Test Bank for Advanced Accounting with Connect Plus 12th Edition by Hoyle & Schaefer

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Test Bank for Advanced Accounting with Connect Plus 12th Edition by Hoyle & Schaefer

Description

File: Chapter 02 Consolidation of Financial Information

Multiple Choice:

[QUESTION]
1. At the date of an acquisition which is not a bargain purchase, the acquisition method
A) consolidates the subsidiarys 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 subsidiarys assets at book value and the liabilities at fair value.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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?

Parent Subsidiary
A) Book Value Book Value
B) Book Value Fair Value
C) Fair Value Fair Value
D) Fair Value Book Value
E) Cost Cost

Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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) Lisas general journal.
C) Victorias general journal.
D) Victorias secret consolidation journal.
E) the general journals of both companies.
Answer: A
Learning Objective: 02-07
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
4. Using the acquisition method for a business combination, goodwill is generally defined as:
A) Cost of the investment less the subsidiarys book value at the beginning of the year.
B) Cost of the investment less the subsidiarys book value at the acquisition date.
C) Cost of the investment less the subsidiarys fair value at the beginning of the year.
D) Cost of the investment less the subsidiarys fair value at acquisition date.
E) is no longer allowed under federal law.
Answer: D
Learning Objective: 02-04
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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?

Answer: B
Learning Objective: 02-09
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
6. How are direct and indirect costs accounted for when applying the acquisition method for a business combination?

Answer: A
Learning Objective: 02-05
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: E
Learning Objective: 02-06 Learning Objective: 02-07
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: C
Learning Objective: 02-09
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: C
Learning Objective: 02-03
Difficulty: Hard
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: D
Learning Objective: 02-08
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: B
Learning Objective: 02-04
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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 acquirers accounting valuation of the acquired company.
B) Fair value only for the consideration transferred by the acquirer can enter into the determination of the acquirers 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 acquirers 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 acquirers accounting valuation of the acquired company.
E) Only fair value of identifiable assets received enters into the determination of the acquirers accounting valuation of the acquired company.
Answer: C
Learning Objective: 02-04
Difficulty: Hard
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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 targets stock.
Answer: A
Learning Objective: 02-03
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
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.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

REFERENCE: 02-01
Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vickers accounts on that date (prior to creating the combination) follow, along with the book value of Bullens accounts:

Bullen Vicker Vicker
Book Book Fair
Value Value Value
Retained earnings, 1/1/15 $250,000 $240,000
Cash and receivables 170,000 70,000 $70,000
Inventory 230,000 170,000 210,000
Land 280,000 220,000 240,000
Buildings (net) 480,000 240,000 270,000
Equipment (net) 120,000 90,000 90,000
Liabilities 650,000 430,000 420,000
Common stock 360,000 80,000
Additional paid-in capital 20,000 40,000

[QUESTION]
REFER TO: 02-01
15. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vickers outstanding stock. In this acquisition transaction, how much goodwill should be recognized?
A) $144,000.
B) $104,000.
C) $ 64,000.
D) $ 60,000.
E) $ 0.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $47 X 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

[QUESTION]
REFER TO: 02-01
16. 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) $460,000.
B) $510,000.
C) $500,000.
D) $520,000.
E) $490,000.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $280,000 + $240,000 = $520,000

[QUESTION]
REFER TO: 02-01
17. 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.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $20,000 + ($37 X 12,000) = $464,000 Addl Paid-In Capital
$250,000 Parents R/E Only

[QUESTION]
REFER TO: 02-01
18. 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.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: Inventory $230,000 BV + $210,000 FV = $440,000
Land $280,000 BV + $240,000 FV = $520,000

[QUESTION]
REFER TO: 02-01
19. 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?
A) $ 0.
B) $20,000.
C) $35,000.
D) $55,000.
E) $65,000.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $480,000 ($80,000 CS + $40,000 APIC + $240,000 R/E + $100,000 FV) = $20,000 Excess

[QUESTION]
REFER TO: 02-01
20. 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) $20,000.
C) $35,000.
D) $55,000.
E) $65,000
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $480,000 ($80,000 CS + $40,000 APIC + $240,000 R/E + $100,000 FV) = $20,000 Excess

REFERENCE: 02-02
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.

[QUESTION]
REFER TO: 02-02
21. Assume that Botkins acquired Volkerson on January 1, 2012. 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.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $3.25 X 56,000 = $182,000

[QUESTION]
REFER TO: 02-02
22. Assume that Botkins acquired Volkerson on January 1, 2012. Immediately afterwards, what is consolidated Common Stock?
A) $456,000.
B) $402,000.
C) $274,000.
D) $276,000.
E) $330,000.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $220,000 + ($1.00 X 56,000) = $276,000

[QUESTION]
23. 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 Companys 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.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $700,000 + $980,000 + ($35 X 34,000) = $2,870,000

[QUESTION]
24. 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.
Answer: E
Learning Objective: 02-01
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
25. 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.
Answer: C
Learning Objective: 02-03
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
26. 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.
Answer: A
Learning Objective: 02-03
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
27. 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.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Medium
Blooms: Analyze
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
28. 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.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Easy
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
29. 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.
Answer: A
Learning Objective: 02-05
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
30. 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.
Answer: C
Learning Objective: 02-09
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

REFERENCE: 02-03
The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 2013, prior to Goodwins 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. Corrs equipment was actually worth $1,400 but its buildings were only valued at $560.

[QUESTION]
REFER TO: 02-03
31. In this acquisition business combination, at what amount is the investment recorded on Goodwins books?
A) $1,540.
B) $1,800.
C) $1,860.
D) $1,825.
E) $1,625.
Answer: B
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $600 Cash + ($40 X 30 Shares) = $1,800 Investment

[QUESTION]
REFER TO: 02-03
32. In this acquisition business combination, what total amount of common stock and additional paid-in capital is added on Goodwins books?
A) $ 265.
B) $1,165.
C) $1,200.
D) $1,235.
E) $1,765.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: ($10 X 30 shares) Common Stock + ($30 X 30 shares) APIC $35 APIC = $1,165

[QUESTION]
REFER TO: 02-03
33. Compute the consolidated revenues for 2013.
A) $2,700.
B) $ 720.
C) $ 920.
D) $3,300.
E) $1,540.
Answer: A
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,700 Parents Revenue Only

[QUESTION]
REFER TO: 02-03
34. Compute the consolidated receivables and inventory for 2013.
A) $1,200.
B) $1,515.
C) $1,540.
D) $1,800.
E) $2,140.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,200 + $340 = $1,540

[QUESTION]
REFER TO: 02-03
35. Compute the consolidated expenses for 2013.
A) $1,980.
B) $2,005.
C) $2,040.
D) $2,380.
E) $2,405.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,980 + $25 Fees = $2,005

[QUESTION]
REFER TO: 02-03
36. Compute the consolidated cash account at December 31, 2013.
A) $460.
B) $425.
C) $400.
D) $435.
E) $240.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $240 + $220 = $460 ($25 + $35) = $400

[QUESTION]
REFER TO: 02-03
37. Compute the consolidated buildings (net) account at December 31, 2013.
A) $2,700.
B) $3,370.
C) $3,300.
D) $3,260.
E) $3,340.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,700 BV + $560 FV = $3,260

[QUESTION]
REFER TO: 02-03
38. Compute the consolidated equipment (net) account at December 31, 2013.
A) $2,100.
B) $3,500.
C) $3,300.
D) $3,000.
E) $3,200.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,100 BV + $1,400 FV = $3,500

[QUESTION]
REFER TO: 02-03
39. Compute the consideration transferred for this acquisition at December 31, 2013.
A) $ 900.
B) $1,165.
C) $1,200.
D) $1,765.
E) $1,800.
Answer: E
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $600 Cash + ($40 X 30 Stock) = $1,800

[QUESTION]
REFER TO: 02-03
40. Compute the goodwill arising from this acquisition at December 31, 2013.
A) $ 0.
B) $100.
C) $125.
D) $160.
E) $ 45.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $400 CS + $540 APIC + $600 R/E = $1,540 + $200 Equipt $40 Blgs = $1,700 Total Equity
$600 Cash + ($40 X 30 Stock) = $1,800 Consideration $1,700 = $100 Goodwill

[QUESTION]
REFER TO: 02-03
41. Compute the consolidated common stock account at December 31, 2013.
A) $1,080.
B) $1,480.
C) $1,380.
D) $2,280.
E) $2,680.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080 + ($10 X 30 shares) = $1,380

[QUESTION]
REFER TO: 02-03
42. Compute the consolidated additional paid-in capital at December 31, 2013.
A) $ 810.
B) $1,350.
C) $1,675.
D) $1,910.
E) $1,875.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $810 + ($30 X 30 shares) $35 Issuance Costs = $1,675

[QUESTION]
REFER TO: 02-03
43. Compute the consolidated liabilities at December 31, 2013.
A) $1,500.
B) $2,100.
C) $2,320.
D) $2,920.
E) $2,885.
Answer: D
Learning Objective: 02-05
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,500 Parents + $820 Subs + $600 Parents New = $2,920

[QUESTION]
REFER TO: 02-03
44. Compute the consolidated retained earnings at December 31, 2013.
A) $2,800.
B) $2,825.
C) $2,850.
D) $3,425.
E) $3,450.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,850 $25 Broker Expense = $2,825

REFERENCE: 02-04
On January 1, 2013, 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:

Note: Parentheses indicate a credit balance.

In Moodys appraisal of Osorio, three assets were deemed to be undervalued on the subsidiarys books: Inventory by $10, Land by $40, and Buildings by $60.

[QUESTION]
REFER TO: 02-04
45. What amount was recorded as the investment in Osorio?
A) $930.
B) $820.
C) $800.
D) $835.
E) $815.
Answer: C
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $400 Cash + ($1.00 X 40 shares) CS + ($9 X 40 shares) APIC = $800

[QUESTION]
REFER TO: 02-04
46. What amount was recorded as goodwill arising from this acquisition?
A) $230.
B) $120.
C) $520.
D) None. There is a gain on bargain purchase of $230.
E) None. There is a gain on bargain purchase of $265.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $800 Consideration Given
$240 CS + $340 APIC + $340 R/E = $920 + $10 Inv FV + $40 Land FV + $60 Blgs FV = $1,030
($800 Consideration) ($1,030 BV/FV) = $230 Bargain Purchase Gain

[QUESTION]
REFER TO: 02-04
47. Compute the amount of consolidated inventories at date of acquisition.
A) $1,080.
B) $1,350.
C) $1,360.
D) $1,370.
E) $ 290.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080 + $280 + $10 = $1,370

[QUESTION]
REFER TO: 02-04
48. Compute the amount of consolidated buildings (net) at date of acquisition.
A) $1,700.
B) $1,760.
C) $1,640.
D) $1,320.
E) $ 500.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,260 + $440 + $60 = $1,760

[QUESTION]
REFER TO: 02-04
49. Compute the amount of consolidated land at date of acquisition.
A) $1,000.
B) $ 960.
C) $ 920.
D) $ 400.
E) $ 320.
Answer: A
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $600 + $360 + $40 = $1,000

[QUESTION]
REFER TO: 02-04
50. Compute the amount of consolidated equipment at date of acquisition.
A) $480.
B) $580.
C) $559.
D) $570.
E) $560.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $480 + $100 = $580

[QUESTION]
REFER TO: 02-04
51. Compute the amount of consolidated common stock at date of acquisition.
A) $370.
B) $570.
C) $610.
D) $330.
E) $530.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $330 + ($1.00 X 40 shares) = $370

[QUESTION]
REFER TO: 02-04
52. Compute the amount of consolidated additional paid-in capital at date of acquisition.
A) $1,080.
B) $1,420.
C) $1,065.
D) $1,425.
E) $1,440.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080 + ($9.00 X 40 shares) $15 Issuance Costs = $1,425

[QUESTION]
REFER TO: 02-04
53. Compute the amount of consolidated cash after recording the acquisition transaction.
A) $220.
B) $185.
C) $200.
D) $205.
E) $215.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: ($180 $20 $15 Parent) = $145 + ($40 Sub) = $185

REFERENCE: 02-05
Carnes has the following account balances as of May 1, 2012 before an acquisition transaction takes place.

The fair value of Carnes Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2012, 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.

[QUESTION]
REFER TO: 02-05
54. On May 1, 2012, what value is assigned to Rileys investment account?
A) $ 150,000.
B) $ 300,000.
C) $ 750,000.
D) $ 760,000.
E) $1,350,000.
Answer: C
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $25 X 30,000 shares = $750,000

[QUESTION]
REFER TO: 02-05
55. At the date of acquisition, by how much does Rileys additional paid-in capital increase or decrease?
A) $ 0.
B) $440,000 increase.
C) $450,000 increase.
D) $640,000 increase.
E) $650,000 decrease.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $15 X 30,000 shares = $450,000 $10,000 = $440,000

[QUESTION]
REFER TO: 02-05
56. What will be Rileys balance in its common stock account as a result of this acquisition?
A) $ 300,000.
B) $ 990,000.
C) $1,000,000.
D) $1,590,000.
E) $1,600,000.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Easy
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $700,000 + ($10 X 30,000 shares) = $1,000,000

[QUESTION]
REFER TO: 02-05
57. What will be the consolidated additional paid-in capital as a result of this acquisition?
A) $440,000.
B) $740,000.
C) $750,000.
D) $940,000.
E) $950,000.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $300,000 APIC + $440,000 Added APIC = $740,000

REFERENCE: 02-06
The financial balances for the Atwood Company and the Franz Company as of December 31, 2013, are presented below. Also included are the fair values for Franz Companys net assets.

Atwood Franz Co. Franz Co.
(all numbers are in thousands)
Book Value Book Value Fair Value
12/31/2013 12/31/2013 12/31/2013

Cash $ 870 $ 240 $ 240
Receivables 660 600 600
Inventory 1,230 420 580
Land 1,800 260 250
Buildings (net) 1,800 540 650
Equipment (net) 660 380 400
Accounts payable ( 570) ( 240) ( 240)
Accrued expenses ( 270) ( 60) ( 60)
Long-term liabilities (2,700) (1,020) (1,120)
Common stock ($20 par) (1,980)
Common stock ($5 par) ( 420)
Additional paid-in capital ( 210) ( 180)
Retained earnings (1,170) ( 480)
Revenues (2,880) ( 660)
Expenses 2,760 620

Note: Parenthesis indicate a credit balance

Assume an acquisition business combination took place at December 31, 2013. 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.

[QUESTION]
REFER TO: 02-06
58. Compute the investment to be recorded at date of acquisition.
A) $1,750.
B) $1,760.
C) $1,775.
D) $1,300.
E) $1,120.
Answer: A
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $35 FV X 50 shares = $1,750
[QUESTION]
REFER TO: 02-06
59. Compute the consolidated common stock at date of acquisition.
A) $1,000.
B) $2,980.
C) $2,400.
D) $3,400.
E) $3,730.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,980 + ($20 Par X 50 shares) = $2,980

[QUESTION]
REFER TO: 02-06
60. Compute consolidated inventory at the date of the acquisition.
A) $1,650.
B) $1,810.
C) $1,230.
D) $ 580.
E) $1,830.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,230 BV + $580 FV = $1,810

[QUESTION]
REFER TO: 02-06
61. Compute consolidated land at the date of the acquisition.
A) $2,060.
B) $1,800.
C) $ 260.
D) $2,050.
E) $2,070.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,800 BV + $250 FV = $2,050

[QUESTION]
REFER TO: 02-06
62. Compute consolidated buildings (net) at the date of the acquisition.
A) $2,450.
B) $2,340.
C) $1,800.
D) $ 650.
E) $1,690.
Answer: A
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,800 BV + $650 FV = $2,450

[QUESTION]
REFER TO: 02-06
63. Compute consolidated long-term liabilities at the date of the acquisition.
A) $2,600.
B) $2,700.
C) $2,800.
D) $3,720.
E) $3,820.
Answer: E
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,700 BV + $1,120 FV = $3,820

[QUESTION]
REFER TO: 02-06
64. Compute consolidated goodwill at the date of the acquisition.
A) $360.
B) $450.
C) $460.
D) $440.
E) $475.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: ($35 FV X 50 shares = $1,750) ($1,300 Net Assets at FV) = $450 Goodwill

[QUESTION]
REFER TO: 02-06
65. Compute consolidated equipment (net) at the date of the acquisition.
A) $ 400.
B) $ 660.
C) $1,060.
D) $1,040.
E) $1,050.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $660 BV + $400 FV = $1,060

[QUESTION]
REFER TO: 02-06
66. Compute fair value of the net assets acquired at the date of the acquisition.
A) $1,300.
B) $1,340.
C) $1,500.
D) $1,750.
E) $2,480.
Answer: A
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: ($240 + $600 + $580 + $250 + $650 + $400) ($240 + $60 + $1,120) = $1300

[QUESTION]
REFER TO: 02-06
67. Compute consolidated retained earnings at the date of the acquisition.
A) $1,160.
B) $1,170.
C) $1,280.
D) $1,290.
E) $1,640.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,170 + ($2,880 $2760 $10) = $1,280

[QUESTION]
REFER TO: 02-06
68. Compute consolidated revenues at the date of the acquisition.
A) $3,540.
B) $2,880.
C) $1,170.
D) $1,650.
E) $4,050.
Answer: B
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,880 Revenues of the Parent Only

[QUESTION]
REFER TO: 02-06
69. Compute consolidated cash at the completion of the acquisition.
A) $1,350.
B) $1,085.
C) $1,110.
D) $ 870.
E) $ 845.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $870 + $240 $15 $10 = $1,085

[QUESTION]
REFER TO: 02-06
70. Compute consolidated expenses at the date of the acquisition.
A) $2,760.
B) $2,770.
C) $2,785.
D) $3,380.
E) $3,390.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,760 + $10 = $2,770

REFERENCE: 02-07
Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2012, immediately before Atwood acquired Franz. Also included are the fair values for Franz Companys net assets at that date.

Atwood Franz Co. Franz Co.
(all amounts in thousands)
Book Value Book Value Fair Value
12/31/14 12/31/14 12/31/14

Cash $ 870 $ 240 $ 240
Receivables 660 600 600
Inventory 1,230 420 580
Land 1,800 260 250
Buildings (net) 1,800 540 650
Equipment (net) 660 380 400
Accounts payable ( 570) ( 240) ( 240)
Accrued expenses ( 270) ( 60) ( 60)
Long-term liabilities (2,700) (1,020) (1,120)
Common stock ($20 par) (1,980)
Common stock ($5 par) ( 420)
Additional paid-in capital ( 210) ( 180)
Retained earnings (1,170) ( 480)
Revenues (2,880) ( 660)
Expenses 2,760 620

Note: Parenthesis indicate a credit balance

Assume a business combination took place at December 31, 2012. 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 Franzs fair value, Atwood promises to pay an additional $5.2 (in thousands) to the former owners if Franzs 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).

[QUESTION]
REFER TO: 02-07
71. Compute the investment to be recorded at date of acquisition.
A) $1,750.
B) $1,755.
C) $1,725.
D) $1,760.
E) $1,765.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $35 X 50 shares = $1,750 + $5 = $1,755

[QUESTION]
REFER TO: 02-07
72. Compute consolidated inventory at date of acquisition.
A) $1,650.
B) $1,810.
C) $1,230.
D) $ 580.
E) $1,830.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,230 BV + $580 FV = $1,810

[QUESTION]
REFER TO: 02-07
73. Compute consolidated land at date of acquisition.
A) $2,060.
B) $1,800.
C) $ 260.
D) $2,050.
E) $2,070.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,800 BV + $250 FV = $2,050

[QUESTION]
REFER TO: 02-07
74. Compute consolidated buildings (net) at date of acquisition.
A) $2,450.
B) $2,340.
C) $1,800.
D) $ 650.
E) $1,690.
Answer: A
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,800 BV + $650 FV = $2,450

[QUESTION]
REFER TO: 02-07
75. Compute consolidated goodwill at date of acquisition.
A) $440.
B) $442.
C) $450.
D) $455.
E) $452.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $35 FV X 50shares = $1,750 ($1,300 $5 Contingency) = $455

[QUESTION]
REFER TO: 02-07
76. Compute consolidated equipment at date of acquisition.
A) $ 400.
B) $ 660.
C) $1,060.
D) $1,040.
E) $1,050.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $660 + $400 = $1,060

[QUESTION]
REFER TO: 02-07
77. Compute consolidated retained earnings as a result of this acquisition.
A) $1,160.
B) $1,170.
C) $1,265.
D) $1,280.
E) $1,650.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,170 + ($2,880 $2760 $10) = $1,280

[QUESTION]
REFER TO: 02-07
78. Compute consolidated revenues at date of acquisition.
A) $3,540.
B) $2,880.
C) $1,170.
D) $1,650.
E) $4,050.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,880 Revenues of the Parent Only

[QUESTION]
REFER TO: 02-07
79. Compute consolidated expenses at date of acquisition.
A) $2,735.
B) $2,760.
C) $2,770.
D) $2,785.
E) $3,380.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $2,760 + $10 = $2,770

[QUESTION]
REFER TO: 02-07
80. Compute the consolidated cash upon completion of the acquisition.
A) $1,350.
B) $1,110.
C) $1,080.
D) $1,085.
E) $ 635.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $870 + $240 $15 $10 = $1,085

REFERENCE: 02-08
Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 2013. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynns 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.
The book values for both Flynn and Macek as of January 1, 2013 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.

[QUESTION]
REFER TO: 02-08
81. By how much will Flynns additional paid-in capital increase as a result of this acquisition?
A) $150,000.
B) $160,000.
C) $230,000.
D) $350,000.
E) $360,000.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $16 X 10,000 = $160,000 $10,000 = $150,000

[QUESTION]
REFER TO: 02-08
82. What amount will be reported for goodwill as a result of this acquisition?
A) $ 30,000.
B) $ 55,000.
C) $ 65,000.
D) $175,000.
E) $ 200,000.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $400,000 + ($36 X 10,000shares) = $760,000 Consideration
Net Assets at FV = $665,000 + $40,000 Trademark = $705,000
$760,000 $705,000 = $55,000 Goodwill

[QUESTION]
REFER TO: 02-08
83. What amount will be reported for consolidated receivables?
A) $660,000.
B) $640,000.
C) $500,000.
D) $460,000.
E) $480,000.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $480,000 + $160,000 = $640,000

[QUESTION]
REFER TO: 02-08
84. What amount will be reported for consolidated inventory?
A) $1,000,000.
B) $ 960,000.
C) $ 920,000.
D) $ 660,000.
E) $ 620,000.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $660,000 + $300,000 = $960,000

[QUESTION]
REFER TO: 02-08
85. What amount will be reported for consolidated buildings (net)?
A) $1,420,000.
B) $1,260,000.
C) $1,140,000.
D) $1,480,000.
E) $1,200,000.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,200,000 + $280,000 = $1,480,000

[QUESTION]
REFER TO: 02-08
86. What amount will be reported for consolidated equipment (net)?
A) $385,000.
B) $335,000.
C) $435,000.
D) $460,000.
E) $360,000.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $360,000 + $75,000 = $435,000

[QUESTION]
REFER TO: 02-08
87. What amount will be reported for consolidated long-term liabilities?
A) $1,520,000.
B) $1,480,000.
C) $1,440,000.
D) $1,180,000.
E) $1,100,000.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,140,000 + $300,000 = $1,440,000

[QUESTION]
REFER TO: 02-08
88. What amount will be reported for consolidated common stock?
A) $1,000,000.
B) $1,080,000.
C) $1,200,000.
D) $1,280,000.
E) $1,360,000.
Answer: C
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,000,000 + ($20 X 10,000 shares) = $1,200,000

[QUESTION]
REFER TO: 02-08
89. Assuming the combination is accounted for as a purchase, what amount will be reported for consolidated retained earnings?
A) $1,830,000.
B) $1,350,000.
C) $1,080,000.
D) $1,560,000.
E) $1,535,000.
Answer: C
Learning Objective: 02-09
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080,000 R/E of the Parent Only

[QUESTION]
REFER TO: 02-08
90. What amount will be reported for consolidated retained earnings?
A) $1,065,000.
B) $1,080,000.
C) $1,525,000.
D) $1,535,000.
E) $1,560,000.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080,000 $15,000 = $1,065,000

[QUESTION]
REFER TO: 02-08
91. What amount will be reported for consolidated additional paid-in capital?
A) $365,000.
B) $350,000.
C) $360,000.
D) $375,000.
E) $345,000.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $200,000 + ($16 X 10,000 shares) $10,000 = $350,000

[QUESTION]
REFER TO: 02-08
92. What amount will be reported for consolidated cash after the acquisition is completed?
A) $475,000.
B) $500,000.
C) $555,000.
D) $580,000.
E) $875,000.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Blooms: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $900,000 + $80,000 $400,000 $15,000 $10,000 = $555,000

Essay:

[QUESTION]
93. What term is used to refer to a business combination in which only one of the original companies continues to exist?
Answer: The appropriate term is statutory merger.
Learning Objective: 02-03
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
94. How are stock issuance costs accounted for in an acquisition business combination?
Answer: Stock issuance costs reduce the balance in the acquirers Additional Paid-In Capital in an acquisition business combination.
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
95. What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?
Answer: 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.
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
96. How are direct combination costs accounted for in an acquisition transaction?
Answer: In an acquisition, direct combination costs are expensed in the period of the acquisition.
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
97. Peterman Co. owns 55% of Samson Co. Under what circumstances would Peterman not be required to prepare consolidated financial statements?
Answer: 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 Petermans actions.
Learning Objective: 02-02
Learning Objective: 02-03
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
98. How would you account for in-process research and development acquired in a business combination accounted for as an acquisition?
Answer: 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.
Learning Objective: 02-08
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
99. Elon Corp. obtained all of the common stock of Finley Co., paying slightly less than the fair value of Finleys 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?
Answer: The difference between the consideration transferred and the fair value of the net assets acquired is recognized as a gain on bargain purchase.
Learning Objective: 02-04
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
100. For acquisition accounting, why are assets and liabilities of the subsidiary consolidated at fair value?
Answer: 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.
Learning Objective: 02-04
Difficulty: Medium
Blooms: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
101. Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent companys trial balance as a separate account?
Answer: While the Goodwill does not appear on the Parent companys 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.
Learning Objective: 02-08
Difficulty: Medium
Blooms: Understand
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

[QUESTION]
102. How are direct combination costs, contingent consideration, and a bargain purchase reflected in recording an acquisition transaction?
Answer: 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.<

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