Site MapHelpFeedbackChapter Quiz
Chapter Quiz
(See related pages)

1
In 2004, GAAP expanded the definition of 'control' and addressed the definition and consolidation requirements for:
A)Less than 50% owned subsidiaries.
B)Foreign Subsidiaries.
C)Permanently Impaired Subsidiaries.
D)Variable Interest Entities.
E)Entities financed with subordinated debt.
2
Using the acquisition method, a company acquires all of the shares of stock of another company. In-process research and development exists and is estimated to have $300,000 fair value. How would you account for these costs?
A)Always expense these costs at the acquisition date.
B)Expense these costs unless such costs represent assets with alternative future use.
C)Recognize these costs as an intangible asset and amortize the cost over a reasonable life.
D)Recognize these costs as an intangible asset and test for impairment.
E)These costs have no impact on the purchase.
3
Using the acquisition method, which of the following costs incurred in bringing about a business combination accounted for as a purchase should enter into determining the net income of the combined company for the period in which the expenses are incurred?

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q3.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>
A)A
B)B
C)C
D)D
E)E
4
In accounting for a business combination as a purchase, a bargain purchase exists when:
A)purchase price > book value.
B)fair value of net assets > purchase price or the fair value of the consideration.
C)fair value of net assets < book value.
D)fair value of net assets > book value.
E)fair value of net assets < purchase price or the fair value of the consideration.
5
Using the acquisition method, when a bargain purchase occurs and the net amount of the fair values of the separately identified assets and liabilities acquired exceed the fair value of the consideration transferred:
A)assets are recorded at amounts below their assessed fair values.
B)a gain on bargain purchase is recognized at the acquisition date.
C)a loss on bargain purchase is recognized at the acquisition date.
D)a contingent liability is recognized.
E)Goodwill is recognized and tested for impairment on an annual basis.
6
In preparing the consolidation worksheet for a business combination accounted for as a purchase using the purchase method, which one of the following is the appropriate basis for valuing fixed assets of a wholly-owned subsidiary?
A)fair value.
B)book value as shown on the books of the subsidiary.
C)book value plus any excess of purchase price over book value of the acquired assets and liabilities.
D)historical cost as shown on the books of the subsidiary.
E)current carrying value.
7
On March 31, Jumbo purchases 100% of Larz for $7,500,000 cash and 2,200,000 shares of Jumbo voting common stock (par value of $1). Jumbo's stock had a fair value on March 31 of $40. Jumbo got 12,000,000 shares of Larz's voting common stock (par value $4) having a fair value of $50 per share. Jumbo incurs $5,000,000 in direct combination costs and $3,500,000 in stock issuance costs. Using the purchase method, what is Jumbo's COST for this acquisition?
A)$100,500,000
B)$ 95,500,000
C)$ 99,000,000
D)$ 90,500,000
E)$ 97,000,000
8
On September 1, Mountainview Company acquired all of the outstanding common stock of Ward Company in a business combination accounted for as a pooling of interests. Both companies have a December 31 year-end and have been operating for five years. Consolidated net income for the year ended December 31 should include 12 months of net income for:
A)only Mountainview.
B)only Ward.
C)neither Mountainview nor Ward.
D)both Mountainview and Ward.
E)Mountainview and Ward (if Ward's net income is at least 30% of consolidated net income).
9
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q910_info.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (7.0K)</a>

Brooks Company obtains all of the outstanding shares of Shaw for $750,000 cash. In the financial statements prepared immediately after the business combination, what is the amount of goodwill using the purchase method?
A)$ 75,000
B)$100,000
C)$125,000
D)$250,000
E)$ 65,000
10
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q910_info.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (7.0K)</a>

Brooks company acquires Shaw Company on December 31, by issuing 5,000 shares of $5 par value common stock valued at $150 per share. Direct combination costs of $20,000 are paid to third parties and Brooks Company has estimated a $40,000 contingent performance liability. In the financial statements prepared immediately after the business combination, what is the amount of goodwill using the acquisition method?
A)$ 75,000
B)$100,000
C)$ 95,000
D)$115,000
E)$155,000
11
On December 31 of the current year, Sam Company was merged into Paul Company. In carrying out the business combination, Paul Company issued 60,000 shares of its $10 par value common stock, with a fair value of $15 per share, for all of Sam Company's outstanding common stock. The stockholders' equity section of the two companies immediately before the business combination was:
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q11.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>

Assume that the transaction is accounted for using the acquisition method. In the consolidated balance sheet at the end of the next year, the Additional Paid-In Capital account should be reported at:
A)$400,000.
B)$300,000.
C)$500,000.
D)$200,000.
E)$100,000.
12
Goodwill is generally defined as:
A)Cost of the investment less the subsidiary's book value at the beginning of the year.
B)Cost of the investment less the subsidiary's book value at the acquisition date.
C)Cost of the investment less the fair value of the subsidiary's net assets and previously unrecorded intangible assets at the beginning of the year.
D)Cost of the investment less the fair value of the subsidiary's net assets and previously unrecorded intangible assets at acquisition date.
E)Is no longer allowed under Federal Law.
13
To settle a difference of opinion regarding R. Obin's fair values, B. Atman promises to pay an additional $100,000 to the former owners if R. Obin's earnings exceed $500,000 during the next annual period. B. Atman estimates a 30% probability that the $100,000 contingent payment will be required. Assuming a discount rate of 4%, the present value factor is .961538. Under the acquisition method, what is the contingent liability?
A)No contingent liability is recorded.
B)$ 28,846
C)$ 30,000
D)$ 96,154
E)$100,000
14
Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. Using the purchase method, how should those costs be accounted for in a purchase transaction?

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q14.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>
A)A
B)B
C)C
D)D
E)E
15
Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. Using the acquisition method, how should those costs be accounted for in a purchase transaction?

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=png::::/sites/dl/free/0078136628/820467/q15.png','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (4.0K)</a>
A)A
B)B
C)C
D)D
E)E







Advanced AccountingOnline Learning Center

Home > Chapter 2 > Chapter Quiz