Ch 2 & 3 MC

A statutory merger is a(n) A. Business combination in which only one of the two companies continues to exist as a legal corporation B. Business combination in which both companies continue to exist C. Acquisition of a competitor D. Acquisition of a supplier or a customer E. Legal proposal to acquire outstanding shares of the target's stock

A

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investments? A. Net assets of the acquired company are revalued to their face values and any excess of consideration transferred over fair value of net assets is allocated to goodwill B. Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill C. Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values. Any excess is allocated to goodwill D. Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill E. Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is deducted from additional paid-in capital.

A

When does gain recognition accompany a business combination? A. When a bargain purchase occurs B. In a combination created in the middle of a fiscal year C. In an acquisition when the value of all assets and liabilities cannot be determined D. When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company

A

Which of the following statements is true regarding the acquisition method of accounting for a business combination? A. Net assets of the acquired company are reported at their fair values B. Net assets of the acquired company are reported at their book values C. Any goodwill associated with the acquisition is reported as a development cost D. The acquisition can only be affected by a mutual exchange of voting common stock E. Indirect costs of the combination reduce additional paid-in capital

A

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition? A. All net assets are revalued to fair value and must be amortized over their useful lives. B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives. C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives. D. Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives. E. Only assets that have excess fair value over book value must be amortized over their useful lives.

B

When is a goodwill impairment loss recognized? A. Only after both a quantitative and qualitative assessment of the fair value of goodwill of a reporting unit B. After only definitive quantitative assessments of the fair value of goodwill is completed C. After only definitive qualitative assessments of the fair value of goodwill is completed D. If the fair value of a reporting unit falls to zero or below its original acquisition price E. Never

B

Which of the following statements is true regarding the acquisition method of accounting for a business combination? A. The combination must involve the exchange of equity securities only B. The transaction establishes an acquisition fair value basis for the company being acquired C. The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company D. The transaction may be considered to be the uniting of the ownership interests of the companies involved E. The acquired subsidiary must be smaller in size than the acquiring parent

B

According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true? A. Goodwill recognized in consolidation must be amortized over 20 years. B. Goodwill recognized in consolidation must be expensed in the period of acquisition. C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. D. Goodwill recognized in consolidation can never be written off. E. Goodwill recognized in consolidation must be amortized over 40 years.

C

At the date of an acquisition which is not a bargain purchase, the acquisition method A. Consolidates the subsidiary's assets at fair value and the liabilities at book value B. Consolidates all subsidiary assets and liabilities at book value C. Consolidates all subsidiary assets and liabilities at fair value D. Consolidates current assets and liabilities at book value, and long-term assets and liabilities at fair value E. Consolidates the subsidiary's assets at book value and the liabilities at fair value

C

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true? A. Negative goodwill is recorded B. A deferred credit is recorded C. A gain on bargain purchase is recorded D. Long-term assets of the acquired company are reduced in proportion to their fair value. Any excess is recorded as a deferred credit E. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a gain

C

Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method? A. Goodwill, Investment in Tangiers Co., and Retained Earnings. B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings. C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings. D. Common Stock, Goodwill, and Investment in Tangiers Co. E. Expenses, Goodwill, and Investment in Tangiers Co.

C

Which of the following examples accurately describes a difference in the types of business combinations? A. A statutory merger can only be affected through an asset acquisition while a statutory consolidation can only be affected through a capital stock acquisition B. A statutory merger can only be affected through a capital stock acquisition while a statutory consolidation can only be affected through an asset acquisition C. A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity D. A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution E. Both a statutory merger and a statutory consolidation can only be affected through an asset acquisition but only a statutory consolidation requires dissolution of the acquired company

C

Which of the following internal record-keeping methods can a parent company choose to account for a subsidiary acquired in a business combination? A. Initial value or book value B. Initial value, lower-of-cost-or-market-value, or equity C. Initial value, equity, or partial equity D. Initial value, equity, or book value E. Initial value, lower-of-cost-or-market-value, or partial equity

C

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination? A. Goodwill B. Equipment C. Investment in Subsidiary D. Common Stock E. Additional Paid-In Capital

C

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting, which of the following should the acquirer consider when determining fair value? A. Only assets received by the acquirer B. Only consideration transferred by the acquirer C. The consideration transferred by the acquirer and the fair value of assets received less liabilities assumed D. The par value of stock transferred by the acquirer, and the book value of identifiable assets transferred by the entity acquired E. The book value of identifiable assets transferred to the acquirer as part of the business combination less any liabilities assumed

C

All the following are acceptable methods to account for a majority-owned investment in subsidiary except A. The equity method B. The initial value method C. The partial equity method D. The fair-value method E. Book value method

D

How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life? A. Equally over 20 years B. Equally over 40 years C. Equally over 20 years with an annual impairment review D. No amortization, but annually reviewed for impairment and adjusted accordingly E. No amortization over an indefinite period of time

D

Under the equity method of accounting for an investment A. The investment account remains at initial value B. Dividends received are recorded as revenue C. Goodwill is amortized over 20 years D. Income reported by the subsidiary increases the investment account E. Dividends received increase the investment account

D

Under the initial value method, when accounting for an investment in a subsidiary, A. Dividends received by the subsidiary decrease the investment account B. The investment account is adjusted to fair value at year-end C. Income reported by the subsidiary increases the investment account D. The investment account remains at initial value E. Dividends received are ignored

D

Under the partial equity method of accounting for an investment A. The investment account remains at initial value B. Dividends received are recorded as revenue C. The allocations for excess fair value over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account E. Dividends received increase the investment account

D

Using the acquisition method for a business combination, goodwill is calculated as the: A. Cost of the investment less the subsidiary's book value at the beginning of the year B. Cost of the investment less the subsidiary's book value at the acquisition date C. Cost of the investment less the subsidiary's fair value at the beginning of the year D. Cost of the investment less the subsidiary's fair value at acquisition date E. Zero, it is no longer required under federal law

D

When consolidating a subsidiary under the equity method, which of the following statements is true? A. Goodwill is never recognized. B. Goodwill required is amortized over 20 years. C. Goodwill may be recorded on the parent company's books. D. The value of any goodwill should be tested annually for impairment in value. E. Goodwill should be expensed in the year of acquisition.

D

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment? A. The amount of consolidated net income B. Total assets on the consolidated balance sheet C. Total liabilities on the consolidated balance sheet D. The balance in the investment account on the parent's books E. The amount of consolidated cost of goods sold

D

How does the partial equity method differ from the equity method? A. In the total assets reported on the consolidated balance sheet B. In the treatment of dividends C. In the total liabilities reported on the consolidated balance sheet D. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary

E

Under the partial equity method, the parent recognizes income when A. Dividends are received from the investee B. Dividends are declared by the investee C. The related expense has been incurred D. The related contract is signed by the subsidiary E. It is earned by the subsidiary

E

Which of the following is not a reason for a business combination to take place A. Cost savings through elimination of duplicate facilities B. Quick entry for new and existing products into domestic and foreign markets C. Diversification of business risk D. Vertical integration E. Increase in stock price of the acquired company

E