Question 1

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

B

Question 2

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

Accepted Answer

A

Question 3

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 balance in the consolidated Inventory account will be the sum of the inventory balances of Bullen and Vicker at the time of the acquisition. The problem doesn't provide this information, so we cannot determine the exact balance. Therefore, the only possible answer is B, which includes $440,000 as one of the options. 
The balance in the consolidated Land account will be the sum of the land balances of Bullen and Vicker at the time of the acquisition, which is $240,000 (par value of preferred stock) + $260,000 (difference between fair value and par value) = $500,000. Therefore, the second option in choice B is correct.

Question 4

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 plus the fair value of assets received less liabilities assumed when determining the fair value of a business combination in accordance with the acquisition method of accounting. This is because the fair value of the assets received may be different from their book value and the acquirer is also responsible for assuming any liabilities of the acquired entity, which should be reflected in the fair value determination. Therefore, option C is the best choice.

Question 5

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 less the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. This is in accordance with the acquisition method for a business combination under accounting standards. Therefore, option D is the correct answer. Option E is incorrect, as goodwill is still allowed and recognized under federal law.

Question 6

Acquired in-process research and development is considered as

Accepted Answer

Acquired in-process research and development is an intangible asset, but it is indefinite-lived and subject to testing for impairment, according to IFRS. It is not subject to amortization.

Question 7

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

Accepted Answer

A statutory merger involves one company absorbing another company and requires the acquired company to be dissolved. In a statutory consolidation, multiple companies combine to form a new entity, and it requires the dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity. It is not accurate to say that a statutory merger can only be effected through an asset acquisition or that a statutory consolidation requires dissolution of the acquired company.

Question 8

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

The total consideration paid by Bullen for the acquisition of Vicker is $47 x 12,000 = $564,000.

The par value of the acquired shares is $5 x 12,000 = $60,000.

Therefore, the excess of the consideration over the par value is $564,000 - $60,000 = $504,000.

This excess is recorded as goodwill on the consolidated balance sheet.

The consolidated balance for Land is the sum of the book value of Bullen's assets and the book value of Vicker's assets plus the excess consideration paid (goodwill):

Bullen's assets = Vicker's assets = $460,000

Goodwill = $504,000

Consolidated balance for Land = $460,000 + $460,000 + $504,000 = $1,424,000

Therefore, the correct choice is D, $520,000.

Question 9

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?

Accepted Answer

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

Question 10

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

Accepted Answer

The acquisition method requires the consolidation of all subsidiary assets and liabilities at fair value. This is done in order to reflect a more accurate value of the assets and liabilities acquired in the consolidation.

Question 11

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, and stock issuance costs result in a reduction to additional paid-in capital. This is in line with the accounting treatment for business combinations that retain their incorporation and are accounted for under the acquisition method, as per ASC 805-10-25-20.

Question 12

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

Accepted Answer

The acquisition method establishes an acquisition fair value basis for the company being acquired, which means the assets and liabilities of the acquired company are recorded at fair value on the date of acquisition. The statement in option A is incorrect because the combination may involve the exchange of cash, debt, or other assets in addition to equity securities. The statement in option C is incorrect because the relative size of the companies involved does not determine which company is the acquirer or the acquiree. The statement in option D is generally true but not specific to the acquisition method of accounting. Option E is incorrect because there is no requirement for the acquired subsidiary to be smaller in size than the acquiring parent.

Question 13

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 Assume that Botkins acquired Volkerson on January...

Question 14

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

Accepted Answer

The pooling of interest method of accounting for business combinations was allowed by GAAP prior to 2002. However, it is no longer permitted and the acquisition method must be used for all new acquisitions. Option A is incorrect because prior to 2002, acquisition method was also in existence. Option B is incorrect because pooling of interest method is no longer allowed by GAAP. Option D is incorrect because the choice between pooling of interest method and acquisition method is not at the acquirer's discretion anymore. Option E is incorrect because GAAP does not require the use of pooling of interest method for business combinations for which $50 billion or more in consideration is transferred.

Question 15

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?

Accepted Answer

The answer of Direct combination costs and amounts incurred to...

Question 16

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 Additional Paid-In Capital is calculated as the difference between the fair value and the par value of the shares issued: (47 - 5) * 12,000 = $504,000. Adding the initial Additional Paid-In Capital of $20,000 gives $524,000. Retained Earnings remain unchanged at $250,000.

Question 17

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)...

Question 18

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 19

A statutory merger is a(n)

Accepted Answer

A statutory merger is a type of business combination in which only one company survives and continues to exist as a legal corporation. The other company merges into and is absorbed by the surviving entity. This type of merger usually requires approval from the shareholders and regulatory bodies.

Question 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 for secretarial and management time allocated to the acquisition transaction.What will be the balance in consolidated goodwill?

Accepted Answer

The answer of Assume that Bullen paid a total of...

Quiz 2: Consolidation of Financial Information