ACCT 4200 Chapter 2 Consolidation of Financial Information

Select all that apply Which of the following were cited as motivations for Amazon to acquire Whole Foods Market? -Amazon effectively expanded its distribution network to include hundreds of Whole Foods stores. -Whole Foods was a relatively small acquisition for Amazon relative to its other business combinations. -Amazon gained a competitive edge against other on-line grocery distributors.

-Amazon effectively expanded its distribution network to include hundreds of Whole Foods stores. -Amazon gained a competitive edge against other on-line grocery distributors. Reason: The Whole Foods Market acquisition was Amazon's largest to date.

Select all that apply Which of the following are included in the first two columns of the consolidated worksheet as of the acquisition date? -Pre-combination revenues and expenses of both the parent and subsidiary companies. -An investment account in the parent's financial statement column. -Any contingent performance liability that may have accompanied the combination.

-An investment account in the parent's financial statement column. -Any contingent performance liability that may have accompanied the combination.

Why do some criticize the recognition of bargain purchase gains in business combinations? -The collective fair value of the net identifiable assets acquired is more relevant that the consideration transferred. -An unrealized gain is recognized despite the lack of any selling activity by the acquirer. -The bargain purchase gain is a realized gain that should be deferred for financial reporting.

-An unrealized gain is recognized despite the lack of any selling activity by the acquirer.

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. -Control is exercised through contractual arrangements that entitle one firm to become the primary beneficiary of another firm. -The acquiring company must gain 100% of all voting shares of another company before exclusive control can be exercised.

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

How does one firm usually exercise control over another firm? -Through the ability to significantly influence another firm. -By ownership of a majority voting stock interest. -Through inventory purchase and supply contracts. -Through the issuance of debt.

-By ownership of a majority voting stock interest.

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

-Increase in stock price of the acquired company.

In consolidation entry S, the "S" refers to -Subsidiary stockholders' equity -Subsidiary goodwill. -Subsidiary fair value.

-Subsidiary stockholders' equity

Select all that apply Which of the following are criteria that are essential to recognizing an intangible asset acquired in a business combination? -The intangible asset can be separately identified. -The intangible asset arises from a contractual or other legal right. -The intangible asset is capable of being sold as part of a sale of the entire subsidiary to a third party. -The intangible asset is capable of being sold or otherwise separated from the acquired enterprise.

-The intangible asset arises from a contractual or other legal right. -The intangible asset is capable of being sold or otherwise separated from the acquired enterprise.

Select all that apply 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. -It is presumed that consolidated statements are necessary for a fair presentation. -In any business combination, one or more companies cease to exist as separately controlled entities. -There is a presumption that consolidated statements are more meaningful than separate company financial statements.

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

Attorney fees paid for service provided related to a business combination are accounted for as -a reduction of additional paid-in capital. -as asset with an indefinite useful life. -a current period expense. -a component of goodwill.

-a current period expense.

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 -goodwill. -a reduction of the recognized net identifiable assets. -an acquisition expense. -a gain on bargain purchase.

-a gain on bargain purchase.

Select all that apply When a business combination is accompanied by contingent consideration to be paid by the parent upon completion of specified performance metrics, the journal entry to record the combination includes -a liability for the maximum amount payable under the contingency agreement. -a liability for the fair value of the contingent consideration. -the fair value of the contingent consideration in the investment account as part of the overall consideration transferred.

-a liability for the fair value of the contingent consideration. -the fair value of the contingent consideration in the investment account as part of the overall consideration transferred. Reason: The valuation principle for all elements of a business combination is acquisition-date fair value.

Costs incurred to register and issue securities in connection with a business combination are recorded as -an expense recognized currently in income. -an increase to additional paid-in capital -an increase to goodwill. -a reduction of additional paid-in capital.

-a reduction of additional paid-in capital.

The purpose of consolidation entry A is to -adjust the subsidiary asset and liability accounts to their acquisition-date fair value. -allocate the acquisition price to the parent's and subsidiary's assets and liabilities. -record on the subsidiary's books the acquisition-date fair values of its assets and liabilities

-adjust the subsidiary asset and liability accounts to their acquisition-date fair value.

Select all that apply To complete a consolidation acquisition-date worksheet, -all account balances, after adjusting for consolidation entries, are extended across to the Consolidated Total column. -the "investment in subsidiary" account balance is eliminated entirely in consolidation. -the retained earnings account balances of the parent and subsidiary are combined for the consolidated balance sheet.

-all account balances, after adjusting for consolidation entries, are extended across to the Consolidated Total column. -the "investment in subsidiary" account balance is eliminated entirely in consolidation. Reason: Only the parent's retained earnings are included in an acquisition-date consolidated balance sheet.

Select all that apply Intangible assets -are common in business combinations. -lack physical substance. -are required to meet specific criteria to qualify for recognition in a business combination. -do not arise from contractual or other legal rights.

-are common in business combinations. -lack physical substance. -are required to meet specific criteria to qualify for recognition in a business combination.

Select all that apply In a business combination when each combining firm maintains its separate incorporation -consolidation worksheets are employed to generate financial reports for the combined economic entity. -the acquiring firm utilizes an investment account to record the acquisition. -the acquiring firm records on its books the individual assets acquired and liabilities assumed at their respective fair values. -each company maintains independent record keeping.

-consolidation worksheets are employed to generate financial reports for the combined economic entity. -the acquiring firm utilizes an investment account to record the acquisition. -each company maintains independent record keeping. Reason: With separate incorporation, an investment account records the combination.

When a company acquires another company in a fundamentally different industry, this strategy is known as -vertical integration -diversification. -a downstream acquisition

-diversification.

When a company acquires a majority, but less than 100% of the voting stock of another company, -dissolution of the acquired firm takes place. -a business combination has not taken place. -each company maintains its separate legal existence. -legal control is not possible.

-each company maintains its separate legal existence.

The measurement attribute used by an acquirer to recognize an acquired firm's assets and liabilities is ______ ______.

-fair -value

Even though measurement of an intangible asset (e.g., unpatented technology or customer relationships) may lack precision, recognition of the identified intangible may result in greater -goodwill. -total consolidated assets. -faithful representation.

-faithful representation.

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 -an increase in the net identifiable assets. -a reduction in the net identifiable assets. -an acquisition expense. -goodwill as an unidentifiable asset.

-goodwill as an unidentifiable asset.

Select all that apply Goodwill recognized in a business combination -may embody synergies the acquirer expects to achieve from the combination. -may capture value derived from other intangible assets not otherwise eligible for recognition. -is an asset that represents future economic benefits -results when the fair value of the net identified assets of the acquired firm exceeds the consideration transferred in a 100% acquisition.

-may embody synergies the acquirer expects to achieve from the combination. -may capture value derived from other intangible assets not otherwise eligible for recognition. -is an asset that represents future economic benefits Reason: results when the consideration transferred exceeds the fair value of the net identifiable assets of the acquired firm in a 100% acquisition.

Select all that apply 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. -goodwill is recorded for the excess fair value acquired. -the fair value of the net identifiable assets becomes the valuation basis for the acquired firm.

-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. -the pre-acquisition revenues and expenses of the acquired firm. -the stockholder's equity accounts of the acquired firm.

-the assets acquired and liabilities assumed at fair value.

Select all that apply In financial reporting for a bargain purchase business combination -the collective fair value of the identifiable net assets becomes the acquired firm's valuation basis. -a gain is reported on the acquiring firm's income statement. -goodwill is reported as a result of the business combination. -the consideration transferred by the acquirer becomes the valuation basis of the acquired firm.

-the collective fair value of the identifiable net assets becomes the acquired firm's valuation basis. -a gain is reported on the acquiring firm's income statement.

For a 100% business acquisition where dissolution of the acquired firm does not occur, the parent company records on its books -the fair values of the individual assets acquired and liabilities assumed. -goodwill resulting from the business combination. -the fair value of the acquired firm in an investment account.

-the fair value of the acquired firm in an investment account.

Select all that apply In a business combination, when the collective fair values of the net identified assets acquired and liabilities assumed exceeds the consideration transferred, -goodwill is recorded for the excess fair value acquired. -the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. -the acquirer recognizes a gain on bargain purchase.

-the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. -the acquirer recognizes a gain on bargain purchase. Reason: Goodwill only emerges after all of the identifiable assets (tangible and Intangible) and liabilities have been accounted for.

In a business combination, when the collective fair values of the net identified assets acquired and liabilities assumed exceeds the consideration transferred, -goodwill is recorded for the excess fair value acquired. -the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. -the acquirer recognizes a gain on bargain purchase.

-the fair value of the net identifiable assets becomes the valuation basis for the acquired firm. -the acquirer recognizes a gain on bargain purchase. Reason: No goodwill is recognized in a bargain purchase gain situation.

Select all that apply When an acquired firm's legal status is dissolved in a business combination, the acquiring firm's entry to record the combination includes -goodwill in all circumstances when control is obtained. -the individual fair values of the assets acquired and liabilities assumed. -the fair value of the consideration transferred.

-the individual fair values of the assets acquired and liabilities assumed. -the fair value of the consideration transferred. Reason: Goodwill or a bargain purchase gain may be recorded depending on the circumstances.

The task of managing a diverse group of companies in distinct industries may fail if -common markets do not exist across the affiliated set of companies. -complete ownership of subsidiary firms is absent. -the integration of the acquired firms into the controlling firm is not managed carefully.

-the integration of the acquired firms into the controlling firm is not managed carefully.

Select all that apply In a business combination when each combining firm remains a legally incorporated separate entity -the parent records on its accounting records each of the acquired assets and liabilities assumed in the business combination -the parent company employs consolidated worksheet entries to help prepare a set of consolidated financial statements. -the acquiring firm does not physically record the acquired firm's separate assets and liabilities. -the parent records an investment account at the subsidiary's net book value of the assets acquired and liabilities assumed.

-the parent company employs consolidated worksheet entries to help prepare a set of consolidated financial statements. -the acquiring firm does not physically record the acquired firm's separate assets and liabilities.

Select all that apply When the fair value of a 100% acquired subsidiary's net identifiable assets exceeds the consideration transferred, -the parent records a bargain purchase gain on its books. -a bargain purchase gain is reported in the consolidated income statement in the period of the acquisition. -the excess is reported in consolidated balance sheet as goodwill. -the identifiable assets of the acquired subsidiary are reported in the acquisition-date consolidated balance sheet at fair value.

-the parent records a bargain purchase gain on its books. -a bargain purchase gain is reported in the consolidated income statement in the period of the acquisition. -the identifiable assets of the acquired subsidiary are reported in the acquisition-date consolidated balance sheet at fair value.

Select all that apply 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 acquiring firm has unrecorded identifiable intangible assets. -the assets of the combining firms may act in concert to produce an expectation of enhanced profitability.

-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. Reason: Goodwill only emerges after all of the identifiable assets (tangible and Intangible) and liabilities have been accounted for.

Consolidation entry S brings subsidiary stockholders' equity account balances to zero because -the parent company has dissolved the separate legal status of the subsidiary. -they represent ownership interests held by the parent and thus are not outstanding equity. -the subsidiary's stockholder equity account balances have already been added to the parent's accounts.

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

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

True. Reason: Fair value is the measurement principle applied to assets acquired and liabilities assumed under the acquisition method.

True or false: When a bargain purchase occurs, the valuation basis for the acquired firm is the fair value of the assets received less liabilities assumed, not the consideration transferred.

True. Reason: In a bargain purchase, the fair values of the assets acquired less liabilities assumed is considered more relevant than the consideration transferred.

True or false: Fair value is the primary measurement attribute used in accounting for a newly acquired company in a business combination.

True. Reason: The acquisition method requires that the acquisition-date fair values of a newly acquired subsidiary form the valuation basis for consolidated financial reporting.

True or false: The reported balances for a business combination are the same regardless of whether the acquired firm is dissolved or not.

True. Reason: The form of the transaction (subsidiary dissolved or maintaining separate legal status) does not affect the financial statements of the combined entity.

True or false: The income approach is often best suited for estimating the fair values of intangible assets such as trademarks and patents.

True. Reason: There is often no ready market with observable prices for intangible assets.

When a company acquires all of the assets and liabilities of another firm and the acquired firm is dissolved as separate entity, this combination is referred to as a statutory ______.

merger

When a company establishes contractual control (absent voting stock control) over another company, control is considered to be established through ownership of ______ interests.

variable

Which of the following statements is true? -Companies previously using the purchase or pooling of interests accounting method must report a change in accounting principle when consolidating those subsidiaries with new acquisition combinations. -Any previous business combination originally accounted for under purchase or pooling of interests accounting method will now be accounted for under the acquisition method of accounting for business combinations. -The purchase method for business combinations is an alternative to the acquisition method. -Neither the purchase method nor the pooling of interests method is allowed for new business combinations. -The pooling of interests for business combinations is an alternative to the acquisition method.

-Neither the purchase method nor the pooling of interests method is allowed for new business combinations.

Select all that apply. Which of the following occurs in a business combination? -One company gains control over the assets and operations of another company. -A single set of financial statements subsequently is prepared for all the firms under common control. -A single financial reporting entity is created. -The company acquired in a business combination ceases to exist.

-One company gains control over the assets and operations of another company. -A single set of financial statements subsequently is prepared for all the firms under common control. -A single financial reporting entity is created. Reason: An acquired firm may continue its separate legal existence. For example, a business combination can occur when one firms buys a majority stock interest in another.

Crown Company had common stock of $360,000 and retained earnings of $510,000. Baker Inc. had common stock of $750,000 and retained earnings of $970,000. On January 1, 2021, Baker issued 32,000 shares of common stock with a $13 par value and a $37 fair value for all of Crown Company's outstanding common stock. This combination was accounted for using the acquisition method. Immediately after the combination, what was the amount of total consolidated net assets? -$3,006,000. -$2,904,000. -$2,590,000. -$2,136,000. -$2,054,000.

-$2,904,000.

The acquisition method of accounting for business combinations embraces -The cost principle for measuring and reporting newly acquired businesses. -A fair value measurement attribute for newly acquired businesses. -An exit value measurement attribute for newly acquired businesses.

-A fair value measurement attribute for newly acquired businesses.

What is a business combination? -Two companies that conduct business primarily with one another. -A set of separate business organizations under the control of a single company. -Any set of business companies that operate within a defined industry.

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

What are the financial reporting requirements when one business organization possesses control over another business organization? -The controlling business shows investments in other businesses as single amounts on its statement of financial position. -A single set of consolidated financial statements is prepared for the separate business entities tied together through common control. -No special financial reporting is required when one business organization controls another.

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

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. -As an expense recognized in the period of the business combination. -Any contingent consideration is ignored until payment is made.

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

Which of the following best describes control through ownership rights to variable interests in another firm? -Two or more companies transfer their assets or capital stock to a newly formed entity. -One company acquires the net assets of another firm and the variable interest entity is dissolved. -The acquiring company must gain 100% of all voting shares before dissolving the subsidiary and becoming the primary beneficiary. -Control is exercised through contractual arrangements that entitle a primary beneficiary of another firm to residual profit rights.

-Control is exercised through contractual arrangements that entitle a primary beneficiary of another firm to residual profit rights.

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

-Cost of the investment less the subsidiary's fair value at acquisition date.

Select all that apply Select from below the attributes of a business combination accomplished through acquisition of variable interests in another entity. -Current GAAP requires the consolidation of financial statement for a primary beneficiary and its variable interest entities. -The acquiring company directly buys the variable interest entity's assets and assumes its liabilities. -The variable interest entity remains in existence as a separate legal entity--often a trust or partnership. -Majority voting stock ownership is not a necessary condition for control over a variable interest entity.

-Current GAAP requires the consolidation of financial statement for a primary beneficiary and its variable interest entities. -The acquiring company directly buys the variable interest entity's assets and assumes its liabilities. -Majority voting stock ownership is not a necessary condition for control over a variable interest entity.

Select all that apply Which of the following intangibles are often recognized in a business combination? -Assembled workforce -Customer relationships -Franchise agreements -Patents

-Customer relationships -Franchise agreements -Patents Reason: An assembled workforce — the existing collection of employees of an acquired subsidiary — is not itself an identifiable intangible asset.

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method, how should stock issuance costs and direct combination costs be treated? -Both are treated as part of the acquisition consideration transferred. -Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital. -Both reduce additional paid-in capital. -Direct combination costs are ignored, and the stock issuance costs result in a reduction to additional paid-in capital. -Stock issuance costs and direct combination costs are expensed as incurred.

-Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital.

Select all that apply When each company in a business combination maintains its separate legal existence, which of the following occurs? -Each company continues to maintain an independent accounting system. -A statutory merger takes place among the new affiliates in the business combination. -The financial accounts of newly acquired subsidiary are unaffected. -The acquiring company establishes a single investment account in its financial records.

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

What is the measurement attribute employed in determining the consideration transferred in a business combination? -Fair value. -Carrying amount of assets transferred. -Carrying amount of subsidiary net assets.

-Fair value.

Which of the following is typically employed to consolidate the financial reports of separately incorporated firms that are part of a business combination? -The acquired firm records the accounts of the surviving firm in its financial records. -Financial statement information of each firm in the business combination is used to prepare consolidated financial statements. -The surviving firm records each of the accounts and respective amounts of the firms in the business combination on its financial records.

-Financial statement information of each firm in the business combination is used to prepare consolidated financial statements.

According to GAAP, which of the following is true with respect to the pooling of interest method of accounting for business combinations? -GAAP allowed its use prior to 2002. -It must be used for all new acquisitions. -It, or the acquisition method, may be used at the acquirer's discretion. -It was the only method used prior to 2002. -GAAP requires it to be used instead of the acquisition method for business combinations for which $50 billion or more in consideration is transferred.

-GAAP allowed its use prior to 2002.

Select all that apply The acquisition method requires the recognition and measurement of which of the following? -The subsidiary's stockholders' equity accounts. -Goodwill or a gain from bargain purchase. -The acquiree's identified assets and liabilities assumed by the acquirer. -Any existing noncontrolling interest.

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

A business combination occurs and the acquired firm is legally dissolved. If the consideration transferred by the acquiring firm equals the collective fair value of the acquired firm's net identifiable asset, then -Intangible assets that had not been recognized by the acquired firm are similarly not recognized by the acquirer. -Neither goodwill nor a bargain purchase gain is recorded. -The acquired firm's assets and liabilities are recorded by the acquiring firm at their former book values.

-Neither goodwill nor a bargain purchase gain is recorded.

When an acquired firm continues its separate legal corporate existence, which of the following best describes the procedures to prepare consolidated financial statements? -The acquired firm's accounts and balances are physically transferred to the accounts on the parent's financial records. -Only the financial statement information of the acquired firm and the parent are used to prepare consolidated financial statements. -The acquired firm first records the acquirer's assets and liabilities on its financial records, and then prepares consolidated statements. -Only independent financial statements of the acquired firm and the parent are prepared.

-Only the financial statement information of the acquired firm and the parent are used to prepare consolidated financial statements.

For what types of assets is the cost approach often used to estimate fair values? -Property, plant, and equipment -Accounts receivable -Goodwill -In-process research and development

-Property, plant, and equipment

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? -Subsidiary acquisition. -Consolidation. -Capital interest combination. -Statutory merger.

-Statutory merger.

What is the accounting treatment of the acquired subsidiary's equity accounts in a business combination? -Subsidiary equity accounts are included at book value in consolidated financial statements. -Subsidiary equity accounts are included at fair value in consolidated financial statements. -Subsidiary equity accounts are excluded from the accounting for the business combination.

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

Select all that apply A single entity can become more profitable than the separate parent and subsidiary had been in the past through which of the following? -The ability to attract financing at lower interest rates from greater negotiating power. -Larger firms can become more efficient at delivering goods and services. -Larger size inevitably leads to larger returns to stockholders. -Diversification of business risk.

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

When a business combination results in a bargain purchase gain, which of the following best describes the valuation basis of the acquired firm? -The collective fair value of the net identifiable assets acquired. -The collective book value of the net identifiable assets acquired. -The fair value of the consideration transferred by the acquiring firm. -The collective fair value of the net identifiable assets acquired less the bargain purchase gain.

-The collective fair value of the net identifiable assets acquired.

Select all that apply Which of the following may be included in the calculation of the consideration transferred for a newly acquired firm? -The equity interests issued by the acquirer in the combination. -The stockholder equity account balances of the acquired firm. -The liabilities incurred by the acquirer to former owners of the acquiree. -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. -Sum of the acquisition-date fair values of the assets transferred by the acquirer.

Select all that apply 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. -An offering price for selling an asset.

-The price that would be paid for transferring a liability. -The price that would be received from selling an asset. Reason: Offering prices may not reflect the ultimate price paid or received for an asset.

Select all that apply Before preparation of a consolidated worksheet, an acquisition-date fair value allocation schedule is typically prepared. What is the purpose of the acquisition-date fair value allocation schedule? -The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. -The schedule allocates the book value of the newly acquired subsidiary to the acquired assets and liabilities assumed -The schedule provides supporting calculations that identify fair value adjustments required in consolidation. -The schedule computes the allocated value assigned to goodwill or a bargain purchase gain.

-The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. -The schedule provides supporting calculations that identify fair value adjustments required in consolidation. -The schedule computes the allocated value assigned to goodwill or a bargain purchase gain. Reason: Fair values are the focus of the schedule as per GAAP.

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. -The acquired firm records the acquirer's assets and liabilities on its financial records. -The acquired assets and liabilities are combined on a worksheet with no adjustments to the surviving firm's records. -No consolidation procedures are necessary.

-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. -The surviving company reports consolidated financial information, but does not record the dissolved company's assets and liabilities on its books. -Worksheets are typically used to organize and adjust the information needed to prepare consolidated financial statements.

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

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

-The transaction establishes an acquisition fair value basis for the company being acquired.

Which of the following best describes a statutory consolidation? -One company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity. -One company acquires a majority interest in another company's voting stock. -Two or more companies transfer their assets (and liabilities) or capital stock to a newly formed entity. -Both of the companies involved retain their separate legal existences.

-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. -An acquiring company gains a controlling, but less than 100 per cent, interest in an acquiree's voting stock. -One company acquires another company that is subsequently dissolved by the surviving firm. -All of the companies involved in the business combination retain their separate legal existences.

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

True or false: Majority stock ownership does not always indicates an exclusive ability for one entity to exercise control over another.

True. Reason: Although majority stock ownership usually provides control, decision rights are sometimes granted to noncontrolling shareholders in exchange for economic support. Such decision rights can limit control by the majority owner.

Consolidation entry A for an acquisition-date worksheet is designed to adjust the subsidiary's assets and liabilities from ____ value to fair value.

book / carrying

The second column of figures on the consolidated worksheet includes the subsidiary's assets and liabilities at their _____ values.

book / carrying

The acquisition-date fair value allocation schedule helps to prepare the worksheet entries to adjust the subsidiary's assets from book value to ____ value.

fair

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 / goodwill value

Trademarks and trade names are examples of _____-related intangible assets.

marketing

Which of the following terms is best described by the integration of successive stages of production and distribution of products? -Risk management. -Diversification. -Economies of scale. -Vertical integration.

-Vertical integration.

Consolidated financial statements are typically prepared when one company has -a controlling financial interest over another company. -dividend income from another company. -significant influence over the operating and financial policies of another company. -accounted for its investment in another company using the equity method.

-a controlling financial interest over another company.

Consolidation entry S is a worksheet entry that -has no effect on the individual financial records of neither the parent nor the subsidiary. -is a journal entry that is eventually recorded on the subsidiary's books.

-has no effect on the individual financial records of neither the parent nor the subsidiary.

True or false: Ownership of a majority voting interest is the only way to ensure a controlling financial interest

False Reason: the power to control may also exist through governance contracts, leases, or agreements with other stockholders.

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. Reason: Acquisition-date fair values are used to record acquired assets and liabilities assumed in a business combination.

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. Reason: None of the acquiree's stockholders' equity accounts are recorded by the acquiring firm in a business combination.

True or false: When a parent acquires a subsidiary and records a bargain purchase gain, the gain is reported as a deferred gain on the consolidated balance sheet.

False. Reason: the gain appears on the consolidated income statement in the year of the acquisition.

What is the primary difference between: (i) accounting for a business combination when the subsidiary is dissolved; and (ii) accounting for a business combination when the subsidiary retains its incorporation? -If the subsidiary is dissolved, assets and liabilities are consolidated at their book values. -If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company. -If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values. -If the subsidiary is dissolved, it will not be operated as a separate division. -If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition.

If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company.

When a company acquires more than 50% of the voting stock of another firm, and the acquired firm continues its separate legal existence, the acquirer records the stock acquisition in an _______ account.

Investment / Asset