(Test Bank) Advanced accounting

Hoyle, 12

Business

Test Bank

12th Edition

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Test Bank for Advanced accounting, The downloadable file consists of 181 pages, and the total size of the file is 4.09 MB. Purchase now only for highly discounted price.

Author(s): Hoyle

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Chapter 2 Answer Key 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #1 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations 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 AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #2 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #3 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. Topic: The Acquisition Method When Separate Incorporation is Maintained 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #4 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. Topic: Financial Reporting for Business Combinations 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 AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #5 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. Topic: Legacy Methods of Accounting for Business Combinations 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 AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #6 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. Topic: Acquisition Method When Dissolution Takes Place 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Hoyle - Chapter 02 #7 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. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acquisition Method When Separate Incorporation is Maintained 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #8 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 state ments from the use of these legacy methods. Topic: Legacy Methods of Accounting for Business Combinations 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 3 Hard Hoyle - Chapter 02 #9 Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business combinations. Topic: Business Combinations - Creating a Single Economic Entity 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #10 Learning Objective: 02-08 Describe the two criteria for recognizing intangible assets apart from goodwill in a business combination. Topic: Acquisition -Date Fair-Value Allocations - Additional Issues 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #11 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. Topic: Financial Reporting for Business Combinations 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 determination of the acquirer's accounting valuation of the acquired 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 determination of the acquirer's accounting valuation of the acquired company. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 3 Hard Hoyle - Chapter 02 #12 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. Topic: Financial Reporting for Business Combinations 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 continue 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #13 Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business combinations. Topic: Business Combinations - Creating a Single Economic Entity 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #14 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. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place. Topic: Acquisition Method When Dissolution Takes Place 15. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. 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: 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? A. $144,00 0. B. $104,00 0. C. $64,00 0. D. $60,00 0. E. $0 . $47 × 12,000 = $564,000 - ($80,000 + $40,000 + $240,000) = $204,000 - $100,000 = $104,000 FV > BV: Inv +$40,000; Land +$20,000; +Blgs $30,000; +Liab $10,000 = $100,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #15 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations Topic: The Acquisition Method When Separate Incorporation is Maintained 16. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. 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: 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? A. $460,00 0. B. $510,00 0. C. $500,00 0. D.$520,00 0. E. $490,00 0. $280,000 + $240,000 = $520,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #16 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acquisition Method When Separate Incorporation is Maintained 17. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. 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: 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, 2013 balances) as a result of this acquisition transaction? A. $60,000 and $490,000. B. $60,000 and $250,000. C. $380,000 and $250,000. D.$464,000 and $250,000. E. $464,000 and $420,000. $20,000 + ($37 × 12,000) = $464,000 Add'l Paid -In Capital $250,000 Parent's R/E Only AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 3 Hard Hoyle - Chapter 02 #17 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic : Financial Reporting for Business Combinations Topic: The Acquisition Method When Separate Incorporation is Maintained 18. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. 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: 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? A. $440,000, $496,000. B. $440,000, $520,000. C. $425,000, $505,000. D. $400,000, $500,000. E. $427,000, $510,000. Inventory $230,000 BV + $210,000 FV = $440,000 Land $280,000 BV + $240,000 FV = $520,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #18 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acqui sition Method When Separate Incorporation is Maintained 19. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. 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: 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? A. $0 . B. $20,00 0. C. $35,00 0. D. $55,00 0. E. $65,00 0. $480,000 - ($80,000 CS + $40,000 APIC + $240,000 R/E + $100,000 FV) = $20,000 Excess AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #19 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. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place. Learning Object ive: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business combination if dissolution does not take place. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acquisition Method When Separate Incorporation is Maintained 20. Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders' equity figures: Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. Assume that Botkins acquired Volkerson on January 1, 2012. At what amount did Botkins record the investment in Volkerson? A. $56,00 0. B. $182,00 0. C. $209,00 0. D. $261,00 0. E. $312,00 0. $3.25 × 56,000 = $182,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 1 Easy Hoyle - Chapter 02 #20 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations Topic: The Acquisition Method When Separate Incorporation is Maintained 21. Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders' equity figures: Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. Assume that Botkins acquired Volkerson on January 1, 2012. Immediately afterwards, what is consolidated Common Stock? A. $456,00 0. B. $402,00 0. C. $274,00 0. D.$276,00 0. E. $330,00 0. $220,000 + ($1.00 × 56,000) = $276,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #21 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acquisition Metho d When Separate Incorporation is Maintained 22. 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, 2013, 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. $2,520,00 0. B. $1,190,00 0. C. $1,680,00 0. D.$2,870,00 0. E. $2,030,00 0. $700,000 + $980,000 + ($35 × 34,000) = $2,870,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #22 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. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: The Acquisition Method When Separate Incorporation is Maintained 23. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #23 Learning Objective: 02-01 Discuss the motives for business combinations. Topic: Expansion through Corporate Takeovers 24. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #24 Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business combinations. Topic: Business Combinations - Creating a Single Economic Entity 25. 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. 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 consolidation is no longer a legal option. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #25 Learning Objective: 02-03 Define the term business combination and differentiate across various forms of business combinations. Topic: Business Combinations - Creating a Single Economic Entity 26. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: 2 Medium Hoyle - Chapter 02 #26 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations 27. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Hoyle - Chapter 02 #27 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations 28. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #28 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. Topic: Acquisition Method When Dissolution Takes Place 29. 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. AACSB: Reflective thinking AICPA BB: Critical Thinking AICPA FN: Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Hoyle - Chapter 02 #29 Learning Objective: 02 -09 Appendix: Identify the general characteristics of the legacy purchase and p ooling 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. Topic: Legacy Methods of Accounting for Business Combinations 30. The financial statements for Goodwin, Inc. and Corr Company for the year ended December 31, 2013, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands): On December 31, 2013, 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. 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. In this acquisition business combination, at what amount is the investment recorded on Goodwin's books? A. $1,54 0. B. $1,80 0. C. $1,86 0. D. $1,82 5. E. $1,62 5. $600 Cash + ($40 × 30 Shares) = $1,800 Investment AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #30 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. Topic: The Acquisition Method When Separate Incorporation is Maintained 31. The financial statements for Goodwin, Inc. and Corr Company for the year ended December 31, 2013, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands): On December 31, 2013, 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. 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. In this acquisition business combination, what total amount of common stock and additional paid-in capital is added on Goodwin's books? A. $26 5. B. $1,16 5. C. $1,20 0. D. $1,23 5. E. $1,76 5. ($10 × 30 shares) Common Stock + ($30 × 30 shares) APIC - $35 APIC = $1,165 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Hoyle - Chapter 02 #31 Learning Objective: 02-04 Describe the valuation principles of the acquisition method. 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. Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place. Learning Object ive: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business combination if dissolution does not take place. Topic: Acquisition Method When Dissolution Takes Place Topic: Financial Reporting for Business Combinations Topic: The Acquisition Method When Separate Incorporation is Maintained