B Law

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

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

Which of the following occurs in a business combination?

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

Which of the following best describes control through a majority voting stock acquisition?

Although one company controls another, no dissolution occurs and each company remains a separately incorporated entity.

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

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

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

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

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

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

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

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

Which of the following best describes control through majority voting stock ownership?

By exercising majority voting power, one firm can dictate the operating and financing activities of another firm.

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

Control through majority voting stock ownership.

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

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

Which of the following are considered potential advantages to growth through a business combination?

Economies of scale allowing greater efficiency and negotiating power. Cost savings through elimination of duplicate facilities and staff. Quick entry for new and existing products into domestic and foreign markets.

Fill in the blank question. The measurement attribute used by an acquirer to recognize an acquired firm's assets and liabilities is _____ ______

Fair Value

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

Fair value.

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

False

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

False

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

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

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

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

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

Statutory merger.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

True or false: According to the acquisition method, the acquiring firm records all assets acquired and liabilities assumed in a merger transaction at their individual acquisition date fair values.

True

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

True

Which of the following best describes a statutory consolidation?

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

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

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

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

Vertical integration

Why are consolidated financial statements prepared following a business combination?

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

Contingent consideration is

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

Consolidated financial statements are typically prepared when one company has

a controlling financial interest over another company.

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

a gain on bargain purchase.

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

a reduction of additional paid-in capital.

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

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

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

each company maintains its separate legal existence.

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

goodwill

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

goodwill

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

goodwill as an unidentifiable asset.

Size and scale are important drivers of business competitiveness because

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

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

intangible

Goodwill recognized in a business combination

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

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

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

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

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

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

the assets acquired and liabilities assumed at fair value.

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

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

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

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

The recording of goodwill in a business combination may recognize that

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

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

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

What are consolidated financial statements?

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

Consolidated financial statements typically represent which of the following?

A number of separate business companies tied together through common control.

What is a business combination?

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