Test Bank for Advanced Accounting 11th Edition by Hoyle Link … · 2018-11-16 ·...

Test Bank for Advanced Accounting 11th Edition by Hoyle

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Chapter 02

Consolidation of Financial Information

Multiple Choice Questions

1) At the date of an acquisition which is not a bargain purchase,

the acquisition method

a. consolidates the subsidiary's assets at fair value and the

liabilities at book value. b. consolidates all subsidiary assets and liabilities at book value.

c. consolidates all subsidiary assets and liabilities at fair value.

d. consolidates current assets and liabilities at book value, long-term assets

and liabilities at fair value.

e. consolidates the subsidiary's assets at book value and the

liabilities at fair value.

2) In an acquisition where control is achieved, how would the land accounts

of the parent and the land accounts of the subsidiary be combined?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

3) Lisa Co. paid cash for all of the voting common stock of Victoria Corp.

Victoria will continue to exist as a separate corporation. Entries for the

consolidation of Lisa and Victoria would be recorded in

a. a worksheet.

b. Lisa's general journal. c. Victoria's general journal. d. Victoria's secret consolidation journal.

e. the general journals of both companies.

4) Using the acquisition method for a business combination,

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 subsidiary's fair value at the beginning of

the year. D. Cost of the investment less the subsidiary's fair value at acquisition date. E. is no longer allowed under federal law.

a. 5) Direct combination costs and stock issuance costs are often incurred in the

process of making a controlling investment in another company. How

should those costs be accounted for in a pre-2009 purchase transaction?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

6) How are direct and indirect costs accounted for when applying

the acquisition method for a business combination?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

7) What is the primary accounting difference between accounting for when

the subsidiary is dissolved and when the subsidiary retains its

incorporation?

a. If the subsidiary is dissolved, it will not be operated as a separate division.

b. If the subsidiary is dissolved, assets and liabilities are

consolidated at their book values.

c. If the subsidiary retains its incorporation, there will be no

goodwill associated with the acquisition.

d. If the subsidiary retains its incorporation, assets and liabilities are

consolidated at their book values.

e. If the subsidiary retains its incorporation, the consolidation is not

formally recorded in the accounting records of the acquiring

company.

8) According to GAAP, the pooling of interest method for business combinations

a. Is preferred to the purchase method. b. Is allowed for all new acquisitions.

c. Is no longer allowed for business combinations after June 30, 2001. d. Is no longer allowed for business combinations after December 31, 2001. e. Is only allowed for large corporate mergers like Exxon and Mobil.

9) An example of a difference in types of business combination is:

a. A statutory merger can only be effected by an asset acquisition

while a statutory consolidation can only be effected by a capital

stock acquisition.

b. A statutory merger can only be effected by a capital stock acquisition

while a statutory consolidation can only be effected by an asset

acquisition.

c. A statutory merger requires dissolution of the acquired

company while a statutory consolidation does not require

dissolution.

d. A statutory consolidation requires dissolution of the acquired

company while a statutory merger does not require dissolution.

e. Both a statutory merger and a statutory consolidation can only be

effected by an asset acquisition but only a statutory consolidation

requires dissolution of the acquired company.

10) Acquired in-process research and development is considered as

a. a definite-lived asset subject to amortization. b. a definite-lived asset subject to testing for impairment.

c. an indefinite-lived asset subject to amortization. d. an indefinite-lived asset subject to testing for impairment.

e. a research and development expense at the date of acquisition.

11) Which one of the following is a characteristic of a

business combination accounted for as an acquisition?

a. The combination must involve the exchange of equity securities only.

b. The transaction establishes an acquisition fair value basis

for the company being acquired.

c. The two companies may be about the same size, and it is

difficult to determine the acquired company and the acquiring

company.

d. The transaction may be considered to be the uniting of the

ownership interests of the companies involved. e. The acquired subsidiary must be smaller in size than the acquiring parent.

12) Which one of the following is a characteristic of a business combination that is

accounted for as an acquisition?

a. Fair value only for items received by the acquirer can enter into the

determination of the acquirer's accounting valuation of the acquired

company.

b. Fair value only for the consideration transferred by the acquirer can

enter into the determination of the acquirer's accounting valuation of

the acquired company.

c. Fair value for the consideration transferred by the acquirer as well as the

fair value of items received by the acquirer can enter into the

company.

d. Fair value for only consideration transferred and identifiable assets

received by the acquirer can enter into the determination of the

acquirer's accounting valuation of the acquired company.

e. Only fair value of identifiable assets received enters into the

company.

13) A statutory merger is a(n)

a. business combination in which only one of the two companies

continues to exist as a legal corporation. b. business combination in which both companies continues to exist. c. acquisition of a competitor. d. acquisition of a supplier or a customer. e. legal proposal to acquire outstanding shares of the target's stock.

14) How are stock issuance costs and direct combination costs treated in a

business combination which is accounted for as an acquisition when the

subsidiary will retain its incorporation?

a. Stock issuance costs are a part of the acquisition costs,

and the direct combination costs are expensed.

b. Direct combination costs are a part of the acquisition costs,

and the stock issuance costs are a reduction to additional

paid-in capital.

c. Direct combination costs are expensed and stock issuance

costs are a reduction to additional paid-in capital. d. Both are treated as part of the acquisition consideration transferred. e. Both are treated as a reduction to additional paid-in capital.

15) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,

20X1. The book value and fair value of Vicker's accounts on that date (prior to

creating the combination) follow, along with the book value of Bullen's accounts:

a. Assume that Bullen issued 12,000 shares of common stock with a $5 par

value and a $47 fair value to obtain all of Vicker's outstanding stock. In

this acquisition transaction, how much goodwill should be recognized?

16) $144,000.

17) $104,000. 18) $64,000. 19) $60,000. 20) $0.

21) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January

1, 20X1. The book value and fair value of Vicker's accounts on that date (prior

to creating the combination) follow, along with the book value of Bullen's

accounts:

22) Assume that Bullen issued 12,000 shares of common stock with a $5 par

value and a $42 fair value for all of the outstanding stock of Vicker. What is

the consolidated balance for Land as a result of this acquisition

transaction?

23) $460,000.

24) $510,000. 25) $500,000. 26) $520,000. 27) $490,000.

1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to

a. Assume that Bullen issued 12,000 shares of common stock with a $5 par

value and a $42 fair value for all of the outstanding shares of Vicker.

What will be the consolidated Additional Paid-In Capital and Retained

Earnings (January 1, 20X1 balances) as a result of this acquisition

transaction?

29) $60,000 and $490,000. 30) $60,000 and $250,000. 31) $380,000 and $250,000. 32) $464,000 and $250,000. 33) $464,000 and $420,000.

accounts:

35) Assume that Bullen issued preferred stock with a par value of $240,000 and a

fair value of $500,000 for all of the outstanding shares of Vicker in an

acquisition business combination. What will be the balance in the

consolidated Inventory and Land accounts?

36) $440,000, $496,000. 37) $440,000, $520,000. 38) $425,000, $505,000. 39) $400,000, $500,000. 40) $427,000, $510,000.

41) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1,

20X1. The book value and fair value of Vicker's accounts on that date (prior to

a. Assume that Bullen paid a total of $480,000 in cash for all of the

shares of Vicker. In addition, Bullen paid $35,000 for secretarial and

management time allocated to the acquisition transaction. What will

be the balance in consolidated goodwill?

42) $0. 43) $20,000. 44) $35,000. 45) $55,000. 46) $65,000.

accounts:

48) Assume that Bullen paid a total of $480,000 in cash for all of the shares of

Vicker. In addition, Bullen paid $35,000 to a group of attorneys for their work

in arranging the combination to be accounted for as an acquisition. What will

be the balance in consolidated goodwill?

49) $0. 50) $20,000. 51) $35,000. 52) $55,000. 53) $65,000

54) Prior to being united in a business combination, Botkins Inc. and

Volkerson Corp. had the following stockholders' equity figures:

a. Botkins issued 56,000 new shares of its common stock valued at $3.25

per share for all of the outstanding stock of Volkerson.

b. Assume that Botkins acquired Volkerson on January 1, 2010. At what

amount did Botkins record the investment in Volkerson?

c. $56,000. d. $182,000. e. $209,000. f. $261,000. g. $312,000.

56) Botkins issued 56,000 new shares of its common stock valued at $3.25 per

share for all of the outstanding stock of Volkerson.

57) Assume that Botkins acquired Volkerson on January 1, 2010.

Immediately afterwards, what is consolidated Common Stock?

a. $456,000. b. $402,000. c. $274,000. d. $276,000. e. $330,000.

58) Chapel Hill Company had common stock of $350,000 and retained

earnings of $490,000. Blue Town Inc. had common stock of $700,000 and

retained earnings of $980,000. On January 1, 2011, Blue Town issued

34,000 shares of common stock with a $12 par value and a $35 fair value

for all of Chapel Hill Company's outstanding common stock. This

combination was accounted for as an acquisition. Immediately after the

combination, what was the total consolidated net assets?

a. $2,520,000. b. $1,190,000.

c. $1,680,000.

d. $2,870,000. e. $2,030,000.

59) Which of the following is a not a reason for a business combination

to take place?

a. Cost savings through elimination of duplicate facilities.

b. Quick entry for new and existing products into domestic and foreign markets. c. Diversification of business risk. d. Vertical integration. e. Increase in stock price of the acquired company.

60) Which of the following statements is true regarding a statutory merger?

a. The original companies dissolve while remaining as separate

divisions of a newly created company.

b. Both companies remain in existence as legal corporations

with one corporation now a subsidiary of the acquiring

company.

c. The acquired company dissolves as a separate corporation and

becomes a division of the acquiring company.

d. The acquiring company acquires the stock of the acquired company

as an investment. e. A statutory merger is no longer a legal option.

61) Which of the following statements is true regarding a statutory consolidation?

a. The original companies dissolve while remaining as separate

divisions of a newly created company.

b. Both companies remain in existence as legal corporations

with one corporation now a subsidiary of the acquiring

company.

as an investment. e. A statutory consolidation is no longer a legal option.

62) In a transaction accounted for using the acquisition method where

consideration transferred exceeds book value of the acquired company,

which statement is true for the acquiring company with regard to its

investment?

a. Net assets of the acquired company are revalued to their fair

values and any excess of consideration transferred over fair

value of net assets acquired is allocated to goodwill.

b. Net assets of the acquired company are maintained at book value

and any excess of consideration transferred over book value of net

assets acquired is allocated to goodwill.

c. Acquired assets are revalued to their fair values. Acquired

liabilities are maintained at book values. Any excess is

allocated to goodwill.

d. Acquired long-term assets are revalued to their fair values. Any

excess is allocated to goodwill.

consideration transferred is less than fair value of net assets acquired,

which statement is true?

a. Negative goodwill is recorded.

b. A deferred credit is recorded. c. A gain on bargain purchase is recorded.

d. Long-term assets of the acquired company are reduced in proportion

to their fair values. Any excess is recorded as a deferred credit.

e. Long-term assets and liabilities of the acquired company are

reduced in proportion to their fair values. Any excess is

recorded as an extraordinary gain.

64) Which of the following statements is true regarding the acquisition method

of accounting for a business combination?

a. Net assets of the acquired company are reported at their fair values. b. Net assets of the acquired company are reported at their book values.

c. Any goodwill associated with the acquisition is reported as a

development cost.

d. The acquisition can only be effected by a mutual exchange of

voting common stock. e. Indirect costs of the combination reduce additional paid-in capital.

65) Which of the following statements is true?

a. The pooling of interests for business combinations is an

alternative to the acquisition method.

b. The purchase method for business combinations is an

alternative to the acquisition method.

c. Neither the purchase method nor the pooling of interests method is

allowed for new business combinations.

d. 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.

e. 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.

66) The financial statements for Goodwin, Inc., and Corr Company for the

year ended December 31, 20X1, prior to Goodwin's acquisition

business combination transaction regarding Corr, follow (in

thousands):

67) On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its

$10 par value common stock to the owners of Corr to acquire all of the

outstanding shares of that company. Goodwin shares had a fair value of

$40 per share.

68) Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid

$35 in stock issuance costs. Corr's equipment was actually worth $1,400 but

its buildings were only valued at $560.

69) In this acquisition business combination, at what amount is the

investment recorded on Goodwin's books?

70) $1,540.

71) $1,800. 72) $1,860.

73) $1,825.

a. E. $1,625.

thousands):

$40 per share.

77) In this acquisition business combination, what total amount of common stock

and additional paid-in capital is recorded on Goodwin's books?

78) $265. 79) $1,165.

80) $1,200.

81) $1,235.

a. E. $1,765.

thousands):

$40 per share.

85) Compute the consolidated revenues for 20X1.

86) $2,700. 87) $720.

88) $920. 89) $3,300.

90) $1,540.

year ended December 31, 20X1, prior to Goodwin's acquisition business

combination transaction regarding Corr, follow (in thousands):

a. On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of

its $10 par value common stock to the owners of Corr to acquire all of

the outstanding shares of that company. Goodwin shares had a fair

value of $40 per share.

b. Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid

$35 in stock issuance costs. Corr's equipment was actually worth $1,400

but its buildings were only valued at $560.

c. Compute the consolidated receivables and inventory for 20X1.

92) $1,200.

93) $1,515. 94) $1,540. 95) $1,800. 96) $2,140.

thousands):

$40 per share.

100) Compute the consolidated expenses for 20X1.

101) $1,980.

102) $2,005. 103) $2,040. 104) $2,380.

105) $2,405.

106) The financial statements for Goodwin, Inc., and Corr Company for

the year ended December 31, 20X1, prior to Goodwin's acquisition

business combination transaction regarding Corr, follow (in thousands):

c. Compute the consolidated cash account at December 31, 20X1.

107) $460. 108) $425. 109) $400. 110) $435. 111) $240.

112) The financial statements for Goodwin, Inc., and Corr Company

for the year ended December 31, 20X1, prior to Goodwin's acquisition

thousands):

113) On December 31, 20X1, Goodwin issued $600 in debt and 30

shares of its $10 par value common stock to the owners of Corr to acquire

all of the outstanding shares of that company. Goodwin shares had a fair

114) Goodwin paid $25 to a broker for arranging the transaction. Goodwin

paid $35 in stock issuance costs. Corr's equipment was actually worth

$1,400 but its buildings were only valued at $560.

115) Compute the consolidated buildings (net) account at December 31, 20X1.

116) $2,700.

117) $3,370. 118) $3,300. 119) $3,260.

120) $3,340.

122) Compute the consolidated equipment (net) account at December 31, 20X1.

123) $2,100.

124) $3,500. 125) $3,300. 126) $3,000. 127) $3,200.

thousands):

131) Compute the consideration transferred for this acquisition at

December 31, 20X1.

132) $900. 133) $1,165.

134) $1,200.

135) $1,765.

a. E. $1,800.

thousands):

139) Compute the goodwill arising from this acquisition at December 31, 20X1.

140) $0.

141) $100. 142) $125. 143) $160.

144) $45.

146) Compute the consolidated common stock account at December 31, 20X1.

147) $1,080.

148) $1,480. 149) $1,380. 150) $2,280.

151) $2,680.

thousands):

155) Compute the consolidated additional paid-in capital at December 31, 20X1.

156) $810. 157) $1,350.

158) $1,675.

159) $1,910. 160) $1,875.

c. Compute the consolidated liabilities at December 31, 20X1.

162) $1,500.

163) $2,100. 164) $2,320. 165) $2,920. 166) $2,885.

thousands):

170) Compute the consolidated retained earnings at December 31, 20X1.

171) $2,800.

172) $2,825. 173) $2,850. 174) $3,425.

175) $3,450.

176) On January 1, 20X1, the Moody Company entered into a transaction for

100% of the outstanding common stock of Osorio Company. To acquire these

shares, Moody issued $400 in long-term liabilities and 40 shares of common stock

having a par value of $1 per share but a fair value of $10 per share. Moody paid

$20 to lawyers, accountants, and brokers for assistance in bringing about this

acquisition. Another $15 was paid in connection with stock issuance costs. Prior to

these transactions, the balance sheets for the two companies were as follows:

a. Note: Parentheses indicate a credit balance.

b. In Moody's appraisal of Osorio, three assets were deemed to be

undervalued on the subsidiary's books: Inventory by $10, Land by $40,

and Buildings by $60.

c. What amount was recorded as the investment in Osorio?

177) $930. 178) $820. 179) $800. 180) $835.

181) $815.

182) On January 1, 20X1, the Moody Company entered into a transaction

for 100% of the outstanding common stock of Osorio Company. To acquire

these shares, Moody issued $400 in long-term liabilities and 40 shares of

common stock having a par value of $1 per share but a fair value of $10 per

share. Moody paid $20 to lawyers, accountants, and brokers for assistance in

bringing about this acquisition. Another $15 was paid in connection with stock

issuance costs. Prior to these transactions, the balance sheets for the two

companies were as follows:

183) Note: Parentheses indicate a credit balance.

184) In Moody's appraisal of Osorio, three assets were deemed to be

undervalued on the subsidiary's books: Inventory by $10, Land by $40, and

Buildings by $60.

185) What amount was recorded as goodwill arising from this acquisition?

186) $230. 187) $120. 188) $520. 189) None. There is a gain on bargain purchase of $230.

190) None. There is a gain on bargain purchase of $265.

c. Compute the amount of consolidated inventories at date of acquisition.

192) $1,080. 193) $1,350.

194) $1,360. 195) $1,370.

196) $290.

shares, Moody issued $400 in long-term liabilities and 40 shares of common

stock having a par value of $1 per share but a fair value of $10 per share.

Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing

about this acquisition. Another $15 was paid in connection with stock issuance

costs. Prior to these transactions, the balance sheets for the two companies

were as follows:

Buildings by $60.

200) Compute the amount of consolidated buildings (net) at date of acquisition.

201) $1,700. 202) $1,760.

203) $1,640. 204) $1,320.

205) $500.

c. Compute the amount of consolidated land at date of acquisition.

207) $1,000. 208) $960.

209) $920. 210) $400.

211) $320.

were as follows:

Buildings by $60.

215) Compute the amount of consolidated equipment at date of acquisition.

216) $480. 217) $580. 218) $559. 219) $570.

220) $560.

222) Compute the amount of consolidated common stock at date of acquisition.

223) $370. 224) $570. 225) $610. 226) $330.

227) $530.

were as follows:

Buildings by $60.

231) Compute the amount of consolidated additional paid-in

capital at date of acquisition.

232) $1,080. 233) $1,420.

234) $1,065. 235) $1,425.

236) $1,440.

stock having a par value of $1 per share but a fair value of $10 per share. Moody

paid $20 to lawyers, accountants, and brokers for assistance in bringing about

this acquisition. Another $15 was paid in connection with stock issuance costs.

Prior to these transactions, the balance sheets for the two companies were as

follows:

c. Compute the amount of consolidated cash after

recording the acquisition transaction.

238) $220. 239) $185. 240) $200.

241) $205. 242) $215.

243) Carnes has the following account balances as of May 1, 2010

before an acquisition transaction takes place.

244) The fair value of Carnes' Land and Buildings are $650,000 and

$550,000, respectively. On May 1, 2010, Riley Company issues 30,000

shares of its $10 par value ($25 fair value) common stock in exchange for

all of the shares of Carnes' common stock. Riley paid $10,000 for costs to

issue the new shares of stock. Before the acquisition, Riley has $700,000

in its common stock account and $300,000 in its additional paid-in capital

account.

245) On May 1, 2010, what value is assigned to Riley's investment account?

246) $150,000.

247) $300,000. 248) $750,000. 249) $760,000. 250) $1,350,000.

a. The fair value of Carnes' Land and Buildings are $650,000 and

$550,000, respectively. On May 1, 2010, Riley Company issues

30,000 shares of its $10 par value ($25 fair value) common stock in

exchange for all of the shares of Carnes' common stock. Riley paid

$10,000 for costs to issue the new shares of stock. Before the

acquisition, Riley has $700,000 in its common stock account and

$300,000 in its additional paid-in capital account.

b. At the date of acquisition, by how much does Riley's additional paid-in

capital increase or decrease?

252) $0.

253) $440,000 increase. 254) $450,000 increase. 255) $640,000 increase. 256) $650,000 decrease.

257) Carnes has the following account balances as of May 1,

2010 before an acquisition transaction takes place.

258) The fair value of Carnes' Land and Buildings are $650,000 and

$550,000, respectively. On May 1, 2010, Riley Company issues 30,000

shares of its $10 par value ($25 fair value) common stock in exchange for

all of the shares of Carnes' common stock. Riley paid $10,000 for costs to

issue the new shares of stock. Before the acquisition, Riley has $700,000

in its common stock account and $300,000 in its additional paid-in capital

account.

259) What will be Riley's balance in its common stock account as

a result of this acquisition?

260) $300,000. 261) $990,000. 262) $1,000,000. 263) $1,590,000. 264) $1,600,000.

a. The fair value of Carnes' Land and Buildings are $650,000 and

$550,000, respectively. On May 1, 2010, Riley Company issues

30,000 shares of its $10 par value ($25 fair value) common stock in

exchange for all of the shares of Carnes' common stock. Riley paid

$10,000 for costs to issue the new shares of stock. Before the

acquisition, Riley has $700,000 in its common stock account and

$300,000 in its additional paid-in capital account.

b. What will be the consolidated additional paid-in capital as a

result of this acquisition?

266) $440,000. 267) $740,000. 268) $750,000. 269) $940,000. 270) $950,000.

271) The financial balances for the Atwood Company and the Franz

Company as of December 31, 20X1, are presented below. Also included

are the fair values for Franz Company's net assets.

272) Note: Parenthesis indicate a credit balance

273) Assume an acquisition business combination took place at December

31, 20X1. Atwood issued 50 shares of its common stock with a fair value of

$35 per share for all of the outstanding common shares of Franz. Stock

issuance costs of $15 (in thousands) and direct costs of $10 (in thousands)

were paid.

274) Compute the investment to be recorded at date of acquisition.

275) $1,750.

276) $1,760. 277) $1,775.

278) $1,300. 279) $1,120.

Company as of December 31, 20X1, are presented below. Also included are

the fair values for Franz Company's net assets.

a. Note: Parenthesis indicate a credit balance

b. Assume an acquisition business combination took place at December

31, 20X1. Atwood issued 50 shares of its common stock with a fair value

of $35 per share for all of the outstanding common shares of Franz.

Stock issuance costs of $15 (in thousands) and direct costs of $10 (in

thousands) were paid.

c. Compute the consolidated common stock at date of acquisition.

281) $1,000.

282) $2,980. 283) $2,400.

284) $3,400. 285) $3,730.

were paid.

289) Compute consolidated inventory at the date of the acquisition.

290) $1,650.

291) $1,810. 292) $1,230.

293) $580. 294) $1,830.

c. Compute consolidated land at the date of the acquisition.

296) $2,060. 297) $1,800. 298) $260.

299) $2,050. 300) $2,070.

were paid.

304) Compute consolidated buildings (net) at the date of the acquisition.

305) $2,450.

306) $2,340. 307) $1,800.

308) $650. 309) $1,690.

c. Compute consolidated long-term liabilities at the date of the acquisition.

311) $2,600.

312) $2,700. 313) $2,800.

314) $3,720. 315) $3,820.

were paid.

319) Compute consolidated goodwill at the date of the acquisition.

320) $360. 321) $450. 322) $460. 323) $440. 324) $475.

c. Compute consolidated equipment (net) at the date of the acquisition.

326) $400. 327) $660. 328) $1,060.

329) $1,040. 330) $1,050.

were paid.

334) Compute fair value of the net assets acquired at the date of the acquisition.

335) $1,300.

336) $1,340. 337) $1,500.

338) $1,750. 339) $2,480.

c. Compute consolidated retained earnings at the date of the acquisition.

341) $1,160.

342) $1,170. 343) $1,280.

344) $1,290. 345) $1,640.

were paid.

349) Compute consolidated revenues at the date of the acquisition.

350) $3,540.

351) $2,880. 352) $1,170.

353) $1,650. 354) $4,050.

c. Compute consolidated cash at the completion of the acquisition.

356) $1,350.

357) $1,085. 358) $1,110.

359) $870. 360) $845.

were paid.

364) Compute consolidated expenses at the date of the acquisition.

365) $2,760.

366) $2,770. 367) $2,785.

368) $3,380. 369) $3,390.

370) Presented below are the financial balances for the Atwood Company

and the Franz Company as of December 31, 2010, immediately before

Atwood acquired Franz. Also included are the fair values for Franz

Company's net assets at that date.

b. Assume a business combination took place at December 31, 2010.

Atwood issued 50 shares of its common stock with a fair value of $35 per

share for all of the outstanding common shares of Franz. Stock issuance

costs of $15 (in thousands) and direct costs of $10 (in thousands) were

paid to effect this acquisition transaction. To settle a difference of opinion

regarding Franz's fair value, Atwood promises to pay an additional $5.2

(in thousands) to the former owners if Franz's earnings exceed a certain

sum during the next year. Given the probability of the required

contingency payment and utilizing a 4% discount rate, the expected

present value of the contingency is $5 (in thousands).

c. Compute the investment to be recorded at date of acquisition.

371) $1,750. 372) $1,755.

373) $1,725. 374) $1,760.

375) E. $1,765.

c. Compute consolidated inventory at date of acquisition.

377) $1,650. 378) $1,810. 379) $1,230. 380) $580.

381) E. $1,830.

c. Compute consolidated land at date of acquisition.

383) $2,060. 384) $1,800. 385) $260. 386) $2,050.

387) E. $2,070.

c. Compute consolidated buildings (net) at date of acquisition.

389) $2,450. 390) $2,340. 391) $1,800. 392) $650.

393) E. $1,690.

c. Compute consolidated goodwill at date of acquisition.

395) $440. 396) $442. 397) $450. 398) $455.

399) E. $452.

c. Compute consolidated equipment at date of acquisition.

401) $400. 402) $660. 403) $1,060. 404) $1,040.

405) E. $1,050.

c. Compute consolidated retained earnings as a result of this acquisition.

407) $1,160. 408) $1,170.

409) $1,265. 410) $1,280.

411) E. $1,650.

c. Compute consolidated revenues at date of acquisition.

413) $3,540. 414) $2,880.

415) $1,170. 416) $1,650.

417) E. $4,050.

c. Compute consolidated expenses at date of acquisition.

419) $2,735. 420) $2,760.

421) $2,770. 422) $2,785.

423) E. $3,380.

c. Compute the consolidated cash upon completion of the acquisition.

425) $1,350. 426) $1,110.

427) $1,080. 428) $1,085.

429) E. $635.

430) Flynn acquires 100 percent of the outstanding voting shares of Macek

Company on January 1, 20X1. To obtain these shares, Flynn pays $400 cash

(in thousands) and issues 10,000 shares of $20 par value common stock on

this date. Flynn's stock had a fair value of $36 per share on that date. Flynn

also pays $15 (in thousands) to a local investment firm for arranging the

acquisition. An additional $10 (in thousands) was paid by Flynn in stock

issuance costs. 431) The book values for both Flynn and Macek as of January 1, 20X1

follow. The fair value of each of Flynn and Macek accounts is also included.

In addition, Macek holds a fully amortized trademark that still retains a $40 (in

thousands) value. The figures below are in thousands. Any related question

also is in thousands.

432) By how much will Flynn's additional paid-in capital increase as a

433) $150. 434) $160. 435) $230. 436) $350. 437) $360.

Company on January 1, 20X1. To obtain these shares, Flynn pays $400 cash (in

thousands) and issues 10,000 shares of $20 par value common stock on this

date. Flynn's stock had a fair value of $36 per share on that date. Flynn also

pays $15 (in thousands) to a local investment firm for arranging the acquisition.

An additional $10 (in thousands) was paid by Flynn in stock issuance costs. a. The book values for both Flynn and Macek as of January 1, 20X1 follow.

The fair value of each of Flynn and Macek accounts is also included. In

addition, Macek holds a fully amortized trademark that still retains a $40

(in thousands) value. The figures below are in thousands. Any related

question also is in thousands.

b. What amount will be reported for goodwill as a result of this acquisition?

439) $30. 440) $55. 441) $65. 442) $175.

443) $200.

446) What amount will be reported for consolidated receivables?

447) $660. 448) $640. 449) $500. 450) $460. 451) $480.

b. What amount will be reported for consolidated inventory?

453) $1,000. 454) $960. 455) $920. 456) $660. 457) $620.

460) What amount will be reported for consolidated buildings (net)?

461) $1,420. 462) $1,260. 463) $1,140. 464) $1,480.

465) $1,200.

b. What amount will be reported for consolidated equipment (net)?

467) $385. 468) $335. 469) $435. 470) $460. 471) $360.

474) What amount will be reported for consolidated long-term liabilities?

475) $1,520. 476) $1,480. 477) $1,440. 478) $1,180.

479) $1,100.

b. What amount will be reported for consolidated common stock?

481) $1,000. 482) $1,080. 483) $1,200. 484) $1,280.

485) $1,360.

488) Assuming the combination is accounted for as a purchase, what

amount will be reported for consolidated retained earnings?

489) $1,830. 490) $1,350. 491) $1,080.

492) $1,560. 493) $1,535.

b. What amount will be reported for consolidated retained earnings?

495) $1,065. 496) $1,080. 497) $1,525. 498) $1,535.

499) $1,560.

502) What amount will be reported for consolidated additional paid-in capital?

503) $365. 504) $350. 505) $360. 506) $375. 507) $345.

b. What amount will be reported for consolidated cash after the

acquisition is completed?

509) $475. 510) $500. 511) $555. 512) $580. 513) $875.

514) Essay Questions

515) What term is used to refer to a business combination in which only

one of the original companies continues to exist?

516) How are stock issuance costs accounted for in an

acquisition business combination?

517) What is the primary difference between recording an acquisition

when the subsidiary is dissolved and when separate incorporation is

maintained?

518) 96. How are direct combination costs accounted for in an acquisition

transaction?

519) Peterman Co. owns 55% of Samson Co. Under what circumstances

would Peterman not be required to prepare consolidated financial

statements?

520) How would you account for in-process research and development

acquired in a business combination accounted for as an acquisition?

521) Elon Corp. obtained all of the common stock of Finley Co., paying

slightly less than the fair value of Finley's net assets acquired. How

should the difference between the consideration transferred and the fair

value of the net assets be treated if the transaction is accounted for as an

acquisition?

522) For acquisition accounting, why are assets and liabilities of the

subsidiary consolidated at fair value?

523) Goodwill is often acquired as part of a business combination. Why,

when separate incorporation is maintained, does Goodwill not appear on

the Parent company's trial balance as a separate account?

524) How are direct combination costs, contingent consideration, and a

bargain purchase reflected in recording an acquisition transaction?

525) How is contingent consideration accounted for in an acquisition

business combination transaction?

526) How are bargain purchases accounted for in an acquisition

business transaction?

527) Describe the accounting for direct costs, indirect costs, and

issuance costs under the acquisition method of accounting for a business

combination.

528) What is the difference in consolidated results between a business

combination whereby the acquired company is dissolved, and a business

combination whereby separate incorporation is maintained?

529) Short Answer Questions

530) Bale Co. acquired Silo Inc. on December 31, 20X1, in an acquisition business

combination transaction. Bale's net income for the year was $1,400,000, while

Silo had net income of $400,000 earned evenly during the year. Bale paid

$100,000 in direct combination costs, $50,000 in indirect costs, and $30,000 in

stock issue costs to effect the combination.

a. Required:

b. What is consolidated net income for 20X1?

531) Fine Co. issued its common stock in exchange for the common stock of

Dandy Corp. in an acquisition. At the date of the combination, Fine had land

with a book value of $480,000 and a fair value of $620,000. Dandy had land

with a book value of $170,000 and a fair value of $190,000.

a. Required:

b. What was the consolidated balance for Land in a consolidated balance

sheet prepared at the date of the acquisition combination?

532) Jernigan Corp. had the following account balances at 12/1/10:

533) Several of Jernigan's accounts have fair values that differ from book

value. The fair values are: Land — $480,000; Building — $720,000; Inventory

— $336,000; and Liabilities — $396,000.

534) Inglewood Inc. acquired all of the outstanding common shares of

Jernigan by issuing 20,000 shares of common stock having a $6 par

value, but a $66 fair value. Stock issuance costs amounted to $12,000.

535) Required:

536) Prepare a fair value allocation and goodwill schedule at the

date of the acquisition.

537) Salem Co. had the following account balances as of December 1, 2010:

a. Bellington Inc. transferred $1.7 million in cash and 12,000 shares of its

newly issued $30 par value common stock (valued at $90 per share) to

acquire all of Salem's outstanding common stock.

b. Determine the balance for Goodwill that would be included in a

December 1, 2010, consolidation.

539) Bellington Inc. transferred $1.7 million in cash and 12,000 shares of

its newly issued $30 par value common stock (valued at $90 per share) to

540) Assume that Bellington paid cash of $2.8 million. No stock is

issued. An additional $50,000 is paid in direct combination costs.

541) Required:

542) For Goodwill, determine what balance would be included in a

December 1, 2010 consolidation.

543) On January 1, 2011, Chester Inc. acquired 100% of Festus Corp.'s outstanding

common stock by exchanging 37,500 shares of Chester's $2 par value common

voting stock. On January 1, 2011, Chester's voting common stock had a fair

value of $40 per share. Festus' voting common shares were selling for $6.50 per

share. Festus' balances on the acquisition date, just prior to acquisition are listed

below.

a. Required:

b. Compute the value of the Goodwill account on the date of acquisition, 1/1/11.

544) The financial statements for Jode Inc. and Lakely Corp., just prior to

their combination, for the year ending December 31, 2010, follow. Lakely's

buildings were undervalued on its financial records by $60,000.

545) On December 31, 2010, Jode issued 54,000 new shares of its $10

par value stock in exchange for all the outstanding shares of Lakely. Jode's

shares had a fair value on that date of $35 per share. Jode paid $34,000 to

an investment bank for assisting in the arrangements. Jode also paid

$24,000 in stock issuance costs to effect the acquisition of Lakely. Lakely

will retain its incorporation.

546) Prepare the journal entries to record (1) the issuance of stock by

Jode and (2) the payment of the combination costs.

547) The financial statements for Jode Inc. and Lakely Corp., just prior to their

combination, for the year ending December 31, 2010, follow. Lakely's buildings

were undervalued on its financial records by $60,000.

a. On December 31, 2010, Jode issued 54,000 new shares of its $10 par

value stock in exchange for all the outstanding shares of Lakely. Jode's

shares had a fair value on that date of $35 per share. Jode paid $34,000

to an investment bank for assisting in the arrangements. Jode also paid

$24,000 in stock issuance costs to effect the acquisition of Lakely.

Lakely will retain its incorporation.

b. Required:

c. Determine consolidated net income for the year ended December 31, 2010.

550) Determine consolidated Additional paid-in Capital at December 31, 2010.

551) The following are preliminary financial statements for Black Co. and Blue Co.

for the year ending December 31, 20X1.

a. On December 31, 20X1 (subsequent to the preceding statements), Black

exchanged 10,000 shares of its $10 par value common stock for all of the

outstanding shares of Blue. Black's stock on that date has a fair value of

$50 per share. Black was willing to issue 10,000 shares of stock because

Blue's land was appraised at $204,000. Black also paid $14,000 to

several attorneys and accountants who assisted in creating this

combination.

b. Required:

c. Assuming that these two companies retained their separate legal

identities, prepare a consolidation worksheet as of December 31,

20X1 assuming the transaction is treated as a purchase

combination.

552) The following are preliminary financial statements for Black Co. and

Blue Co. for the year ending December 31, 20X1 prior to Black's acquisition

of Blue.

553) On December 31, 20X1 (subsequent to the preceding statements),

Black exchanged 10,000 shares of its $10 par value common stock for all of

the outstanding shares of Blue. Black's stock on that date has a fair value of

$60 per share. Black was willing to issue 10,000 shares of stock because

Blue's land was appraised at $204,000. Black also paid $14,000 to several

attorneys and accountants who assisted in creating this combination.

554) Required:

555) Assuming that these two companies retained their separate

legal identities, prepare a consolidation worksheet as of December

31, 20X1 after the acquisition transaction is completed.

556) For each of the following situations, select the best letter answer to reflect the

effect of the numbered item on the acquirer's accounting entry at the date of

combination when separate incorporation will be maintained. Items (4) and (6)

require two selections.

a. Increase Investment account. b. Decrease Investment account. c. Increase Liabilities. d. Increase Common stock. e. Decrease common stock. f. Increase Additional paid-in capital. g. Decrease Additional paid-in capital. h. Increase Retained earnings i. Decrease Retained earnings

A. Direct costs. B. Indirect costs. C. Stock issue costs. D. Contingent consideration. E. Bargain purchase. F. In-process research and development acquired.

557) Chapter 02 Consolidation of Financial Information Answer Key

558) Multiple Choice Questions

559) At the date of an acquisition which is not a bargain

purchase, the acquisition method

a. consolidates the subsidiary's assets at fair value and the liabilities at

book value. b. consolidates all subsidiary assets and liabilities at book value.

c. consolidates all subsidiary assets and liabilities at fair value.

d. consolidates current assets and liabilities at book value, long-term

assets and liabilities at fair value.

e. consolidates the subsidiary's assets at book value and the

liabilities at fair value.

560) AACSB: Reflective thinking 561) AICPA FN: Measurement

562) Blooms: Remember 563) Difficulty: 1 Easy

a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 564) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on

bargain purchase.

565) In an acquisition where control is achieved, how would the land accounts of

the parent and the land accounts of the subsidiary be combined?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

568) Blooms: Remember 569) Difficulty: 2 Medium

i. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

570) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain

purchase.

571) Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria

will continue to exist as a separate corporation. Entries for the consolidation of

Lisa and Victoria would be recorded in

a. a worksheet. b. Lisa's general journal. c. Victoria's general journal. d. Victoria's secret consolidation journal.

e. the general journals of both companies.

572) AACSB: Reflective thinking

573) AICPA FN: Measurement 574) Blooms: Remember

575) Difficulty: 1 Easy A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

business i. combination if dissolution does not take place.

576) Using the acquisition method for a business combination,

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 subsidiary's fair value at the

beginning of the year. d. Cost of the investment less the subsidiary's fair value at acquisition date.

e. is no longer allowed under federal law.

578) AICPA FN: Measurement 579) Blooms: Remember 580) Difficulty: 2 Medium

581) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

582) Direct combination costs and stock issuance costs are often

incurred in the process of making a controlling investment in another

company. How should those costs be accounted for in a pre-2009

purchase transaction?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

587) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of

interest methods of accounting for past business combinations. Understand the effects that persist today in financial

statements from the use of these legacy methods.

588) How are direct and indirect costs accounted for when applying

the acquisition method for a business combination?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E

593) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair

value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.

594) What is the primary accounting difference between accounting for when the

subsidiary is dissolved and when the subsidiary retains its incorporation?

a. If the subsidiary is dissolved, it will not be operated as a separate division.

b. If the subsidiary is dissolved, assets and liabilities are consolidated

at their book values.

c. If the subsidiary retains its incorporation, there will be

no goodwill associated with the acquisition.

d. If the subsidiary retains its incorporation, assets and

liabilities are consolidated at their book values.

e. If the subsidiary retains its incorporation, the consolidation is not formally

recorded in the accounting records of the acquiring company.

596) AICPA FN: Measurement 597) Blooms: Understand 598) Difficulty: 2 Medium

A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the

accounts of two companies that form a business combination if dissolution does not take place.

599) According to GAAP, the pooling of interest method for business

combinations

a. Is preferred to the purchase method. b. Is allowed for all new acquisitions. c. Is no longer allowed for business combinations after June 30, 2001.

d. Is no longer allowed for business combinations after December 31, 2001. e. Is only allowed for large corporate mergers like Exxon and Mobil.

603) Difficulty: 1 Easy 604) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of

interest methods of accounting for past business combinations. Understand the effects that persist today in financial

statements from the use of these legacy methods.

605) An example of a difference in types of business combination is:

a. A statutory merger can only be effected by an asset acquisition while a

statutory consolidation can only be effected by a capital stock

acquisition.

b. A statutory merger can only be effected by a capital stock acquisition

while a statutory consolidation can only be effected by an asset

acquisition.

c. A statutory merger requires dissolution of the acquired company

while a statutory consolidation does not require dissolution.

d. A statutory consolidation requires dissolution of the acquired

company while a statutory merger does not require dissolution.

e. Both a statutory merger and a statutory consolidation can

only be effected by an asset acquisition but only a statutory

consolidation requires dissolution of the acquired company.

609) Difficulty: 3 Hard a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of

business combinations.

610) Acquired in-process research and development is considered as

a. a definite-lived asset subject to amortization. b. a definite-lived asset subject to testing for impairment. c. an indefinite-lived asset subject to amortization.

d. an indefinite-lived asset subject to testing for impairment. e. a research and development expense at the date of acquisition.

614) Difficulty: 1 Easy a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a business

combination.

615) Which one of the following is a characteristic of a

business combination accounted for as an acquisition?

a. The combination must involve the exchange of equity securities only.

b. The transaction establishes an acquisition fair value basis for

the company being acquired.

c. The two companies may be about the same size, and it is difficult

to determine the acquired company and the acquiring company.

d. The transaction may be considered to be the uniting of

the ownership interests of the companies involved. e. The acquired subsidiary must be smaller in size than the acquiring parent.

619) Difficulty: 1 Easy 620) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

621) Which one of the following is a characteristic of a business

combination that is accounted for as an acquisition?

a. Fair value only for items received by the acquirer can enter

into the determination of the acquirer's accounting valuation of

b. Fair value only for the consideration transferred by the acquirer can

enter into the determination of the acquirer's accounting valuation of

c. Fair value for the consideration transferred by the acquirer as well as the

fair value of items received by the acquirer can enter into the

company.

d. Fair value for only consideration transferred and identifiable assets

received by the acquirer can enter into the determination of the

acquirer's accounting valuation of the acquired company.

e. Only fair value of identifiable assets received enters into the

company.

623) AICPA FN: Measurement 624) Blooms: Understand

625) Difficulty: 3 Hard 626) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

627) A statutory merger is a(n)

a. business combination in which only one of the two companies

continues to exist as a legal corporation. b. business combination in which both companies continues to exist.

c. acquisition of a competitor. d. acquisition of a supplier or a customer.

e. legal proposal to acquire outstanding shares of the target's stock.

a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business i. combinations.

632) How are stock issuance costs and direct combination costs treated in a

business combination which is accounted for as an acquisition when the

subsidiary will retain its incorporation?

a. Stock issuance costs are a part of the acquisition costs, and

the direct combination costs are expensed.

b. Direct combination costs are a part of the acquisition costs, and the

stock issuance costs are a reduction to additional paid-in capital.

c. Direct combination costs are expensed and stock issuance costs

are a reduction to additional paid-in capital.

d. Both are treated as part of the acquisition consideration transferred. e. Both are treated as a reduction to additional paid-in capital.

value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. Learning

Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.

638) Bullen Inc. acquired 100% of the voting common stock of

Vicker Inc. on January 1, 20X1. The book value and fair value of

Vicker's accounts on that date (prior to creating the combination)

follow, along with the book value of Bullen's accounts:

639) Assume that Bullen issued 12,000 shares of common stock with

a $5 par value and a $47 fair value to obtain all of Vicker's outstanding

stock. In this acquisition transaction, how much goodwill should be

recognized?

640) $144,000. 641) $104,000. 642) $64,000. 643) $60,000. 644) $0.

645) AACSB: Analytic

646) AICPA FN: Measurement 647) Blooms: Apply

648) Difficulty: 2 Medium a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

649) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two

companies that form a business combination if dissolution does not take place.

650) Bullen Inc. acquired 100% of the voting common stock of Vicker Inc.

on January 1, 20X1. The book value and fair value of Vicker's accounts

on that date (prior to creating the combination) follow, along with the book

value of Bullen's accounts:

a. Assume that Bullen issued 12,000 shares of common stock with a $5

par value and a $42 fair value for all of the outstanding stock of Vicker.

What is the consolidated balance for Land as a result of this acquisition

transaction?

651) $460,000. 652) $510,000. 653) $500,000. 654) $520,000. 655) $490,000.

659) Difficulty: 2 Medium 660) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair

value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

dissolution takes place. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts

of two companies that form a business combination if dissolution does not take place.

662) Assume that Bullen issued 12,000 shares of common stock with a $5

par value and a $42 fair value for all of the outstanding shares of Vicker.

What will be the consolidated Additional Paid-In Capital and Retained

Earnings (January 1, 20X1 balances) as a result of this acquisition

transaction?

663) $60,000 and $490,000. 664) $60,000 and $250,000. 665) $380,000 and $250,000. 666) $464,000 and $250,000. 667) $464,000 and $420,000.

671) Difficulty: 3 Hard a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

a. Assume that Bullen issued preferred stock with a par value of $240,000

and a fair value of $500,000 for all of the outstanding shares of Vicker in

an acquisition business combination. What will be the balance in the

consolidated Inventory and Land accounts?

674) $440,000, $496,000. 675) $440,000, $520,000. 676) $425,000, $505,000. 677) $400,000, $500,000. 678) $427,000, $510,000.

685) Assume that Bullen paid a total of $480,000 in cash for all of the

shares of Vicker. In addition, Bullen paid $35,000 for secretarial and

management time allocated to the acquisition transaction. What will be

the balance in consolidated goodwill?

686) $0. 687) $20,000. 688) $35,000. 689) $55,000. 690) $65,000.

694) Difficulty: 2 Medium 695) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that

fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

a. Assume that Bullen paid a total of $480,000 in cash for all of the shares

of Vicker. In addition, Bullen paid $35,000 to a group of attorneys for

their work in arranging the combination to be accounted for as an

acquisition. What will be the balance in consolidated goodwill?

697) $0. 698) $20,000. 699) $35,000. 700) $55,000. 701) $65,000

707) Prior to being united in a business combination, Botkins

Inc. and Volkerson Corp. had the following stockholders' equity

figures:

708) Botkins issued 56,000 new shares of its common stock valued

at $3.25 per share for all of the outstanding stock of Volkerson.

709) Assume that Botkins acquired Volkerson on January 1, 2010.

At what amount did Botkins record the investment in Volkerson?

a. $56,000. b. $182,000. c. $209,000. d. $261,000. e. $312,000.

i. AACSB: Analytic ii. AICPA FN: Measurement iii. Blooms: Apply iv. Difficulty: 1 Easy

b. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 710) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

a. Botkins issued 56,000 new shares of its common stock valued at

$3.25 per share for all of the outstanding stock of Volkerson.

b. Assume that Botkins acquired Volkerson on January 1,

2010. Immediately afterwards, what is consolidated

Common Stock?

c. $456,000. d. $402,000. e. $274,000. f. $276,000. g. $330,000.

717) Chapel Hill Company had common stock of $350,000 and retained

earnings of $490,000. Blue Town Inc. had common stock of $700,000 and

retained earnings of $980,000. On January 1, 2011, Blue Town issued

34,000 shares of common stock with a $12 par value and a $35 fair value for

all of Chapel Hill Company's outstanding common stock. This combination

was accounted for as an acquisition. Immediately after the combination, what

was the total consolidated net assets?

a. $2,520,000.

b. $1,190,000.

c. $1,680,000. d. $2,870,000. e. $2,030,000.

721) Difficulty: 2 Medium 722) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that

fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.

a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

723) Which of the following is a not a reason for a business

combination to take place?

a. Cost savings through elimination of duplicate facilities.

b. Quick entry for new and existing products into

domestic and foreign markets. c. Diversification of business risk. d. Vertical integration.

e. Increase in stock price of the acquired company.

727) Difficulty: 1 Easy 728) Learning Objective: 02-01 Discuss the motives for business combinations.

729) Which of the following statements is true regarding a statutory merger?

a. The original companies dissolve while remaining as separate divisions

of a newly created company.

b. Both companies remain in existence as legal corporations with one

corporation now a subsidiary of the acquiring company.

as an investment.

e. A statutory merger is no longer a legal option.

A. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of

734) Which of the following statements is true regarding a statutory consolidation?

a. The original companies dissolve while remaining as separate divisions

of a newly created company.

b. Both companies remain in existence as legal corporations with one

corporation now a subsidiary of the acquiring company.

as an investment. e. A statutory consolidation is no longer a legal option.

A. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of

consideration transferred exceeds book value of the acquired company, which

statement is true for the acquiring company with regard to its investment?

a. Net assets of the acquired company are revalued to their fair

values and any excess of consideration transferred over fair value

of net assets acquired is allocated to goodwill.

b. Net assets of the acquired company are maintained at book value

and any excess of consideration transferred over book value of net

assets acquired is allocated to goodwill.

c. Acquired assets are revalued to their fair values. Acquired

liabilities are maintained at book values. Any excess is allocated

to goodwill.

d. Acquired long-term assets are revalued to their fair values. Any

excess is allocated to goodwill.

742) Blooms: Analyze 743) Difficulty: 2 Medium

a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 744) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

bargain purchase.

745) In a transaction accounted for using the acquisition method

where consideration transferred is less than fair value of net assets

acquired, which statement is true?

a. Negative goodwill is recorded.

b. A deferred credit is recorded. c. A gain on bargain purchase is recorded.

d. Long-term assets of the acquired company are reduced in

proportion to their fair values. Any excess is recorded as a

deferred credit.

e. Long-term assets and liabilities of the acquired company are

reduced in proportion to their fair values. Any excess is recorded as

an extraordinary gain.

749) Difficulty: 1 Easy a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

bargain purchase.

751) Which of the following statements is true regarding the acquisition

method of accounting for a business combination?

a. Net assets of the acquired company are reported at their fair values. b. Net assets of the acquired company are reported at their book values.

c. Any goodwill associated with the acquisition is reported as a

development cost.

d. The acquisition can only be effected by a mutual exchange of

voting common stock. e. Indirect costs of the combination reduce additional paid-in capital.

757) Which of the following statements is true?

a. The pooling of interests for business combinations is an alternative

to the acquisition method.

b. The purchase method for business combinations is an alternative to the

acquisition method.

c. Neither the purchase method nor the pooling of interests method

is allowed for new business combinations.

d. 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.

e. 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.

762) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of interest

methods of accounting for past business combinations. Understand the effects that persist today in financial statements

from the use of these legacy methods.

thousands):

shares of its $10 par value common stock to the owners of Corr to

acquire all of the outstanding shares of that company. Goodwin shares

had a fair value of $40 per share.

766) $35 in stock issuance costs. Corr's equipment was actually worth

767) In this acquisition business combination, at what

amount is the investment recorded on Goodwin's books?

768) $1,540. 769) $1,800. 770) $1,860.

771) $1,825. 772) $1,625.

776) Difficulty: 2 Medium A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

business combination if dissolution does not take place.

thousands):

781) In this acquisition business combination, what total amount of

common stock and additional paid-in capital is recorded on

Goodwin's books?

782) $265. 783) $1,165.

784) $1,200.

785) $1,235. 786) $1,765.

790) Difficulty: 2 Medium i. Learning Objective: 02-04 Describe the valuation principles of the

acquisition method. 791) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

thousands):

796) Compute the consolidated revenues for 20X1.

797) $2,700. 798) $720. 799) $920. 800) $3,300.

801) $1,540.

802) AACSB: Analytic 803) AICPA FN: Measurement

804) Blooms: Apply 805) Difficulty: 1 Easy

810) Compute the consolidated receivables and inventory for 20X1.

811) $1,200.

812) $1,515. 813) $1,540. 814) $1,800.

815) $2,140.

818) Blooms: Apply 819) Difficulty: 1 Easy

thousands):

825) Compute the consolidated expenses for 20X1.

826) $1,980.

827) $2,005. 828) $2,040. 829) $2,380.

830) $2,405.

833) Blooms: Apply 834) Difficulty: 2 Medium

840) Compute the consolidated cash account at December 31, 20X1.

841) $460. 842) $425. 843) $400. 844) $435.

845) $240.

thousands):

855) Compute the consolidated buildings (net) account at December 31, 20X1.

856) $2,700.

857) $3,370. 858) $3,300. 859) $3,260.

860) $3,340.

870) Compute the consolidated equipment (net) account at December 31, 20X1.

871) $2,100.

872) $3,500. 873) $3,300. 874) $3,000.

875) $3,200.

thousands):

885) Compute the consideration transferred for this acquisition at

December 31, 20X1.

886) $900. 887) $1,165. 888) $1,200.

889) $1,765. 890) $1,800.

acquisition method. 895) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair

thousands):

900) Compute the goodwill arising from this acquisition at December 31, 20X1.

901) $0.

902) $100. 903) $125. 904) $160.

905) $45.

thousands):

915) Compute the consolidated common stock account at December 31, 20X1.

916) $1,080.

917) $1,480. 918) $1,380. 919) $2,280.

920) $2,680.

thousands):

930) Compute the consolidated additional paid-in capital at December 31, 20X1.

931) $810. 932) $1,350. 933) $1,675.

934) $1,910.

935) $1,875.

938) Blooms: Apply 939) Difficulty: 3 Hard

945) Compute the consolidated liabilities at December 31, 20X1.

946) $1,500.

947) $2,100. 948) $2,320. 949) $2,920.

950) $2,885.

thousands):

960) Compute the consolidated retained earnings at December 31, 20X1.

961) $2,800.

962) $2,825. 963) $2,850. 964) $3,425.

965) $3,450.

971) On January 1, 20X1, the Moody Company entered into a transaction for 972) 100% of the outstanding common stock of Osorio Company. To

acquire these shares, Moody issued $400 in long-term liabilities and 40

shares of common stock having a par value of $1 per share but a fair value

of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for

assistance in bringing about this acquisition. Another $15 was paid in

connection with stock issuance costs. Prior to these transactions, the

balance sheets for the two companies were as follows:

975) What amount was recorded as the investment in Osorio?

976) $930. 977) $820.

978) $800. 979) $835. 980) $815.

984) Difficulty: 2 Medium a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

i. combination if dissolution does not take place.

985) On January 1, 20X1, the Moody Company entered into a transaction for a. 100% of the outstanding common stock of Osorio Company. To acquire

common stock having a par value of $1 per share but a fair value of $10

per share. Moody paid $20 to lawyers, accountants, and brokers for

b. Note: Parentheses indicate a credit balance.

c. In Moody's appraisal of Osorio, three assets were deemed to be

d. What amount was recorded as goodwill arising from this acquisition?

986) $230. 987) $120. 988) $520. 989) None. There is a gain on bargain purchase of $230. 990) None. There is a gain on bargain purchase of $265.

i. AACSB: Analytic

991) AICPA FN: Measurement i. Blooms: Apply

992) Difficulty: 2 Medium 993) Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

994) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that

fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

a. 100% of the outstanding common stock of Osorio Company. To acquire

d. Compute the amount of consolidated inventories at date of acquisition.

996) $1,080.

997) $1,350.

998) $1,360. 999) $1,370. 1000) $290.

1006) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.

1007) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.

a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

d. Compute the amount of consolidated buildings (net) at date of acquisition.

1009) $1,700.

1010) $1,760.

1011) $1,640. 1012) $1,320. 1013) $500.

1019) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. 1020) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes

place. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

d. Compute the amount of consolidated land at date of acquisition.

1022) $1,000. 1023) $960.

1024) $920. 1025) $400. 1026) $320.

1032) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.

1033) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.

1035) Compute the amount of consolidated equipment at date of acquisition.

1036) $480. 1037) $580.

1038) $559. 1039) $570. 1040) $560.

1046) value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. 1047) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes

place. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

were as follows:

c. Compute the amount of consolidated common stock at date of acquisition.

1049) $370. 1050) $570.

1051) $610. 1052) $330. 1053) $530.

d. Compute the amount of consolidated additional paid-in capital at

date of acquisition.

1061) $1,080. 1062) $1,420. 1063) $1,065. 1064) $1,425. 1065) $1,440.

i. AACSB: Analytic

d. Compute the amount of consolidated cash after

recording the acquisition transaction.

1071) $220. 1072) $185. 1073) $200. 1074) $205. 1075) $215.

i. AACSB: Analytic

ii. Difficulty: 2 Medium 1077) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

1079) The fair value of Carnes' Land and Buildings are $650,000 and $550,000,

1080) respectively. On May 1, 2010, Riley Company issues 30,000 shares of its

1081) $10 par value ($25 fair value) common stock in exchange for all of the shares

1082) of Carnes' common stock. Riley paid $10,000 for costs to issue the new

1083) shares of stock. Before the acquisition, Riley has $700,000 in its common

1084) stock account and $300,000 in its additional paid-in capital account.

1085) On May 1, 2010, what value is assigned to Riley's investment account?

1086) $150,000. 1087) $300,000. 1088) $750,000. 1089) $760,000. 1090) $1,350,000.

1094) Difficulty: 1 Easy a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

1095) Carnes has the following account balances as of May 1, 2010 before

an acquisition transaction takes place.

a. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,

b. respectively. On May 1, 2010, Riley Company issues 30,000 shares of its

c. $10 par value ($25 fair value) common stock in exchange for all of the shares

d. of Carnes' common stock. Riley paid $10,000 for costs to issue the new

e. shares of stock. Before the acquisition, Riley has $700,000 in its common

f. stock account and $300,000 in its additional paid-in capital account.

g. At the date of acquisition, by how much does Riley's additional

paid-in capital increase or decrease?

1096) $0. 1097) $440,000 increase. 1098) $450,000 increase.

1099) $640,000 increase. 1100) $650,000 decrease.

1104) Difficulty: 1 Easy i. Learning Objective: 02-04 Describe the valuation principles of the

acquisition method. 1105) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

1107) The fair value of Carnes' Land and Buildings are $650,000 and $550,000,

1108) respectively. On May 1, 2010, Riley Company issues 30,000 shares of its

1109) $10 par value ($25 fair value) common stock in exchange for all of the shares

1110) of Carnes' common stock. Riley paid $10,000 for costs to issue the new

1111) shares of stock. Before the acquisition, Riley has $700,000 in its common

1112) stock account and $300,000 in its additional paid-in capital account.

1113) What will be Riley's balance in its common stock account as a

1114) $300,000. 1115) $990,000. 1116) $1,000,000. 1117) $1,590,000.

1118) $1,600,000.

1122) Difficulty: 1 Easy a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

bargain purchase.

a. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,

b. respectively. On May 1, 2010, Riley Company issues 30,000 shares of its

c. $10 par value ($25 fair value) common stock in exchange for all of the shares

d. of Carnes' common stock. Riley paid $10,000 for costs to issue the new

e. shares of stock. Before the acquisition, Riley has $700,000 in its common

f. stock account and $300,000 in its additional paid-in capital account.

g. What will be the consolidated additional paid-in capital as a

1125) $440,000. 1126) $740,000. 1127) $750,000. 1128) $940,000. 1129) $950,000.

were paid.

1139) $1,750.

1140) $1,760. 1141) $1,775.

1142) $1,300. 1143) $1,120.

1147) Difficulty: 2 Medium a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

1148) The financial balances for the Atwood Company and the Franz Company as

of December 31, 20X1, are presented below. Also included are the fair values for

Franz Company's net assets.

b. Assume an acquisition business combination took place at December 31,

20X1. Atwood issued 50 shares of its common stock with a fair value of

were paid.

c. Compute the consolidated common stock at date of acquisition.

1149) $1,000.

1150) $2,980. 1151) $2,400.

1152) $3,400. 1153) $3,730.

acquisition method.

bargain purchase.

were paid.

1162) Compute consolidated inventory at the date of the acquisition.

1163) $1,650. 1164) $1,810.

1165) $1,230. 1166) $580. 1167) $1,830.

i. AACSB: Analytic 1168) AICPA FN: Measurement i. Blooms: Apply

ii. Difficulty: 2 Medium 1169) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase. A. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

were paid.

1173) Compute consolidated land at the date of the acquisition.

1174) $2,060. 1175) $1,800. 1176) $260.

1177) $2,050. 1178) $2,070.

1182) Difficulty: 2 Medium 1183) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and

bargain purchase. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

dissolution takes place.

A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that

form a business combination if dissolution does not take place.

were paid.

c. Compute consolidated buildings (net) at the date of the acquisition.

1185) $2,450.

1186) $2,340. 1187) $1,800. 1188) $650. 1189) $1,690.

1193) Difficulty: 2 Medium

were paid.

1198) Compute consolidated long-term liabilities at the date of the acquisition.

1199) $2,600.

1200) $2,700.

1201) $2,800. 1202) $3,720. 1203) $3,820.

i. AACSB: Analytic

1206) Difficulty: 2 Medium 1207) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

were paid.

1211) Compute consolidated goodwill at the date of the acquisition.

1212) $360. 1213) $450. 1214) $460.

1215) $440. 1216) $475.

1221) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition

and allocate that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a

gain on bargain purchase.

were paid.

1223) Compute consolidated equipment (net) at the date of the acquisition.

1224) $400. 1225) $660. 1226) $1,060. 1227) $1,040.

1228) $1,050.

i. AACSB: Analytic

ii. Difficulty: 2 Medium 1230) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition

gain on bargain purchase. a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

were paid.

c. Compute fair value of the net assets acquired at the date of the acquisition.

1232) $1,300.

1233) $1,340. 1234) $1,500.

1235) $1,750. 1236) $2,480.

that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.

Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.

were paid.

1245) Compute consolidated retained earnings at the date of the acquisition.

1246) $1,160.

1247) $1,170. 1248) $1,280.

1249) $1,290. 1250) $1,640.

1254) Difficulty: 3 Hard

b. Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

were paid.

1258) Compute consolidated revenues at the date of the acquisition.

1259) $3,540.

1260) $2,880. 1261) $1,170.

1262) $1,650. 1263) $4,050.

1267) Difficulty: 2 Medium a. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

were paid.

c. Compute consolidated cash at the completion of the acquisition.

1269) $1,350. 1270) $1,085.

1271) $1,110. 1272) $870. 1273) $845.

were paid.

1282) Compute consolidated expenses at the date of the acquisition.

1283) $2,760. 1284) $2,770.

1285) $2,785. 1286) $3,380.

1287) $3,390.

i. AACSB: Analytic 1288) AICPA FN: Measurement i. Blooms: Apply

ii. Difficulty: 2 Medium 1289) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

1290) Presented below are the financial balances for the Atwood

Company and the Franz Company as of December 31, 2010,

immediately before Atwood acquired Franz. Also included are the fair

values for Franz Company's net assets at that date.

1292) Assume a business combination took place at December 31, 2010.

share for all of the outstanding common shares of Franz. Stock issuance costs

of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect

this acquisition transaction. To settle a difference of opinion regarding Franz's

fair value, Atwood promises to pay an additional $5.2 (in thousands) to the

former owners if Franz's earnings exceed a certain sum during the next year.

Given the probability of the required contingency payment and utilizing a 4%

discount rate, the expected present value of the contingency is $5 (in

thousands).

1294) $1,750.

1295) $1,755. 1296) $1,725. 1297) $1,760.

1298) $1,765.

B. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

thousands).

1306) Compute consolidated inventory at date of acquisition.

1307) $1,650.

1308) $1,810. 1309) $1,230. 1310) $580.

1311) $1,830.

thousands).

1320) Compute consolidated land at date of acquisition.

1321) $2,060.

1322) $1,800. 1323) $260. 1324) $2,050.

1325) $2,070.

thousands).

1334) Compute consolidated buildings (net) at date of acquisition.

1335) $2,450.

1336) $2,340. 1337) $1,800. 1338) $650.

1339) $1,690.

thousands).

1348) Compute consolidated goodwill at date of acquisition.

1349) $440. 1350) $442. 1351) $450. 1352) $455.

1353) $452.

thousands).

1362) Compute consolidated equipment at date of acquisition.

1363) $400. 1364) $660. 1365) $1,060. 1366) $1,040.

1367) $1,050.

thousands).

1376) Compute consolidated retained earnings as a result of this acquisition.

1377) $1,160.

1378) $1,170. 1379) $1,265. 1380) $1,280.

1381) $1,650.

thousands).

1390) Compute consolidated revenues at date of acquisition.

1391) $3,540.

1392) $2,880. 1393) $1,170. 1394) $1,650.

1395) $4,050.

thousands).

1404) Compute consolidated expenses at date of acquisition.

1405) $2,735.

1406) $2,760. 1407) $2,770. 1408) $2,785.

1409) $3,380.

thousands).

1418) Compute the consolidated cash upon completion of the acquisition.

1419) $1,350.

1420) $1,110. 1421) $1,080. 1422) $1,085.

1423) $635.

1429) Flynn acquires 100 percent of the outstanding voting shares of

Macek Company on January 1, 20X1. To obtain these shares, Flynn pays

$400 cash (in thousands) and issues 10,000 shares of $20 par value

common stock on this date. Flynn's stock had a fair value of $36 per share

on that date. Flynn also pays $15 (in thousands) to a local investment firm

for arranging the acquisition. An additional $10 (in thousands) was paid by

Flynn in stock issuance costs.

1430) The book values for both Flynn and Macek as of January 1, 20X1

In addition, Macek holds a fully amortized trademark that still retains a $40

1431) By how much will Flynn's additional paid-in capital increase as a

1432) $150. 1433) $160. 1434) $230. 1435) $350. 1436) $360.

gain on bargain purchase. 1442) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if

dissolution takes place.

1443) Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

issuance costs.

a. The book values for both Flynn and Macek as of January 1, 20X1 follow.

b. What amount will be reported for goodwill as a result of this acquisition?

1445) $30. 1446) $55. 1447) $65. 1448) $175. 1449) $200.

bargain purchase. 1455) Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution

takes place.

1456) Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

1459) What amount will be reported for consolidated receivables?

1460) $660. 1461) $640. 1462) $500. 1463) $460.

1464) $480.

issuance costs.

b. What amount will be reported for consolidated inventory?

1471) $1,000. 1472) $960. 1473) $920. 1474) $660. 1475) $620.

1483) What amount will be reported for consolidated buildings (net)?

1484) $1,420. 1485) $1,260. 1486) $1,140. 1487) $1,480. 1488) $1,200.

bargain purchase.

issuance costs.

b. What amount will be reported for consolidated equipment (net)?

1495) $385. 1496) $335. 1497) $435. 1498) $460. 1499) $360.

1507) What amount will be reported for consolidated long-term liabilities?

1508) $1,520. 1509) $1,480. 1510) $1,440. 1511) $1,180. 1512) $1,100.

bargain purchase.

issuance costs.

b. What amount will be reported for consolidated common stock?

1519) $1,000. 1520) $1,080. 1521) $1,200. 1522) $1,280. 1523) $1,360.

bargain purchase.

1531) Assuming the combination is accounted for as a purchase, what

amount will be reported for consolidated retained earnings?

1532) $1,830.

1533) $1,350.

1534) $1,080. 1535) $1,560. 1536) $1,535.

1540) Difficulty: 2 Medium 1541) Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and

pooling of interest methods of accounting for past business combinations. Understand the effects that persist today in

financial statements from the use of these legacy methods.

issuance costs.

b. What amount will be reported for consolidated retained earnings?

1543) $1,065. 1544) $1,080. 1545) $1,525. 1546) $1,535. 1547) $1,560.

bargain purchase.

1555) What amount will be reported for consolidated additional paid-in capital?

1556) $365. 1557) $350. 1558) $360. 1559) $375. 1560) $345.

1564) Difficulty: 3 Hard a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

(in thousands) and issues 10,000 shares of $20 par value common stock on this

An additional $10 (in thousands) was paid by Flynn in stock issuance costs.

b. What amount will be reported for consolidated cash after the

acquisition is completed?

1567) $475. 1568) $500. 1569) $555. 1570) $580. 1571) $875.

1575) Difficulty: 3 Hard 1576) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

1577) Essay Questions

1578) What term is used to refer to a business combination in which only

one of the original companies continues to exist?

1579) The appropriate term is statutory merger.

a. Learning Objective: 02-03 Define the term business combination and differentiate across various forms of

1584) How are stock issuance costs accounted for in an

acquisition business combination?

1585) Stock issuance costs reduce the balance in the acquirer's

Additional Paid-In Capital in an acquisition business combination.

1591) What is the primary difference between recording an acquisition when the

subsidiary is dissolved and when separate incorporation is maintained?

a. When the subsidiary is dissolved, the acquirer records in its books

the fair value of individual assets and liabilities acquired as well as

the resulting goodwill from the acquisition. However, when separate

incorporation is maintained, the acquirer only records the total fair

value of assets and liabilities acquired, as well as the resulting

goodwill, in one account as an investment.

1597) How are direct combination costs accounted for in an acquisition transaction?

a. In an acquisition, direct combination costs are expensed in the

period of the acquisition.

1603) Peterman Co. owns 55% of Samson Co. Under what circumstances

would Peterman not be required to prepare consolidated financial

statements?

1604) Peterman would not be required to prepare consolidated financial

statements if control of Samson is temporary or if, despite majority

ownership, Peterman does not have control over Samson. A lack of control

might exist if Samson is in a country that imposes restrictions on Peterman's

actions.

a. Learning Objective: 02-02 Recognize when consolidation of financial information into a single set of

statements is necessary. Learning Objective: 02-03 Define the term business combination and differentiate

across various forms of business combinations.

1609) How would you account for in-process research and development

acquired in a business combination accounted for as an acquisition?

1610) In-Process Research and Development is capitalized as an asset

of the combination and reported as intangible assets with indefinite lives

subject to impairment reviews.

a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a

business combination.

1615) Elon Corp. obtained all of the common stock of Finley Co., paying slightly

less than the fair value of Finley's net assets acquired. How should the

difference between the consideration transferred and the fair value of the net

assets be treated if the transaction is accounted for as an acquisition?

a. The difference between the consideration transferred and the fair

value of the net assets acquired is recognized as a gain on bargain

purchase.

1621) For acquisition accounting, why are assets and liabilities of

the subsidiary consolidated at fair value?

a. The acquisition transaction is assumed to occur through an orderly

transaction between market participants at the measurement date of the

acquisition. Thus identified assets and liabilities acquired have been

assigned fair value for the transfer to the acquirer and this is a relevant

and faithful representation for consolidation.

1627) Goodwill is often acquired as part of a business combination.

Why, when separate incorporation is maintained, does Goodwill not

appear on the Parent company's trial balance as a separate account?

1628) While the Goodwill does not appear on the Parent company's

books, it is implied as part of the account called Investment in

Subsidiary. During the consolidation process, the Investment account is

broken down into its component parts. Goodwill, along with other items

such as subsidiary fair value adjustments, is then shown separately as

part of the consolidated financial statement balances.

a. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a

business combination.

1633) How are direct combination costs, contingent consideration,

and a bargain purchase reflected in recording an acquisition

transaction?

1634) The acquisition method embraces a fair value concept as measured

by the fair value of consideration transferred. (1) Direct combination costs are

expensed as incurred; (2) Contingent consideration obligations are

recognized at their present value of the potential obligation as part of the

acquisition consideration transferred; (3) When a bargain purchase occurs,

the acquirer measures and recognizes the fair values of each of the assets

acquired and liabilities assumed at the date of the combination, and as a

result a gain on the bargain purchase is recognized at the acquisition date.

a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 1639) Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition

gain on bargain purchase.

1640) How is contingent consideration accounted for in an

acquisition business combination transaction?

a. The fair value approach of the acquisition method views contingent

payments as part of the consideration transferred. Under this view,

contingencies have a value to those who receive the consideration and

represent measurable obligations of the acquirer. The amount of the

contingent consideration is measured as the expected present value of a

potential payment and increases the investment value recorded.

1646) How are bargain purchases accounted for in an

acquisition business transaction?

a. A bargain purchase results when the collective fair values of the net

identified assets acquired and liabilities assumed exceed the fair value of

consideration transferred. The assets and liabilities acquired are recorded at

their fair values and the bargain purchase is recorded as a Gain on Bargain

Purchase.

1652) Describe the accounting for direct costs, indirect costs, and issuance

costs under the acquisition method of accounting for a business

combination.

1653) Direct and indirect combination costs are expensed and

issuance costs reduce the otherwise fair value of the consideration

issued under the acquisition method of accounting for business

combinations.

bargain purchase.

1659) What is the difference in consolidated results between a

business combination whereby the acquired company is dissolved, and

a business combination whereby separate incorporation is maintained?

1660) There is no difference in consolidated results.

1665) Short Answer Questions

1666) Bale Co. acquired Silo Inc. on December 31, 20X1, in an acquisition business

combination transaction. Bale's net income for the year was $1,400,000, while

Silo had net income of $400,000 earned evenly during the year. Bale paid

$100,000 in direct combination costs, $50,000 in indirect costs, and $30,000 in

stock issue costs to effect the combination.

a. Required:

b. What is consolidated net income for 20X1?

c. Note: Silo's net income does not affect consolidated net income until

after the date of acquisition. The combination costs belong to Bale

1672) Fine Co. issued its common stock in exchange for the common

stock of Dandy Corp. in an acquisition. At the date of the combination, Fine

had land with a book value of $480,000 and a fair value of $620,000.

Dandy had land with a book value of $170,000 and a fair value of

$190,000.

1673) Required:

1674) What was the consolidated balance for Land in a consolidated

balance sheet prepared at the date of the acquisition combination?

1680) Jernigan Corp. had the following account balances at 12/1/10:

a. Several of Jernigan's accounts have fair values that differ from book

value. The fair values are: Land — $480,000; Building — $720,000;

Inventory — $336,000; and Liabilities — $396,000.

b. Inglewood Inc. acquired all of the outstanding common shares of

Jernigan by issuing 20,000 shares of common stock having a $6 par

value, but a $66 fair value. Stock issuance costs amounted to $12,000.

c. Required:

d. Prepare a fair value allocation and goodwill schedule at the

date of the acquisition.

i. AACSB: Analytic

1686) Bellington Inc. transferred $1.7 million in cash and 12,000 shares of

its newly issued $30 par value common stock (valued at $90 per share) to

1687) Determine the balance for Goodwill that would be included in a

December 1, 2010, consolidation.

1693) 111. Salem Co. had the following account balances as of December 1, 2010:

a. Bellington Inc. transferred $1.7 million in cash and 12,000 shares of its

newly issued $30 par value common stock (valued at $90 per share) to

b. Assume that Bellington paid cash of $2.8 million. No stock is issued. c. An additional $50,000 is paid in direct combination costs.

d. Required:

e. For Goodwill, determine what balance would be included in a

December 1, 2010 consolidation.

1699) On January 1, 2011, Chester Inc. acquired 100% of Festus Corp.'s

outstanding common stock by exchanging 37,500 shares of Chester's $2

par value common voting stock. On January 1, 2011, Chester's voting

common stock had a fair value of $40 per share. Festus' voting common

shares were selling for $6.50 per share. Festus' balances on the acquisition

date, just prior to acquisition are listed below.

1700) Required:

1701) Compute the value of the Goodwill account on the date of acquisition, 1/1/11.

b. Prepare the journal entries to record (1) the issuance of stock by Jode

and (2) the payment of the combination costs.

c. Entry One - To record the issuance of common stock by Jode to

execute the purchase.

d. Entry Two - To record the combination costs.

gain on bargain purchase. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

$24,000 in stock issuance costs to effect the acquisition of Lakely.

Lakely will retain its incorporation.

b. Required:

c. Determine consolidated net income for the year ended December 31, 2010.

A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business

1718) The financial statements for Jode Inc. and Lakely Corp., just

prior to their combination, for the year ending December 31, 2010,

follow. Lakely's buildings were undervalued on its financial records by

$60,000.

1720) Determine consolidated Additional paid-in Capital at December 31, 2010.

bargain purchase.

A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that

1726) The following are preliminary financial statements for Black Co.

and Blue Co. for the year ending December 31, 20X1.

1727) On December 31, 20X1 (subsequent to the preceding statements),

Black exchanged 10,000 shares of its $10 par value common stock for all

of the outstanding shares of Blue. Black's stock on that date has a fair

value of $50 per share. Black was willing to issue 10,000 shares of stock

because Blue's land was appraised at $204,000. Black also paid $14,000 to

several attorneys and accountants who assisted in creating this

combination.

1728) Required:

1729) Assuming that these two companies retained their separate legal

identities, prepare a consolidation worksheet as of December 31, 20X1

assuming the transaction is treated as a purchase combination.

1730) Bargain Purchase Acquisition Consolidation Worksheet

i. AACSB: Analytic ii. AICPA FN: Measurement iii. Blooms: Apply

bargain purchase. a. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a

1734) The following are preliminary financial statements for Black Co. and Blue Co. for

the year ending December 31, 20X1 prior to Black's acquisition of Blue.

a. On December 31, 20X1 (subsequent to the preceding statements),

Black exchanged 10,000 shares of its $10 par value common stock for

all of the outstanding shares of Blue. Black's stock on that date has a

fair value of $60 per share. Black was willing to issue 10,000 shares of

stock because Blue's land was appraised at $204,000. Black also paid

$14,000 to several attorneys and accountants who assisted in creating

this combination.

b. Required:

c. Assuming that these two companies retained their separate legal

identities, prepare a consolidation worksheet as of December 31,

20X1 after the acquisition transaction is completed.

d. Acquisition Consolidation Worksheet

a. Learning Objective: 02-04 Describe the valuation principles of the acquisition method.

b. Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate

purchase. A. Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that

1739) For each of the following situations, select the best letter answer to reflect the

effect of the numbered item on the acquirer's accounting entry at the date of

combination when separate incorporation will be maintained. Items (4) and

a. (6) require two selections.

1740) Increase Investment account. 1741) Decrease Investment account. 1742) Increase Liabilities. 1743) Increase Common stock. 1744) Decrease common stock. 1745) Increase Additional paid-in capital. 1746) Decrease Additional paid-in capital. 1747) Increase Retained earnings 1748) Decrease Retained earnings

A. Direct costs. B. Indirect costs. C. Stock issue costs. D. Contingent consideration. E. Bargain purchase. F. In-process research and development acquired.

b. I; (2) I; (3) G; (4) A, C; (5) H; (6) A, I

of two companies that form a business combination if dissolution does not take place. B. Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a

business i. combination.

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