Chapter 2, CH 2

What is a statutory merger?

a business combination in which only one company continues to exist as a legal entity.

When does gain recognition accompany a business combination?

when a bargain purchase occurs

To complete a consolidation acquistion-date worksheet,

- all account balances, after adjusting for consolidation entires, are extended across to the Consolidated total column - the investment in subsidiary account balance is eliminated entirely - only parent's retained earnings are included

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

- the assets acquired and liabilities assumed at fair value

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.

Market estimates of fair value are most often appropriate for which categories of assets acquired in a business combination? Acquired goodwill Patents Actively-traded securities Copyrights and trademarks

Actively-traded securities

Select all that apply Which of the subsidiary's account balances are frequently eliminated through consolidation entry S? Long-term debt Additional paid-in capital Common stock Retained earnings

Additional paid-in capital Common stock Retained earnings

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

By ownership of a majority voting stock interest.

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

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

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. The acquired firm first records the acquirer's assets and liabilities on its financial records, and then prepares consolidated statements. Only the financial statement information of the acquired firm and the parent are used to prepare consolidated financial 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.

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. Capital interest combination. Statutory merger. Consolidation.

Statutory merger.

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

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

Select all that apply When may majority stock ownership fail to provide control over a business entity? When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges. When the noncontrolling voting stock owners elect members to the acquiree's board of directors.

When noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control. When the acquiring company has only an indirect ability to determine the direction of management and policies through its majority voting privileges.

Contingent consideration is a contractual provision to pay additional amounts to former owners of a business based upon achievements of future performance measures. immediately expensed at the acquisition date of the business combination. not recorded as part of total consideration transferred in a business combination. recognized only when payments are actually made upon achievement of performance objectives.

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

The purpose of consolidation entry A is to

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

For what type of assets is the cost approach often used to estimate fair values?

property, plant, and equipment

In consolidation entry S, the "S" refers to

subsidiary stockholders' equity

Select all that apply 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. 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. One company gains control over the assets and operations of another company.

How does the acquisition method treat contingent consideration when present in a business combination Any contingent consideration is ignored until payment is made. As a negotiated component of the fair value of the consideration transferred. As an expense recognized in the period of the business combination.

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.

Select all that apply Which of the following are typical costs that accompany a business combination? Costs incurred to register and issue securities. Write downs to fair value of acquired assets. Secretarial and management time allocated to acquisition activity. Professional service fees for attorneys and accountants.

Costs incurred to register and issue securities. Secretarial and management time allocated to acquisition activity. Professional service fees for attorneys and accountants.

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

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. 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.

Which of the following is a worksheet effect of consolidation entry S? Subsidiary stockholders' equity account balances are brought to zero in consolidation. Acquisition-date subsidiary retained earnings are combined with the parent's retained earnings. The parent and subsidiary stockholders' equity account balances are brought to zero in consolidation

Subsidiary stockholders' equity account balances are brought to zero in consolidation.

What accounting procedures are appropriate when an acquired firm is dissolved immediately following a business combination? The surviving company reports consolidated financial information, but does not record the dissolved company's assets and liabilities on its books. The surviving company records the dissolved company's assets and liabilities on its financial records. 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.

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

a reduction of additional paid-in capital.

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

fair value

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

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

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

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

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

For a 100% business acquisition where dissolution of the acquired firm does not occur, the parent company records on its books the fair value of the acquired firm in an investment account. 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.

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. the subsidiary's stockholder equity account balances have already been added to the parent's accounts. 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.

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 - each company maintains independent record keeping - the acquiring firm utilizes an investment account to record the acquisition

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 variable interest entity remains in existence as a separate legal entity -- often a trust or partnership - majority voting stock ownership is not a necessay condition for control over a variable interest entity

What 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 recording of goodwill in a business combination may recognize that:

- 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 - the quality of the acquired firm's personnel may provide additional profitability

When the collective fair value 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

Consolidated worksheet entities provide adjustments and eliminations that

appear soleley on worksheets in order to derive consolidated financial statements

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

book

When may majority stock ownership fail to provide control over a business entity?

- noncontrolling participation rights are powerful enough to prevent the majority owners from exercising control - when the acquiring company has only an INDIRECT ability to determine the direction of management and policies through its majority voting privileges

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

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

Why are consolidated financial statements prepared following a business combination?

- when one business entity controls 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

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

A fair value measurement attribute for newly acquired businesses.

What are consolidated financial statements? Financial statements of a single company across multiple accounting periods. A single set of combined financial statements for multiple companies tied together through common control. A single set of combined financial statements for two or more independent companies in the same industry. Any set of financial statements containing a balance sheet, income statement, statement of cash flows, and statement of stockholders' equity.

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

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. Two or more companies transfer their assets or capital stock to a newly formed entity. One company acquires the net assets of anther company and the acquired company then is dissolved as a separate legal entity. The acquiring company must gain 100 percent all voting shares before legally dissolving the subsidiary.

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

Select all that apply Which of the following are included in the first two columns of the consolidated worksheet as of the acquisition date? Any contingent performance liability that may have accompanied the combination. 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.

Which of the following best describes control through majority voting stock ownership? 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. Control is exercised through contractual arrangements that entitle one firm to become the primary beneficiary of another firm.

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

When a new entity is created to receive all the assets and liabilities (or capital stock) of two previous firms, this combination is referred to as a statutory ____________.

Consolidation

What is the primary vehicle that business firms employ to exercise control over other business entities? Control through majority voting stock ownership. Control through contractual arrangements with other firms. Control through minority participation rights. Control through variable interests.

Control through majority voting stock ownership.

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

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? Carrying amount of subsidiary net assets. Fair value. Carrying amount of assets transferred.

Fair value

What is the primary measurement attribute employed in accounting for an acquired company in a newly formed business combination? Net realizable value. Fair value. Replacement cost. Historical cost.

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 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. 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.

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

When one business entity has a controlling financial interest in another entity, why are consolidated financial statements prepared for external reporting? A dual economic entity is created requiring dual-based financial statements. The absence of a non-controlling interest causes one set of financial statements to become irrelevant. It is presumed that consolidated financial statements are necessary for a fair presentation. In all business combinations, the companies lose their separate legal identities.

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

Select all that apply Which of the following is a characteristic of the accounting procedure for a statutory merger or a statutory consolidation? Once the dissolved companies' account balances are transferred to the surviving company's records, the records of the dissolved companies are closed. Because the acquired firm's accounts are combined on the surviving company's records, no further consolidation procedures are needed. On the combination date, the surviving company records on its books the assets and liabilities from each of the dissolving companies. The parent company records an investment account to track the subsidiary's financial activities.

Once the dissolved companies' account balances are transferred to the surviving company's records, the records of the dissolved companies are closed. Because the acquired firm's accounts are combined on the surviving company's records, no further consolidation procedures are needed. On the combination date, the surviving company records on its books the assets and liabilities from each of the dissolving companies.

Which of the following is an attribute of a statutory merger? One company directly acquires another company's assets and assumes its liabilities. Both of the companies involved retain their separate legal existences. Two or more existing companies are united under the ownership of a newly created company. The acquiring company must gain 100% of all voting shares of the acquired company.

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

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

Patents Franchise agreements Customer relationships

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

Property, plant, and equipment

Why is the in-process research and development (IPR&D) of an acquired subsidiary recognized as an asset? Although IPR&D benefits are uncertain, the parent can quickly amortize the asset to expense. The future value of the IPR&D is certain. The IPR&D has an acquisition-date fair value.

The IPR&D has an acquisition-date fair value.

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. Sum of the acquisition-date fair values of the assets transferred by the acquirer. The liabilities incurred by the acquirer to former owners of the acquiree. The stockholder equity account balances of the acquired firm.

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

Select all that apply 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. A statutory merger takes place among the new affiliates in the business combination. 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. Each company continues to maintain an independent accounting system.

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 is capable of being sold or otherwise separated from the acquired enterprise. The intangible asset is capable of being sold as part of a sale of the entire subsidiary to a third party. 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. The intangible asset arises from a contractual or other legal right.

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. An offering price for selling an asset. The price that would be received from selling an asset.

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

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 provides supporting calculations that identify fair value adjustments required in consolidation. The schedule allocates the book value of the newly acquired subsidiary to the acquired assets and liabilities assumed The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. The schedule computes the allocated value assigned to goodwill or a bargain purchase gain.

The schedule provides supporting calculations that identify fair value adjustments required in consolidation. The schedule allocates the consideration transferred among the individual assets acquired and liabilities assumed in the business combination. The schedule computes the allocated value assigned to goodwill or a bargain purchase gain.

Which of the following best describes the accounting procedure for a statutory merger or statutory consolidation? The acquired assets and liabilities are combined on a worksheet with no adjustments to the surviving firm's records. 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. No consolidation procedures are necessary.

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

Select all that apply Why are consolidated financial statements prepared following a business combination? There is a presumption that consolidated statements are more meaningful than separate company financial statements. In any business combination, one or more companies cease to exist as separately controlled entities. It is presumed that consolidated statements are necessary for a fair presentation. 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. When one business entity controls the others in a business combination, a single reporting entity exists.

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

True 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.

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

True 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 There is often no ready market with observable prices for intangible a

Which of the following best describes a statutory consolidation? 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. One company acquires a majority interest in another company's voting stock. One company acquires the net assets of another firm and the acquired firm then is dissolved as a separate legal entity

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

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

Consolidated financial statements are typically prepared when one company has dividend income from another company. a controlling financial interest over 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.

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

a current period expense.

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

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 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 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.

Consolidated financial statements typically represent which of the following?

a number of separate business companies tied together through common control

Market estimates of fair value are most often appropriate for which categories of assets acquired in a business combination?

actively-traded securities

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

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

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.

An acquired entity has a long-term operating lease for an office building used for central management. The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as

an intangible asset under the contractual-legal criterion

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

book

What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?

capitalize as an asset

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

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.

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 faithful representation. total consolidated assets. goodwill.

faithful representation.

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.

Which of the following is the best theoretical justification for consolidated financial statements?

in form the companies are separate; in substance they are one entity

Which of the following does not represent a primary motivation for business combinations?

larger firms are less likely to fail

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

marketing

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

Statutory Merger

one company acquires the net assets of another company the acquired company then is dissolved as a separate legal entity

Select all that apply In-process research and development acquired in a business combination is recognized as an indefinite life intangible asset. tested periodically for impairment. recognized at its acquisition-date fair value. is reported as an expense in the consolidated income statement in the period of the related acquisition.

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

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 exceed the fair value of the consideration transferred, the difference should be:

recognized as an ordinary gain from a bargain purchase

Select all that apply In a business combination when each combining firm remains a legally incorporated separate entity 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 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 company employs consolidated worksheet entries to help prepare a set of consolidated financial statements.

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?

the fair value of the contingent consideration is included in the overall fair value of the consideration transferred and a liability or additional owner's equity is recognized

Select all that apply When the collective fair value 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. 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.

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

Statutory Consolidation

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