000 36) Based on the preceding information, what is the fair value of Lenore's net assets, if goodwill of $56,000 is recorded? A) $306,000 B) $244,000 C) $194,000 D) $300,000

C

Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger, Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000. 17) Based on the preceding information, under the acquisition method, what amount relating to the business combination would be expensed? A) $72,000 B) $19,000 C) $53,000 D) $63,000

C

12) A statutory consolidation is a type of business combination in which: A) One of the combining companies survives and the other loses its separate identity. B) One company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities. C) Two publicly traded companies agree to share a board of directors. D) Each of the combining companies is dissolved and the net assets of both companies are transferred to a newly created corporation.

D

2) Given the increased development of complex business structures, which of the following regulators is responsible for the continued usefulness of accounting reports? A) Securities and Exchange Commission (SEC) B) Public Company Accounting Oversight Board (PCAOB) C) Financial Accounting Standards Board (FASB) D) All of the other answers are correct

D

4) In which of the following situations do accounting standards not require that the financial statements of the parent and subsidiary be consolidated? A) A corporation creates a new 100 percent owned subsidiary B) A corporation purchases 90 percent of the voting stock of another company C) A corporation has both control and majority ownership of an unincorporated company D) A corporation owns less-than a controlling interest in an unincorporated company

D

During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. 5) Based on the information provided, at the time of the transfer, Regan Company should record: A) Building at $180,000 and no accumulated depreciation. B) Building at $162,000 and no accumulated depreciation. C) Building at $200,000 and accumulated depreciation of $24,000. D) Building at $180,000 and accumulated depreciation of $18,000.

D

Following its acquisition of the net assets of Dan Company, Empire Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Fair Value Cash $ 20,000 $ 20,000 Inventory 35,000 40,000 Equipment 125,000 160,000 Goodwill 60,000 Accounts Payable 30,000 30,000 31) Based on the preceding information, what amount of goodwill will be reported for this division - after any necessary impairments - if the fair value of the entire reporting unit is determined to be $200,000? A) $0 B) $60,000 C) $30,000 D) $50,000

D

In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: Cash and receivables 23,000 Inventory 15,000 Land 30,000 Buildings 100,000 Equipment 95,000 Accounts Payable 20,000 Accum Depr—Buildings 32,000 Accum Depr—Equip 30,000 Common Stock 56,000 Additional Paid-In Capital 125,000 14) Based on the preceding information, what was the book value of Conservative's assets transferred to Spin Company? A) $243,000 B) $263,000 C) $221,000 D) $201,000

D

Nash Company acquired Seel Corporation through an exchange of common shares. All of Seel's assets and liabilities were immediately transferred to Nash. Nash's common stock was trading at $25 per share at the time of the exchange. The total par value of Nash's stock outstanding before and after the acquisition was $750,000 and $840,000, respectively. Nash's additional paid-in capital before and after the acquisition were $200,000 and $560,000, respectively. 37) Based on the preceding information, what number of shares did Nash issue at the time of the exchange? A) 3,600 B) 5,000 C) 14,400 D) 18,000

D

Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. 23) Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $550,000 for the acquisition? A) $0 B) $50,000 C) $150,000 D) $40,000

D

Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. 24) Based on the preceding information, what amount will be recorded by Zenith as its investment in Plummet, if it paid $500,000 for the acquisition? A) $610,000 B) $400,000 C) $500,000 D) $510,000

D

Public Equity Corporation acquired Lenore Company through an exchange of common shares. All of Lenore's assets and liabilities were immediately transferred to Public Equity. Public's common stock was trading at $20 per share at the time of exchange. Following selected information is also available. B4 acquis After acquis PV shares o/s $200,000 $250,000 Add'l PIC $350,000 $550,000 35) Based on the preceding information, what is the par value of Public's common stock? A) $10 B) $1 C) $5 D) $4

D