Chapter 2: Consolidation of Financial Information
An acquired firm's financial records sometimes show goodwill from a previous business combination. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary? A. The parent ignores preexisting subsidiary goodwill and allocates the subsidiaries' fair value among the separately identifiable assets acquired and liabilities assumed. B. The parent includes the preexisting goodwill as an identified intangible asset acquired.
A.
Consolidated financial statements are typically prepared when one company has A. Control over another company B. Dividend income from another company
A.
FASB ASC 805, "Business Combinations," provides principles for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed excess the fair value of the consideration transferred, the difference should be A. Recognized as an ordinary gain from a bargain purchase. B. Treated as goodwill and tested for impairment on an annual basis.
A.
What is goodwill? A. An intangible asset representing the excess of consideration transferred over the collective fair values of the net identifiable assets acquired in a business combination. B. A concept representing synergies resulting from a business combination but not recognized for financial reporting purposes.
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.
A.
Which of the following does NOT represent a primary motivation for business combinations? A. Combinations are often a vehicle to accelerate growth and competitiveness. B. Cost savings can be achieved through elimination of duplicate facilities and staff.
A.
According to the acquisition method of accounting for business combinations, cost paid to attorneys and accountants for services in arranging a merger should be A. Capitalized as part of the overall fair value acquired in the merger. B. Recorded as an expense in the period the merger takes place.
B.
What is a statutory merger? A. A takeover completed within one year of the initial tender offer. B. A business combination in which only one company continues to exist as a legal entity.
B.
What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination? A. Expense upon acquisition B. Capitalize as an asset.
B.
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition? A. The fair value of the contingent consideration is expenses immediately at acquisition date. B. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners' equity is recognized.
B.
Which of the following is the best theoretical justification for consolidated financial statements? A. In form, the companies are one entity; in substance, they are separate. B. In form, the companies are separate; in substance, they are entity.
B.
