Question 1

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

Accepted Answer

The acquisition method requires that the acquired company's assets and liabilities be recorded at their fair values at the acquisition date, establishing a new fair value basis for the acquired company.

Question 2

How should direct combination costs and amounts incurred to register and issue stock in connection with a business combination be accounted for in a pre-2009 business combination? 
A) Option A.
B) Option B.
C) Option C.
D) Option D.
E) Option E.

Accepted Answer

B

Question 3

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.

Accepted Answer

A statutory merger is a business combination where one company absorbs another, and only the acquiring company continues to exist as a legal entity.

Question 4

According to GAAP, which of the following is true with respect to the pooling of interest method of accounting for business combinations?
A) It was the only method used prior to 2002.
B) It must be used for all new acquisitions.
C) GAAP allowed its use prior to 2002.
D) It, or the acquisition method, may be used at the acquirer's discretion.
E) GAAP requires it to be used instead of the acquisition method for business combinations for which $50 billion or more in consideration is transferred.

Accepted Answer

The pooling of interest method was allowed under GAAP prior to 2002, after which it was replaced by the acquisition method.

Question 5

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts:  Assume that Wilkins issued preferred stock with a par value of $260,000 and a fair value of $500,000 for all of the outstanding shares of Granger in an acquisition business combination. What will be the balance in the consolidated Inventory and Land accounts?
A) $440,000, $540,000.
B) $440,000, $560,000.
C) $410,000, $540,000.
D) $410,000, $560,000.
E) $390,000, $460,000.

Accepted Answer

The answer of Wilkins Inc. acquired 100% of the voting...

Question 6

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) Only assets received by the acquirer.
B) Only consideration transferred by the acquirer.
C) The consideration transferred by the acquirer and the fair value of assets received less liabilities assumed.
D) The par value of stock transferred by the acquirer, and the book value of identifiable assets transferred by the entity acquired.
E) The book value of identifiable assets transferred to the acquirer as part of the business combination less any liabilities assumed.

Accepted Answer

The acquirer should consider the fair value of the consideration transferred and the fair value of assets received less liabilities assumed to determine the fair value in a business combination.

Question 7

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?
A) Stock issuance costs and direct combination costs are expensed as incurred.
B) Direct combination costs are ignored, and the stock issuance costs result in a reduction to additional paid-in capital.
C) Direct combination costs are expensed as incurred and stock issuance costs result in a reduction to additional paid-in capital.
D) Both are treated as part of the acquisition consideration transferred.
E) Both reduce additional paid-in capital.

Accepted Answer

Direct combination costs are expensed as incurred, while stock issuance costs reduce additional paid-in capital according to the acquisition method.

Question 8

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.

Accepted Answer

The consolidation entries are typically recorded in a worksheet, not in the general journals of the individual companies, as they are used for internal reporting purposes to combine the financial statements of the parent and subsidiary.

Question 9

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts:  Assume that Wilkins issued 13,000 shares of common stock, with a $5 par value and a $46 fair value, to obtain all of Granger's outstanding stock. In this acquisition transaction, how much goodwill should be recognized?
A) $178,000.
B) $138,000.
C) $98,000.
D) $94,000.
E) $0.

Accepted Answer

The answer of Wilkins Inc. acquired 100% of the voting...

Question 10

Using the acquisition method for a business combination, goodwill is generally calculated as the:
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) Zero, it is no longer allowed under federal law.

Accepted Answer

Goodwill is calculated as the cost of the investment minus the fair value of the identifiable net assets of the subsidiary at the acquisition date.

Question 11

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.

Accepted Answer

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

Question 12

Prior to being united in a business combination, Taunton Inc. and Eubanks Corp. had the following stockholders' equity figures:  Taunton issued 62,000 new shares of its common stock valued at $2.75 per share for all of the outstanding stock of Eubanks.Assume that Taunton acquired Eubanks on January 1, 2020. Immediately afterwards, what is the reported amount of the consolidated Common Stock?
A) $240,000.
B) $302,000.
C) $304,000.
D) $366,000.
E) $410,500.

Accepted Answer

The answer of Prior to being united in a business...

Question 13

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts:  Assume that Wilkins issued 13,000 shares of common stock with a $5 par value and a $46 fair value for all of the outstanding shares of Granger. What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1, 2021 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) $593,000 and $250,000.
E) $593,000 and $490,000.

Accepted Answer

The answer of Wilkins Inc. acquired 100% of the voting...

Question 14

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?
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.

Accepted Answer

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

Question 15

Which of the following examples accurately describes a difference in the types of business combinations?
A) A statutory merger can only be effected through an asset acquisition while a statutory consolidation can only be effected through a capital stock acquisition.
B) A statutory merger can only be effected through a capital stock acquisition while a statutory consolidation can only be effected through an asset acquisition.
C) A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity.
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 through an asset acquisition but only a statutory consolidation requires dissolution of the acquired company.

Accepted Answer

A statutory merger requires the dissolution of the acquired company while a statutory consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity.

Question 16

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts:  Assume that Wilkins issued 13,000 shares of common stock with a $5 par value and a $46 fair value for all of the outstanding stock of Granger. What is the consolidated balance for Land as a result of this acquisition transaction?
A) $500,000.
B) $550,000.
C) $540,000.
D) $560,000.
E) $530,000.

Accepted Answer

The answer of Wilkins Inc. acquired 100% of the voting...

Question 17

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? 
A) Option A.
B) Option B.
C) Option C.
D) Option D.
E) Option E.

Accepted Answer

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

Question 18

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.

Accepted Answer

Acquired in-process research and development is considered an indefinite-lived asset subject to testing for impairment until the completion or abandonment of the associated project.

Question 19

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts:  Assume that Wilkins paid a total of $500,000 in cash for all of the shares of Granger. In addition, Wilkins paid $42,000 for secretarial and management time allocated to the acquisition transaction. What will be the balance in consolidated goodwill?
A) $0.
B) $20,000.
C) $40,000.
D) $42,000.
E) $82,000.

Accepted Answer

The answer of Wilkins Inc. acquired 100% of the voting...

Question 20

Prior to being united in a business combination, Taunton Inc. and Eubanks Corp. had the following stockholders' equity figures:  Taunton issued 62,000 new shares of its common stock valued at $2.75 per share for all of the outstanding stock of Eubanks.Assume that Taunton acquired Eubanks on January 1, 2020 and that Eubanks maintains a separate corporate existence. At what amount did Taunton record the investment in Eubanks?
A) $62,000.
B) $108,000.
C) $170,500.
D) $201,500.
E) $234,000.

Accepted Answer

The answer of Prior to being united in a business...

Quiz 2: Consolidation of Financial Information

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

How should direct combination costs and amounts incurred to register and issue stock in connection with a business combination be accounted for in a pre-2009 business combination?

A statutory merger is a(n)

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

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?

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?

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:

How are direct and indirect costs accounted for when applying the acquisition method for a business combination?

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

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?

Acquired in-process research and development is considered as