Deck 5: The Purchase Method: at Date of Acquisition-100 Ownership

Question 1

Something that results whenever the cost of an acquisition is in excess of the current value of the acquired business's net assets is called ___________________ ______________________.

Answer 1

goodwill

Question 2

The amount by which the total cost of an acquisition is below the current value of the acquired business's net assets is called _________________________________.

Answer 2

bargain purchase element

Question 3

Something that must be paid if certain future conditions are satisfied is called _____________________________________.

Answer 3

contingent consideration

Question 4

In purchase accounting, goodwill is determined in a(n) _________________________ ____________________ manner.

Question 5

The portion of a bargain purchase element that could not be extinguished is reported as a(n) __________________________, if material.

Question 6

In a business combination being accounted for as a purchase, registration costs of equity securities issued are to be charged to ________________________________.

Question 7

The overhead costs of an internal acquisitions department are charged to ___________________________ when incurred.

Question 8

Acquiring common stock and revaluing the subsidiary's assets to their current values in the subsidiary's general ledger is an application of __________________________________________.

Question 9

Revaluing an acquired subsidiary's assets and liabilities to their current values in the consolidation process is called ________________________________________.

Question 10

A difference between the current value and the book value of an acquired subsidiary's long-term debt at the combination date is ultimately reported in the consolidated income statement as an adjustment to ___________________________.

Question 11

To recognize an intangible asset other than goodwill in a business combination, the intangible asset must either (1) arise from a ________________________ or ____________________ right or (2) be ________________________.

Question 12

An intangible asset other than goodwill recognized in a business combintion must be amortized to earnings if the intangible asset does not have a(n) _______________________________________________________________________________.

Question 13

All intangible assets other than goodwill that (1) result from a business combination and (2) are required to be amortized, are subject to _______________________ _________________________.

Question 14

Goodwill that arises from a business combination cannot be subsequently _________________________ but is subject to _____________________________________.

Question 15

When control over a company is achieved in steps, a method of analyzing the cost of each separate block of stock purchased is called the ___________________ ________________________ method.

Question 16

When control over a company is achieved in steps, a method of analyzing the total cost of all of the blocks using information only as of the date at which control was obtained is called the _____________________________________ method.

Question 17

When control over a company has been achieved after having had ownership in the 20-50% range, the ____________________________________ method must be used in analyzing the total cost of the investment.

Question 18

When control over a company has been achieved and the 20-50% ownership range was bypassed, the method of analyzing the total cost of the investment that can be used in only this situation is the __________________________ method.

Question 19

In purchase accounting, all out-of-pocket costs incurred as a result of a business combination can be added to the cost of the acquisition.

Question 20

In purchase accounting, costs of registering equity securities issued as consideration cannot be added to the cost of the acquisition.

Question 21

In purchase accounting, the cost of a merger and acquisitions department cannot be added to the cost of an acquisition either in total or proportionately.

Question 22

In purchase accounting, a cost incurred can be added to the cost of the acquisition only if the cost can be directly traced to the acquisition.

Question 23

In purchase accounting, contingent consideration is recorded when the amount is reasonably estimable and it becomes probable (under FAS 5) that the consideration will be paid.

Question 24

In purchase accounting, contingent consideration based on security prices results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.

Question 25

In purchase accounting, contingent consideration based on future sales prices results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.

Question 26

In purchase accounting, contingent consideration based on future earnings results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.

Question 27

In purchase accounting, contingent consideration based on security prices to be maintained results in an increase to the acquiring company's cost if the contingent consideration is subsequently paid.

Question 28

In purchase accounting, contingent consideration based on security prices to be attained results in an increase to the acquiring company's cost if the consideration is subsequently paid.

Question 29

Goodwill arises when the cost of the acquisition exceeds the book value of the net assets.

Question 30

Goodwill arises when the cost of the acquisition exceeds the current value of the net assets.

Question 31

A bargain purchase element exists when the cost of the acquisition is below the book value of the net assets.

Question 32

A bargain purchase element exists when the cost of the acquisition is below the current value of the net assets.

Question 33

A bargain purchase element exists when both the cost of the acquisition and the current value of the net assets are below the book value of the net assets.

Question 34

Goodwill cannot exist if a bargain purchase element exists.

Question 35

Goodwill cannot exist if a covenant not-to-compete exists.

Question 36

A bargain purchase element cannot exist if a covenant not-to-compete exists.

Question 37

In a business combination in which the consideration was cash, the target company's assets and liabilities are revalued to their current values for consolidated reporting purposes regardless of whether common stock or assets were acquired.

Question 38

In a purchase business combination in which common stock was acquired, the target company's assets and liabilities are revalued to their current values for consolidated reporting purposes.

Question 39

In a purchase business combination in which common stock was acquired, the target company's monetary and nonmonetary assets are revalued to their current values for consolidated reporting purposes.

Question 40

In a purchase business combination in which common stock was acquired, the target company's monetary assets are not revalued to their current values for consolidated reporting purposes.

Question 41

In a purchase business combination in which common stock was acquired, the target company's liabilities are not revalued to their current values for consolidated reporting purposes.

Question 42

In a purchase business combination in which common stock of the target company was acquired, the acquiring company cannot revalue its own assets to their current values.

Question 43

In purchase accounting, when common stock was acquired, the liabilities of the newly acquired subsidiary may be revalued upward but never downward for consolidated reporting purposes.

Question 44

After consummating the purchase of 100% of the target company's common stock, the parent has the power to direct the newly acquired subsidiary to revalue its assets and liabilities to their current values based on the purchase price.

Question 45

Under push-down accounting, the subsidiary's assets are revalued to their current values in preparing consolidated statements.

Question 46

Costs incurred to maintain goodwill cannot be capitalized.

Question 47

Goodwill must be amortized if management believes a diminishment of value has occurred.

Question 48

Goodwill must be amortized over 40 years.

Question 49

In a purchase business combination in which a bargain purchase element exists, goodwill existing on the target company's books at the acquisition date is eliminated for consolidated reporting purposes.

Question 50

For consolidated reporting purposes, goodwill existing on a target company's books at the acquisition date must be amortized if it arose before the issuance of FAS 141.

Question 51

Goodwill and a covenant not-to-compete are the same thing.

Question 52

Bargain purchase elements are accounted for in a symmetrical manner to accounting for goodwill.

Question 53

A portion of a bargain purchase element that remains after the required allocation procedure is performed is reported as an extraordinary gain.

Question 54

Bargain purchase elements are allocated to the extent possible against certain noncurrent assets.

Question 55

Bargain purchase elements are allocated to the extent possible against fixed assets.

Question 56

Bargain purchase elements are allocated to the extent possible against all noncurrent assets.

Question 57

Bargain purchase elements need not be extinguished in the required allocation procedure.

Question 58

Acquired research and development costs in process must be expensed at the business combination date.

Question 59

Acquired research and development costs in process are subsumed into goodwill at the business combination date.

Question 60

Acquired research and development costs in process must be capitalized as an asset that is subject to impairment testing.

Question 61

Intangible assets other than goodwill are recognized as assets apart from goodwill in a business combination only if the intangibles have indefinite useful economic lives.

Question 62

Intangible assets other than goodwill are recognized as assets apart from goodwill in a business combination only if the intangibles (1) arise from a contractual or legal right or (2) do not arise from a contractual or legal right but are separable.

Question 63

Intangible assets other than goodwill are recognized as assets apart from goodwill in a business combination only if the intangibles arise from a contractual or legal right.

Question 64

Intangible assets other than goodwill are recognized as assets apart from goodwill in a business combination only if the intangibles are separable.

Question 65

Intangible assets other than goodwill that are recognized as assets apart from goodwill in a business combination must be subsequently amortized to earnings only if they do not have indefinite useful economic lives.

Question 66

Intangible assets other than goodwill that are both (1) recognized as assets apart from goodwill in a business combination and (2) required to be subsequently amortized to earnings, are also subject to impairment testing.

Question 67

Intangible assets other than goodwill that are both (1) recognized as assets apart from goodwill in a business combination and (2) required to be subsequently amortized to earnings, are not subject to impairment testing.

Question 68

When control is achieved as a result of a step acquisition, goodwill is determined on a fresh basis using the subsidiary's current values as of the control date.

Question 69

When control is achieved as a result of a step acquisition, goodwill is determined in a cumulative "layered" manner.

Question 70

The step-by-step method is a procedure for analyzing the cost of each separate block of stock acquired using data that pertains to the date control was obtained.

Question 71

The step-by-step method is a procedure for analyzing the cost of each separate block of stock acquired using data that pertains to the date at which each block of stock was acquired.

Question 72

The step-by-step method can be used only if the parent did not have an ownership interest of less than 20%.

Question 73

The step-by-step method is compatible with the equity method of accounting.

Question 74

The step-by-step method is consistent with the parent company concept as to the extent to which the subsidiary's assets and liabilities are revalued to their current values for consolidated reporting purposes.

Question 75

The date of latest purchase method is a procedure for analyzing the cost of each separate block of stock acquired using data that pertains to the date at which each block of stock was acquired.

Question 76

The date of latest purchase method can be used only if the 20-50% ownership range has been bypassed.

Question 77

If the date of latest purchase method is used, the equity method of accounting could be subsequently used.

Question 78

_____ In purchase accounting in which cash is the consideration given, which of the following items cannot be added to the cost of the acquisition (or does not result in an increase thereto)?

A) The fair value of the consideration given.
B) Direct costs traceable to the acquisition.
C) Contingent consideration relating to securities prices.
D) Contingent consideration relating to other than securities prices.
E) None of the above.

Question 79

_____ In purchase accounting in which cash is the consideration given, which of the following items cannot be added to the cost of the acquisition (or does not result in an increase thereto)?

A) Direct costs traceable to the acquisition.
B) Indirect costs not directly traceable to the acquisition.
C) Contingent consideration relating to other than securities prices.
D) The cost of having the target company's financial statements audited by a company's own auditing firm when the acquirer chooses not to rely on the audit report of the target company's auditor.
E) None of the above.

Question 80

_____ In purchase accounting, which of the following items can be added to the cost of the acquisition?

A) Indirect costs not directly traceable to the acquisition.
B) Stock registration costs.
C) Contingent consideration relating to securities prices.
D) An allocated portion of overhead pertaining to an acquisitions department.
E) None of the above.