Question 1

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value for all of the outstanding stock of Vicker.What is the consolidated balance for Land as a result of this acquisition transaction?

Accepted Answer

D

Question 2

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method,how should stock issuance costs and direct combination costs be treated?

Accepted Answer

Direct combination costs are expensed as incurred to income statement as incurred as per ASC 805-10-25-17. Stock issuance costs are treated as a reduction to additional paid-in capital as per ASC 805-40-25-4.

Question 3

Direct combination costs and amounts incurred to register and issue stock in connection with a business combination.How should those costs be accounted for in a pre-2009 business combination? 
 $\quad $$\text { Direct Combination Costs}$ $\quad $$\text {  Stock Issuance Costs}$
A) $\begin{array}{ll}\text { Increase Investment} & \quad\quad\quad\text {Decrease Investment} \end{array}$
B) $\begin{array}{ll} \text {Increase Investment} &\quad\quad\quad\quad\text { Decrease Additional Paid-in Capital }\end{array}$
C) $\begin{array}{ll}  \text { Increase Investment} & \quad\quad\quad\text {Increase Expenses} \end{array}$
D) $\begin{array}{ll}  \text { Decrease Additional Paid-in Capital} & \text {Increase Investment }\end{array}$
E)  $\begin{array}{ll} \text { Increase Expenses} & \quad\quad\quad\quad\text {Decrease Investment}\end{array}$

Accepted Answer

B

Question 4

How are direct and indirect costs accounted for when applying the acquisition method for a business combination? $\begin{array} { cc } 
 &&& \text { Direct Costs } &&&&&& \text { Indirect Costs } \\end{array}$
A)$\begin{array} { cc } &&& \text { Expensed } &&&&&&& \text { Expensed } \\end{array}$
B)$\begin{array} { cc }  & \text { Increase investment account } & \text { Decrease additional paid-in capital } \\end{array}$
C)$\begin{array} { cc } & &&\text { Expensed } &&&&&&& \text { Decrease additional paid-in capital } \\end{array}$
D)$\begin{array} { cc }  & \text { Increase investment account } & \text { Expensed } \\end{array}$
E)$\begin{array} { cc }  & \text { Increase investment account } & \text { Increase investment account } \

\end{array}$

Accepted Answer

The answer of How are direct and indirect costs accounted...

Question 5

Which of the following examples accurately describes a difference in the types of business combinations?

Accepted Answer

A statutory merger involves the transfer of all assets and liabilities of the target company to the acquiring company, with the target company being dissolved. In contrast, a statutory consolidation involves the transfer of assets and liabilities from both companies to a newly formed entity, with both original companies being dissolved. Therefore, option C accurately describes the differences between the two types of business combinations in terms of the dissolution of the companies involved. The other options contain inaccurate or contradictory information.

Question 6

What is the primary difference between: (i)accounting for a business combination when the subsidiary is dissolved;and (ii)accounting for a business combination when the subsidiary retains its incorporation?

Accepted Answer

The answer of What is the primary difference between: (i)accounting...

Question 7

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

Accepted Answer

The acquisition method of accounting for a business combination establishes an acquisition fair value basis for the company being acquired. The other statements are either incorrect or not necessarily true for all business combinations.

Question 8

According to GAAP,which of the following is true with respect to the pooling of interest method of accounting for business combinations?

Accepted Answer

Prior to 2002, GAAP allowed the use of the pooling of interest method for accounting for business combinations. However, in 2002, the Financial Accounting Standards Board (FASB) issued SFAS 141 and 142, which eliminated the pooling of interest method and required the use of the acquisition method for all new business combinations.

Question 9

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-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?

Accepted Answer

The answer of REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting...

Question 10

REFERENCE: 02-02
Prior to being united in a business combination,Botkins Inc.and Volkerson Corp.had the following stockholders' equity figures: $$\begin{array} { l r r r } 
& { \text { Botkins } } & & \text { Volkerson } \
 \text { Common stock (\$1 par value) } & \$ 220,000 & & \$ 54,000 \
\text { Additional paid-in capital } & 110,000 & & 25,000 \
\text { Retained earnings } & 360,000 & & 130,000
\end{array}$$ 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 1,2017 and that Volkerson maintains a separate corporate existence.At what amount did Botkins record the investment in Volkerson?

Accepted Answer

The answer of REFERENCE: 02-02
Prior to being united in a...

Question 11

Acquired in-process research and development is considered as

Accepted Answer

Acquired in-process research and development is considered as an indefinite-lived asset subject to testing for impairment. This means that it is not subject to amortization but will be regularly tested to ensure that its value is not impaired.

Question 12

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value for all of the outstanding shares of Vicker.What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1,2018 balances)as a result of this acquisition transaction?

Accepted Answer

The answer of REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting...

Question 13

In an acquisition where 100% control is acquired,how would the land accounts of the parent and the land accounts of the subsidiary be reported on consolidated financial statements?
$\begin{array} { cc} 
 &&& \text { Parent } && \text { Subsidlary } \\end{array}$
A)$\begin{array} { cc} & \text { Buok Value } & \text { Baok Value } \\end{array}$
B) $\begin{array} { cc}  & \text { Bouk Value } & \text { Fair Value } \\end{array}$
C) $\begin{array} { cc}  & \text { Fair Value } & \text { Fair Value } \\end{array}$
D) $\begin{array} { cc}  & \text { Fair Value } & \text { Bouk Value } \\end{array}$
E) $\begin{array} { cc}  & \text { Cost } &&&& \text { Cost } \
\end{array}$

Accepted Answer

The answer of In an acquisition where 100% control is...

Question 14

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-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?

Accepted Answer

The answer of REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting...

Question 15

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

Accepted Answer

The answer of Lisa Co.paid cash for all of the...

Question 16

Using the acquisition method for a business combination,goodwill is generally calculated as the:

Accepted Answer

Goodwill is calculated as the cost of the investment in a business combination less the fair value of the identifiable net assets acquired. This means that the acquiring company is paying more for the subsidiary than the fair value of its assets and liabilities, which results in the recognition of goodwill. The fair value of the identifiable net assets is determined at the acquisition date, not at the beginning of the year. Therefore, option D is the correct answer. Option A and C are incorrect because they refer to the subsidiary's book value or fair value at the beginning of the year, which is not relevant for the acquisition accounting. Option E is incorrect because goodwill is still allowed to be recognized under current federal law.

Question 17

REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts:
 $\begin{array}{lrrr}
&\text { Bullen } & \text { Vicker } & \text { Vickei } \
&\text { Book } & \text { Book } & \text { Fair } \
&\text { Value } & \text { Value } & \text { Value }\
\text { Retained earnings, 1/1/20 } & \$ 250,000 & \$ 240,000 & \
\text { Cash and receivables } & 170,000 & 70,000 & \$ 70,000 \
\text { Inventory } & 230,000 & 170,000 & 210,000 \
\text { Land } & 280,000 & 220,000 & 240,000 \
\text { Buildings (net) } & 480,000 & 240,000 & 270,00 \
\text { Equipment (net) } & 120,000 & 90,000 & 90,00 \
\text { Liabilities } & 650,000 & 430,000 & 420,000 \
\text { Common stock } & 360,000 & 80,000 & \
\text { Additional paid-in capital } & 20,000 & 40,000 &
\end{array}$

-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?

Accepted Answer

The answer of REFERENCE: 02-01
Bullen Inc.acquired 100% of the voting...

Question 18

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting,which of the following should the acquirer consider when determining fair value?

Accepted Answer

The acquirer should consider the consideration transferred by the acquirer plus the fair value of assets received less liabilities assumed when determining fair value in a business combination. This is because the acquirer is not only acquiring assets but also taking on any liabilities associated with those assets, and the consideration paid should reflect the fair value of what is being acquired. Option A and B are too narrow in scope and do not take into account all the assets and liabilities involved. Option D is incorrect as the par value of stock transferred may not reflect the fair value of the consideration paid, and book value may not reflect fair value either. Option E only focuses on the identifiable assets transferred and does not consider the consideration paid or liabilities assumed.

Question 19

A statutory merger is a(n)

Accepted Answer

A statutory merger is a business combination in which only one of the two companies continues to exist as a legal corporation. This is also known as a consolidation or a true merger. The surviving company assumes all the assets and liabilities of the target company and the target company ceases to exist as a separate legal entity.

Question 20

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

Accepted Answer

According to the acquisition method, in the case of an acquisition that is not a bargain purchase, all the assets and liabilities of the subsidiary are consolidated at their fair values. Therefore, choice C is the best answer. Choices A, B, D, and E are incorrect because they either consolidate only some assets and liabilities at fair value or only at book value, which does not represent the actual fair value of the subsidiary's assets and liabilities.

Quiz 2: Consolidation of Financial Information

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method,how should stock issuance costs and direct combination costs be treated?

Which of the following examples accurately describes a difference in the types of business combinations?

What is the primary difference between: (i) accounting for a business combination when the subsidiary is dissolved;and (ii) accounting for a business combination when the subsidiary retains its incorporation?

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

According to GAAP,which of the following is true with respect to the pooling of interest method of accounting for business combinations?

Acquired in-process research and development is considered as

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

Using the acquisition method for a business combination,goodwill is generally calculated as the:

With respect to recognizing and measuring the fair value of a business combination in accordance with the acquisition method of accounting,which of the following should the acquirer consider when determining fair value?

A statutory merger is a(n)

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