ACG 4803 ch. 17, 1, 2

Which of the following is incorrect?

*Under acquisition accounting, direct acquisition costs are recorded by decreasing goodwill as a contra account.* Under acquisition method accounting, indirect acquisition costs (such as expenses incurred by a firm's permanent M&A department) are expensed. Security issue costs, such as brokerage fees, reduce the Excess Paid In Capital account (i.e., are recorded as a debit to that account). Accounting and consulting fees incurred in a business combination are expenses under the current standards for acquisitions.

Which of the following statements concerning bargain purchases (purchase price below fair value of identifiable assets) is correct?

Any previously recorded goodwill on the seller's books is eliminated and no new goodwill is recorded.

Which one of the following statements is incorrect? a. In an asset acquisition, the books of the acquired company are closed out, and its assets and liabilities are transferred to the books of the acquirer. b. In many cases, stock acquisitions entail lower total cost than asset acquisitions. c. Regulations pertaining to one of the firms do not automatically extend to the entire merged entity in a stock acquisition. d. A stock acquisition occurs when one corporation pays cash, issues stock, or issues debt for all or part of the voting stock of another company; and the acquired company dissolves and ceases to exist as a separate legal entity.

D. A stock acquisition occurs when one corporation pays cash, issues stock, or issues debt for all or part of the voting stock of another company; and the acquired company dissolves and ceases to exist as a separate legal entity.

Stock given as consideration for a business combination is valued at:

Fair market value

Which one of the following statements is incorrect?

In many cases, stock acquisitions entail lower total cost than asset acquisitions. *A stock acquisition occurs when one corporation pays cash, issues stock, or issues debt for all or part of the voting stock of another company; and the acquired company dissolves and ceases to exist as a separate legal entity.* In an asset acquisition, the books of the acquired company are closed out, and its assets and liabilities are transferred to the books of the acquirer. Regulations pertaining to one of the firms do not automatically extend to the entire merged entity in a stock acquisition.

Goodwill impairment exists only if the fair value of the business unit:

Is less than the carrying value of the reporting unit (including goodwill).

The purchase of a controlling interest in the target firm by its managers and third-party investors, who usually incur substantial debt in the process and subsequently take the firm private.

Leveraged buyout (LBO)

Issuing stock rights to existing shareholders, enabling them to purchase additional shares at a price below market value, but exercisable only in the event of a potential takeover.

Poison pill

In a business combination, which of the following costs are assigned to the valuation of the security?

Professional or Security, no; Consulting fees issued cost, yes

The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the:

Takeover premium

Which of the following statements is true with respect to the accounting for business combinations under U.S. GAAP?

The acquired business should be recognized at its fair value on the acquisition date, regardless of whether the acquirer purchases all or only a controlling percentage.

Which of the following statements best describes the current authoritative position with regard to the accounting for contingent consideration?

The purpose of the measurement period is to provide a reasonable time to obtain the information necessary to identify and measure the fair value of the acquiree's assets and liabilities, as well as the fair value of the consideration transferred.

Encouraging a third firm, more acceptable to the target company management, to acquire or merge with the target company.

White knight

If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be:

accounted for as goodwill.

Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase price of the acquired company, the excess should be:

allocated to reduce any previously recorded goodwill on the seller's books and classify any remainder as an ordinary gain.

In the year of a material business combination, pro forma disclosures must include all of the following except: a. Revenue b. Net income c. Tax expenses d. Nonrecurring items

c. Tax expenses

The impairment standard as it relates to goodwill is an example of a:

loss or lack of benefit approach.

Which of the following can be used as consideration in a stock acquisition?

pays cash or issues stock or debt

The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements) are as follows:

to improve the relevance, comparability, and transparency of financial information related to business combinations and to eliminate the amortization of Goodwill.