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Multiple Choice Quiz
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1
Parks, Inc. paid $10 per share for 80,000 of the 100,000 shares of KO, Inc, when KO's net assets had a total fair value of $950,000. During the weeks before and after this acquisition, the shares of KO, Inc. have traded for $9 per share. What is the total acquisition business fair value of KO, Inc.?
A)$800,000
B)$900,000
C)$980,000
D)$1,000,000
E)$950,000
2
Parks, Inc. paid $10 per share for 80,000 of the 100,000 shares of KO, Inc, when KO's net assets had a total fair value of $950,000. During the weeks before and after this acquisition, the shares of KO, Inc. have traded for $9 per share. How much goodwill should Parks report in its post-combination consolidated balance sheet?
A)$24,000
B)$30,000
C)$50,000
D)$120,000
E)$150,000
3
A basic premise of the acquisition method is that the:
A)ultimate objective of consolidated financial statements is to serve as a report to the stockholders of the parent company.
B)subsidiary's book value and the purchase price paid by the parent are viewed as separate elements that can be accounted for individually within the consolidation process.
C)subsidiary's individual accounts cannot be divided along ownership lines.
D)values utilized for consolidation reflect the parent's payment attributed to each subsidiary asset and liability.
E)controlled company must always be consolidated in phases depending on the parent's level of ownership.
4

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings.

Using the acquisition method, what is the amount of goodwill?
A)$515,000
B)$500,000
C)$775,000
D)$400,000
E)$320,000
5

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings.

What is the amount of consolidated net income?
A)$436,000
B)$490,000
C)$457,500
D)$484,000
E)$492,500
6

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings.

What value should be attributed to the building in a consolidated balance sheet at the date of the business combination?
A)$140,000
B)$128,000
C)$155,000
D)$160,000
E)$175,000
7
On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock in a purchase transaction. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years.

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What is the non-controlling interest in Mareas's second year income?
A)$12,000
B)$24,000
C)$33,200
D)$36,000
E)$38,800
8
On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock in a purchase transaction. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years.

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On the balance sheet at the end of the second year, what amount should be reported as noncontrolling interest in Marea Co. at the end of the second year?
A)$200,000
B)$341,600
C)$241,600
D)$250,000
E)$276,000
9
Where is the noncontrolling interest on the consolidated balance sheet reported?
A)As a line between noncurrent liabilities and stockholder's equity.
B)As part of stockholder's equity.
C)As a noncurrent asset.
D)As a noncurrent liability
E)This account is eliminated during the consolidation process.
10
A parent buys 60% of a subsidiary in one year and then purchases an additional 25% in the next year. How is the second acquisition of 25% treated?
A)The valuation basis for the subsidiary's net assets was established in the first acquisition when control was obtained. Any differences between transaction prices and the underlying subsidiary book values are adjustments to Additional Paid In Capital.
B)All subsequent purchases are valued based on the fair values at the time purchase and allocations will be calculated for each purchase.
C)A gain or loss is recognized from the adjustment to the subsidiary's fair value on the second purchase.
D)All subsequent purchases are based on the fair values at the time of the first acquisition and any adjustments are recorded as a gain.
E)The acquisition method views the subsidiary as whole and can only be used if 100% of the subsidiary has been acquired through step acquisitions.





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