Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Multiple Choice Questions
In order to reduce the risk associated with a new line of business, Conservative Corporation established pin Compan! as a wholl! owned subsidiar!" It transferred transferred assets and accounts pa!able to pin in e#chan$e for its common stock" pin recorded the followin$ entr! when the transaction occurred%
1" &ased on the precedin$ information, what number of shares of '( par value stock did pin issue to Conservative) A" 10,000 &" (,000 C" *,000 +" ,000
" &ased on the precedin$ information, what was Conservative.s book value of assets transferred to pin Compan!) A" '/,000 &" ',000 C" '1,000 +" '01,000
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
" &ased on the precedin$ information, what amount did Conservative report as its investment in pin after the transfer of assets and liabilities) A" '1*1,000 &" '1,000 C" ',000 +" '/,000
/" &ased on the precedin$ information, immediatel! after the transfer, A" Conservative.s total assets decreased b! ',000" &" Conservative.s total assets decreased b! '0,000" C" Conservative.s total assets increased b! ',000" +" Conservative.s total assets remained the same"
+urin$ its inception, +evon Compan! purchased land for '100,000 and a buildin$ for '1*0,000" After e#actl! !ears, it transferred these assets and cash of '0,000 to a newl! created subsidiar!, 2e$an Compan!, Compan!, in e#chan$e for 1,000 1,00 0 shares of 2e$an.s '10 par value stock" +evon uses strai$ht-line depreciation" 3seful life for the buildin$ is 0 !ears, with 4ero residual value" An appraisal revealed that the buildin$ has a fair value of '00,000"
" &ased on the information provided, at the time of the transfer, 2e$an Compan! should record% A" &uildin$ at '1*0,000 and no accumulated depreciation" &" &uildin$ at '1,000 and no accumulated depreciation" C" &uildin$ at '00,000 and accumulated depreciation of '/,000" +" &uildin$ at '1*0,000 and accumulated depreciation of '1*,000"
" &ased on the information provided, what amount would be reported b! +evon Compan! as investment in 2e$an Compan! common stock) A" '1,000 &" '1*0,000 C" '0,000 +" '10,000
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
(" &ased on the precedin$ information, 2e$an Compan! will report A" additional paid-in capital of '0" &" additional paid-in capital of '10,000" C" additional paid-in capital of '1,000" +" additional paid-in capital of '1*0,000"
*" &urrou$h Corporation concluded that the fair value of 5el!ar Compan! was '*0,000 and paid that amount to acquire all of its net assets" 5el!ar reported assets assets with a book value of '0,000 and fair value of '6*,000 and liabilities with a book value and fair value of ',000 on the date of combination" &urrou$h also paid ',000 to a search firm for finder.s fees related to the acquisition" 7hat amount will be recorded as $oodwill b! &urrou$h Corporation while recordin$ its investment in 5el!ar) A" '0 &" ',000 C" '*,000 +" '1,000
8lummet Corporation reported the book value of its net assets at '/00,000 when 9enith Corporation acquired 100 percent ownership" :he fair value of 8lummet.s net assets was determined to be '10,000 on that date"
6" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '0,000 for the acquisition) A" '0 &" '0,000 C" '10,000 +" '/0,000
10" &ased on the precedin$ p recedin$ information, what amount will be recorded b! 9enith as its investment in 8lummet, if it paid '00,000 for the acquisition) A" '10,000 &" '/00,000 C" '00,000 +" '10,000
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
11" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '00,000 for the acquisition) A" '0 &" '0,000 C" '10,000 +" '/0,000
Octane Compan! and &io Compan! have announced terms of an e#chan$e a$reement under which Octane will issue 10,000 shares of its ' par value common stock to acquire all of &io.s assets" Octane shares are tradin$ at '*, and &io.s '10 par value shares are tradin$ at '1" 5istorical cost and fair value balance sheet data on ;anuar! 1, 00*, are as follows%
1" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for &uildin$s and Equipment
1-/
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
1" &ased on the information provided, what amount will be reported for Common tock in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" '00,000 &" '0,000 C" '00,000 +" '10,000
1/" &ased on the information provided, what amount will be reported for Additional 8aid-In Capital in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" '0,000 &" '*0,000 C" '10,000 +" '60,000
1" &ased on the information provided, what amount of $oodwill will be reported immediatel! followin$ the business combination in the combined compan!.s balance sheet) A" '0 &" '0,000 C" '/0,000 +" '10,000
1" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for 2etained Earnin$s in the combined compan!.s balance sheet) A" '1(0,000 &" ',000 C" '11,000 +" '10,000
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
1(" :he fair value of net ne t identifiable assets of a reportin$ unit of > Compan! is '00,000" ' 00,000" On > Compan!.s books, the carr!in$ value of this reportin$ unit.s net assets is '0,000, includin$ '0,000 $oodwill" If the fair value of the reportin$ unit is ',000, what amount of $oodwill impairment will be reco$ni4ed for this unit) A" '0 &" '10,000 C" ',000 +" ',000
1*" :he fair value of net ne t identifiable assets of a reportin$ unit of ? Compan! is '(0,000" :he carr!in$ value of the reportin$ unit.s net assets on ? Compan!.s books is '0,000, includin$ '0,000 $oodwill" If the reported $oodwill $oodw ill impairment for the unit is '10,000, what would be be the fair value of the reportin$ unit) A" '0,000 &" '10,000 C" '(0,000 +" '60,000
@ollowin$ its acquisition of the net assets of +an Compan!, Empire Compan! assi$ned $oodwill of '0,000 to one of the reportin$ divisions" Information for this division follows%
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
16" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for this division if its fair value is determined to be '00,000) A" '0 &" '0,000 C" '0,000 +" '10,000
0" &ased on the precedin$ p recedin$ information, what amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be '16,000) A" ',000 &" '0,000 C" '0,000 +" ',000
1" &ased on the precedin$ p recedin$ information, what amount of amount of o f $oodwill impairment will be reco$ni4ed for this division if its fair value value is determined to be '/,000) A" '0 &" '0,000 C" '0,000 +" ',000
8ublic Equit! Corporation acquired enore Compan! throu$h an e#chan$e of common shares" All of enore.s assets and liabilities were immediatel! transferred to 8ublic Equit!" 8ublic.s common stock was tradin$ at '0 per share at the time of e#chan$e" @ollowin$ selected information is also available"
1-(
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
" &ased on the precedin$ p recedin$ information, what number of shares was issued at the time of the e#chan$e) A" ,000 &" 1(,00 C" 1,00 +" 10,000
" &ased on the precedin$ information, what is the par value of 8ublic.s common stock) A" '10 &" '1 C" ' +" '/
/" &ased on the precedin$ p recedin$ information, what is the fair value of enore.s net assets, if $oodwill of ',000 is recorded) A" '0,000 &" '//,000 C" '16/,000 +" '00,000
8ursuin$ an inor$anic $rowth strate$!, 7ilson 7ilson Compan! acquired Benus Benus Compan!.s net assets and assi$ned them to four separate reportin$ divisions" 7ilson 7ilson assi$ned total $oodwill $ood will of '1/,000 to the four reportin$ divisions as $iven below%
1-*
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for Alpha Alpha at !ear-end) A" '0 &" '0,000 C" '0,000 +" '10,000
" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for &eta at !ear-end) A" '0 &" '1/,000 C" '/,000 +" '0,000
(" &ased on the precedin$ information, for amma% A" no $oodwill should be reported at !ear-end" &" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '0,000 should be reported at !ear-end"
*" &ased on the precedin$ information, for +elta% A" no $oodwill should be reported at !ear-end" &" $oodwill impairment of '1,000 should be reco$ni4ed at !ear-end" C" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" +" $oodwill of '0,000 should be reported at !ear-end"
6" &ased on the precedin$ information, what would be the total amount of $oodwill that 7ilson 7ilson should report at !ear-end) A" '0 &" '6,000 C" '(6,000 +" '6/,000
1-6
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
2ivendell Corporation and @oster Compan! mer$ed as of ;anuar! 1, 006" :o effect the mer$er, 2ivendell paid finder.s fees of '/0,000, le$al fees of '1,000, audit fees related to the stock issuance of '10,000, stock re$istration fees of ',000, ' ,000, and stock listin$ application fees of '/,000"
0" &ased on the precedin$ information, under the acquisition method, what amount relatin$ to the business combination would be e#pensed) A" '(,000 &" '16,000 C" ',000 +" ',000
1" &ased on the precedin$ information, under the acquisition method% A" '(,000 of stock issue costs are treated as $oodwill" &" '16,000 of stock issue costs are treated as a reduction in the issue price" C" '16,000 of stock issue costs are e#pensed" +" '(,000 of stock issue costs are e#pensed"
" 3sin$ the precedin$ information, what amount would have been e#pensed if the purchase method of accountin$ was used) A" '0 &" '16,000 C" ',000 +" '(,000
" 3sin$ the precedin$ information, what amount would have been e#pensed if the poolin$of-interests method of accountin$ was used) A" '0 &" '16,000 C" ',000 +" '(,000
1-10
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" 7hich of the followin$ observations is
" 7hich of the followin$ situations best describes a business combination to be accounted for as a statutor! mer$er) A" &oth companies in a combination continue to operate as separate, but b ut related, le$al entities" &" Onl! one of the combinin$ companies survives and the other loses its separate identit!" identit!" C" :wo companies combine to form a new third compan!, and the ori$inal two companies are dissolved" +" One compan! transfers assets to another compan! it has created"
" A statutor! consolidation is a t!pe of business combination in which% A" one of the combinin$ companies survives and the other loses its separate identit!" &" one compan! acquires the votin$ shares of the other compan! and the two companies continue to operate as separate le$al entities" C" two publicl! traded companies a$ree to share a board of directors" +" each of the combinin$ companies is dissolved and the net assets of both b oth companies are transferred to a newl! created corporation"
(" 7hich of the followin$ observations refers to the term differential ) A" E#cess of consideration e#chan$ed over fair value of net identifiable assets" &" E#cess of fair value over book bo ok value of net identifiable assets" C" E#cess of consideration e#chan$ed over book value of net identifiable assets" +" E#cess of fair value over historical h istorical cost of net identifiable assets"
1-11
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
*" 7hich of the followin$ observations concernin$ $oodwill is DO: correct) A" Once written down, it ma! be written up for recoveries" &" It must be tested for impairment at least annuall!" C" oodwill impairment losses are reco$ni4ed in income from con tinuin$ operations or income before e#traordinar! $ains and losses" +" It must be reported as a separate line item in the balance sheet"
6" Assumin$ no impairment in value prior to transfer, assets assets transferred b! a parent compan! to another entit! it has created should be recorded b! the newl! n ewl! created entit! at the assets.% A" cost to the parent compan!" &" book value on the parent compan!.s books at the date of transfer" C" fair value at the date of transfer" +" fair value of consideration e#chan$ed b! the newl! created entit!"
Essay Questions
/0" On ;anuar! 1, 00*, 00*, ine Corporation acquired all of the common stock of taff Compan! for '00,000" On that date, taff.s identifiable identifiable net assets had a fair value of '0,000" :he assets acquired in the purchase of taff are considered to be a separate reportin$ unit of ine Corporation" :he carr!in$ value of taff.s investment at +ecember 1, 00*, is '10,000" :he fair value of the net assets
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/1" 5a!nes Corporation entered into an a$reement with +ie$o Compan! to establish e stablish 5F+ 8artnership" 5a!nes a$reed to transfer the followin$ assets to 5F+ for *0 p ercent ownership, and +ie$o a$reed to transfer '10,000 cash to the partnership for 0 percent ownership"
2equired% 1" ive the Gournal entries that 5a!nes Corporation and +ie$o Compan! recorded for their transfer of assets and accounts pa!able to 5F+ 8artnership" ive the Gournal entries that 5F+ recorded for its receipt of assets and accounts pa!able from 5a!nes and +ie$o"
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" Envire Corporation acquired all the assets and liabilities of C@C Corporation b! issuin$ shares of its common stock On ;anuar! 1, 006" 8artial balance sheet data for the companies prior to the business combination and immediatel! followin$ the combination is provided% provided%
2equired% 7hat number of shares did Envire issue for this acquisition) At what price was Envire stock tradin$ when stock was issued for this acquisition) 7hat was the fair value of the net n et assets held b! C@C at the date d ate of combination) 7hat amount of $oodwill will be reported b! the combined entit! immediatel! followin$ the combination) 7hat balance in retained earnin$s will the combined entit! report immediatel! followin$ the combination)
1-1/
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" On ;anuar! 1, 00*, 00*, Alaska Corporation acquired Hercantile Corporation.s net assets b! pa!in$ '10,000 cash" &alance sheet data for the two companies and fair value information for Hercantile Corporation immediatel! before the business combination are $iven be low%
2equired% 8repare a combined balance sheet immediatel! followin$ the acquisition"
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
//" eaine Corporation is involved in the distribution of processed marine products" :he fair values of assets and liabilities held b! three reportin$ units and other information related to the reportin$ units owned b! eaine are as follows%
2equired% +etermine the amount of $oodwill that eaine should report in its current financial statements"
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
Chapter 01 Intercorporate Acquisitions Acquisitions and Investments in Other Entities Answer e! Answer e!
Multiple Choice Questions
1-1(
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
In order to reduce the risk associated with a new line of business, Conservative Corporation established pin Compan! as a wholl! owned subsidiar!" It transferred transferred assets and accounts pa!able to pin in e#chan$e for its common stock" pin recorded the followin$ entr! when the transaction occurred%
1" &ased on the precedin$ information, what number of shares of '( par value stock did pin issue to Conservative) A" 10,000 A" 10,000 &" (,000 &" (,000 C. *,000 +" ,000 +" ,000
AACSB: Analytic AICPA: AICPA: Measurement
" &ased on the precedin$ information, what was Conservative.s book value of assets transferred to pin Compan!) A" '/,000 A" '/,000 &" ',000 &" ',000 C" '1,000 C" '1,000 D. '01,000
AACSB: Analytic AICPA: AICPA: Measurement
1-1*
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
" &ased on the precedin$ information, what amount did Conservative report as its investment in pin after the transfer of assets and liabilities) A. '1*1,000 &" '1,000 &" '1,000 C" ',000 C" ',000 +" '/,000 +" '/,000
AACSB: Analytic AICPA: AICPA: Measurement
/" &ased on the precedin$ information, immediatel! after the transfer, A" Conservative.s A" Conservative.s total assets decreased b! ',000" B. Conservative.s total assets decreased b! '0,000" C" Conservative.s C" Conservative.s total assets increased b! ',000" +" Conservative.s +" Conservative.s total assets remained the same"
AACSB: Analytic AICPA: AICPA: Measurement
+urin$ its inception, +evon Compan! purchased land for '100,000 and a buildin$ for '1*0,000" After e#actl! !ears, it transferred these assets and cash of '0,000 to a newl! created subsidiar!, 2e$an Compan!, Compan!, in e#chan$e for 1,000 1,00 0 shares of 2e$an.s '10 par value stock" +evon uses strai$ht-line depreciation" 3seful life for the buildin$ is 0 !ears, with 4ero residual value" An appraisal revealed that the buildin$ has a fair value of '00,000"
" &ased on the information provided, at the time of the transfer, 2e$an Compan! should record% A" &uildin$ A" &uildin$ at '1*0,000 and no accumulated depreciation" &" &uildin$ &" &uildin$ at '1,000 and no accumulated depreciation" C" &uildin$ C" &uildin$ at '00,000 and accumulated depreciation of '/,000" D. &uildin$ at '1*0,000 and accumulated depreciation of '1*,000"
AACSB: Analytic AICPA: AICPA: Measurement
1-16
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
" &ased on the information provided, what amount would be reported b! +evon Compan! as investment in 2e$an Compan! common stock) A. '1,000 &" '1*0,000 &" '1*0,000 C" '0,000 C" '0,000 +" '10,000 +" '10,000
AACSB: Analytic AICPA: AICPA: Measurement
(" &ased on the precedin$ information, 2e$an Compan! will report A" additional A" additional paid-in capital of '0" &" additional &" additional paid-in capital of '10,000" C. additional paid-in capital of '1,000" +" additional +" additional paid-in capital of '1*0,000"
AACSB: Analytic AICPA: AICPA: Measurement
*" &urrou$h Corporation concluded that the fair value of 5el!ar Compan! was '*0,000 and paid that amount to acquire all of its net assets" 5el!ar reported assets assets with a book value of '0,000 and fair value of '6*,000 and liabilities with a book value and fair value of ',000 on the date of combination" &urrou$h also paid ',000 to a search firm for finder.s fees related to the acquisition" 7hat amount will be recorded as $oodwill b! &urrou$h Corporation while recordin$ its investment in 5el!ar) A" '0 A" '0 B. ',000 C" '*,000 C" '*,000 +" '1,000 +" '1,000
AACSB: Analytic AICPA: AICPA: Measurement
8lummet Corporation reported the book value of its net assets at '/00,000 when 9enith Corporation acquired 100 percent ownership" :he fair value of 8lummet.s net assets was determined to be '10,000 on that date"
1-0
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
6" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '0,000 for the acquisition) A" '0 A" '0 &" '0,000 &" '0,000 C" '10,000 C" '10,000 D. '/0,000
AACSB: Analytic AICPA: AICPA: Measurement
10" &ased on the precedin$ p recedin$ information, what amount will be recorded b! 9enith as its investment in 8lummet, if it paid '00,000 for the acquisition) A" '10,000 A" '10,000 &" '/00,000 &" '/00,000 C" '00,000 C" '00,000 D. '10,000
AACSB: Analytic AICPA: AICPA: Measurement
11" &ased on the precedin$ information, what amount of $oodwill will be reported in consolidated financial statements presented immediatel! followin$ the combination if 9enith paid '00,000 for the acquisition) A. '0 &" '0,000 &" '0,000 C" '10,000 C" '10,000 +" '/0,000 +" '/0,000
AACSB: Analytic AICPA: AICPA: Measurement
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
Octane Compan! and &io Compan! have announced terms of an e#chan$e a$reement under which Octane will issue 10,000 shares of its ' par value common stock to acquire all of &io.s assets" Octane shares are tradin$ at '*, and &io.s '10 par value shares are tradin$ at '1" 5istorical cost and fair value balance sheet data on ;anuar! 1, 00*, are as follows%
1" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for &uildin$s and Equipment
AACSB: Analytic AICPA: AICPA: Measurement
1" &ased on the information provided, what amount will be reported for Common tock in the combined compan!.s balance sheet immediatel! followin$ the business combination) A. '00,000 &" '0,000 &" '0,000 C" '00,000 C" '00,000 +" '10,000 +" '10,000
AACSB: Analytic AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
1/" &ased on the information provided, what amount will be reported for Additional 8aid-In Capital in the combined compan!.s balance sheet immediatel! followin$ the business combination) A" '0,000 A" '0,000 &" '*0,000 &" '*0,000 C" '10,000 C" '10,000 D. '60,000
AACSB: Analytic AICPA: AICPA: Measurement
1" &ased on the information provided, what amount of $oodwill will be reported immediatel! followin$ the business combination in the combined compan!.s balance sheet) A" '0 A" '0 &" '0,000 &" '0,000 C. '/0,000 +" '10,000 +" '10,000
AACSB: Analytic AICPA: AICPA: Measurement
1" &ased on the information provided, what amount will be reported immediatel! followin$ the business combination for 2etained Earnin$s in the combined compan!.s balance sheet) A. '1(0,000 &" ',000 &" ',000 C" '11,000 C" '11,000 +" '10,000 +" '10,000
AACSB: Analytic AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
1(" :he fair value of net ne t identifiable assets of a reportin$ unit of > Compan! is '00,000" ' 00,000" On > Compan!.s books, the carr!in$ value of this reportin$ unit.s net assets is '0,000, includin$ '0,000 $oodwill" If the fair value of the reportin$ unit is ',000, what amount of $oodwill impairment will be reco$ni4ed for this unit) A" '0 A" '0 &" '10,000 &" '10,000 C. ',000 +" ',000 +" ',000
AACSB: Analytic AICPA: AICPA: Measurement
1*" :he fair value of net ne t identifiable assets of a reportin$ unit of ? Compan! is '(0,000" :he carr!in$ value of the reportin$ unit.s net assets on ? Compan!.s books is '0,000, includin$ '0,000 $oodwill" If the reported $oodwill $oodw ill impairment for the unit is '10,000, what would be be the fair value of the reportin$ unit) A" '0,000 A" '0,000 B. '10,000 C" '(0,000 C" '(0,000 +" '60,000 +" '60,000
AACSB: Analytic AICPA: AICPA: Measurement
@ollowin$ its acquisition of the net assets of +an Compan!, Empire Compan! assi$ned $oodwill of '0,000 to one of the reportin$ divisions" Information for this division follows%
1-/
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
16" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for this division if its fair value is determined to be '00,000) A" '0 A" '0 &" '0,000 &" '0,000 C" '0,000 C" '0,000 D. '10,000
AACSB: Analytic AICPA: AICPA: Measurement
0" &ased on the precedin$ p recedin$ information, what amount of $oodwill impairment will be reco$ni4ed for this division if its fair value is determined to be '16,000) A" ',000 A" ',000 &" '0,000 &" '0,000 C" '0,000 C" '0,000 D. ',000
AACSB: Analytic AICPA: AICPA: Measurement
1" &ased on the precedin$ p recedin$ information, what amount of amount of o f $oodwill impairment will be reco$ni4ed for this division if its fair value value is determined to be '/,000) A. '0 &" '0,000 &" '0,000 C" '0,000 C" '0,000 +" ',000 +" ',000
AACSB: Analytic AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
8ublic Equit! Corporation acquired enore Compan! throu$h an e#chan$e of common shares" All of enore.s assets and liabilities were immediatel! transferred to 8ublic Equit!" 8ublic.s common stock was tradin$ at '0 per share at the time of e#chan$e" @ollowin$ selected information is also available"
" &ased on the precedin$ p recedin$ information, what number of shares was issued at the time of the e#chan$e) A" ,000 A" ,000 &" 1(,00 &" 1(,00 C. 1,00 +" 10,000 +" 10,000
AACSB: Analytic AICPA: AICPA: Measurement
" &ased on the precedin$ information, what is the par value of 8ublic.s common stock) A" '10 A" '10 &" '1 &" '1 C" ' C" ' D. '/
AACSB: Analytic AICPA: AICPA: Measurement
/" &ased on the precedin$ p recedin$ information, what is the fair value of enore.s net assets, if $oodwill of ',000 is recorded) A" '0,000 A" '0,000 &" '//,000 &" '//,000 C. '16/,000 +" '00,000 +" '00,000
AACSB: Analytic AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
8ursuin$ an inor$anic $rowth strate$!, strate$!, 7ilson 7ilson Compan! acquired Benus Benus Compan!.s net assets and assi$ned them to four separate reportin$ divisions" 7ilson 7ilson assi$ned total $oodwill $ood will of '1/,000 to the four reportin$ divisions as $iven below%
" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for Alpha Alpha at !ear-end) A" '0 A" '0 B. '0,000 C" '0,000 C" '0,000 +" '10,000 +" '10,000
AACSB: Analytic AICPA: AICPA: Measurement
" &ased on the precedin$ p recedin$ information, what amount of $oodwill will be reported for &eta at !ear-end) A" '0 A" '0 &" '1/,000 &" '1/,000 C. '/,000 +" '0,000 +" '0,000
AACSB: Analytic AICPA: AICPA: Measurement
1-(
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
(" &ased on the precedin$ information, for amma% A. no $oodwill should be reported at !ear-end" &" $oodwill &" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" C" $oodwill C" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" +" $oodwill +" $oodwill of '0,000 should be reported at !ear-end"
AACSB: Analytic AICPA: AICPA: Measurement
*" &ased on the precedin$ information, for +elta% A" no A" no $oodwill should be reported at !ear-end" B. $oodwill impairment of '1,000 should be reco$ni4ed at !ear-end" C" $oodwill C" $oodwill impairment of '0,000 should be reco$ni4ed at !ear-end" +" $oodwill +" $oodwill of '0,000 should be reported at !ear-end"
AACSB: Analytic AICPA: AICPA: Measurement
6" &ased on the precedin$ information, what would be the total amount of $oodwill that 7ilson 7ilson should report at !ear-end) A" '0 A" '0 B. '6,000 C" '(6,000 C" '(6,000 +" '6/,000 +" '6/,000
AACSB: Analytic AICPA: AICPA: Measurement
2ivendell Corporation and @oster Compan! mer$ed as of ;anuar! 1, 006" :o effect the mer$er, 2ivendell paid finder.s fees of '/0,000, le$al fees of '1,000, audit fees related to the stock issuance of '10,000, stock re$istration fees of ',000, ' ,000, and stock listin$ application fees of '/,000"
1-*
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
0" &ased on the precedin$ information, under the acquisition method, what amount relatin$ to the business combination would be e#pensed) A" '(,000 A" '(,000 &" '16,000 &" '16,000 C. ',000 +" ',000 +" ',000
AACSB: Analytic AICPA: AICPA: Measurement
1" &ased on the precedin$ information, under the acquisition method% A" '(,000 A" '(,000 of stock issue costs are treated as $oodwill" B. '16,000 of stock issue costs are treated as a reduction in the issue price" C" '16,000 C" '16,000 of stock issue costs are e#pensed" +" '(,000 +" '(,000 of stock issue costs are e#pensed"
AACSB: Analytic AICPA: AICPA: Measurement
" 3sin$ the precedin$ information, what amount would have been e#pensed if the purchase method of accountin$ was used) A. '0 &" '16,000 &" '16,000 C" ',000 C" ',000 +" '(,000 +" '(,000
AACSB: Analytic AICPA: AICPA: Measurement
" 3sin$ the precedin$ information, what amount would have been e#pensed if the poolin$of-interests method of accountin$ was used) A" '0 A" '0 &" '16,000 &" '16,000 C" ',000 C" ',000 D. '(,000
AACSB: Analytic AICPA: AICPA: Measurement
1-6
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" 7hich of the followin$ observations is
AACSB: Reflective Thinking AICPA: AICPA: Reporting
" 7hich of the followin$ situations best describes a business combination to be accounted for as a statutor! mer$er) A" &oth A" &oth companies in a combination continue to operate as separate, but b ut related, le$al entities" identit!" B. Onl! one of the combinin$ companies survives and the other loses its separate identit!" C" :wo C" :wo companies combine to form a new third compan!, and the ori$inal two companies are dissolved" +" One +" One compan! transfers assets to another compan! it has created"
AACSB: Reflective Thinking AICPA: AICPA: ecision Making
" A statutor! consolidation is a t!pe of business combination in which% A" one A" one of the combinin$ companies survives and the other loses its separate identit!" &" one &" one compan! acquires the votin$ shares of the other compan! and the two companies continue to operate as separate le$al entities" C" two C" two publicl! traded companies a$ree to share a board of directors" b oth companies are D. each of the combinin$ companies is dissolved and the net assets of both transferred to a newl! created corporation"
AACSB: Reflective Thinking AICPA: AICPA: ecision Making
1-0
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
(" 7hich of the followin$ observations refers to the term differential ) A" E#cess A" E#cess of consideration e#chan$ed over fair value of net identifiable assets" &" E#cess &" E#cess of fair value over book bo ok value of net identifiable assets" ne t identifiable assets" C. E#cess of consideration e#chan$ed over book value of net +" E#cess +" E#cess of fair value over historical h istorical cost of net identifiable assets"
AACSB: Reflective Thinking AICPA: AICPA: Reporting
*" 7hich of the followin$ observations concernin$ $oodwill is DO: correct) A. Once written down, it ma! be written up for recoveries" &" It &" It must be tested for impairment at least annuall!" C" oodwill C" oodwill impairment losses are reco$ni4ed in income from continuin$ con tinuin$ operations or income before e#traordinar! $ains and losses" +" It +" It must be reported as a separate line item in the balance sheet"
AACSB: Reflective Thinking AICPA: AICPA: Reporting
6" Assumin$ no impairment in value prior to transfer, assets assets transferred b! a parent compan! to another entit! it has created should be recorded b! the newl! n ewl! created entit! at the assets.% A" cost A" cost to the parent compan!" B. book value on the parent compan!.s books at the date of transfer" C" fair C" fair value at the date of transfer" +" fair +" fair value of consideration e#chan$ed b! the newl! created entit!"
AACSB: Reflective Thinking AICPA: AICPA: ecision Making
Essay Questions
1-1
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/0" On ;anuar! 1, 00*, 00*, ine Corporation acquired all of the common stock of taff Compan! for '00,000" On that date, taff.s identifiable identifiable net assets had a fair value of '0,000" :he assets acquired in the purchase of taff are considered to be a separate reportin$ unit of ine Corporation" :he carr!in$ value of taff.s investment at +ecember 1, 00*, is '10,000" :he fair value of the net assets
AACSB: Analytic! Communication Communication AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/1" 5a!nes Corporation entered into an a$reement with +ie$o Compan! to establish e stablish 5F+ 8artnership" 5a!nes a$reed to transfer the followin$ assets to 5F+ for *0 p ercent ownership, and +ie$o a$reed to transfer '10,000 cash to the partnership for 0 percent ownership"
2equired% 1" ive the Gournal entries that 5a!nes Corporation and +ie$o Compan! recorded for their transfer of assets and accounts pa!able to 5F+ 8artnership" ive the Gournal entries that 5F+ recorded for its receipt of assets and accounts pa!able from 5a!nes and +ie$o"
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
1" ;ournal Entr! K 5a!nes
;ournal Entr! K +ie$o
" ;ournal entr! recorded b! 5F+ partnership for receipt of assets and accounts pa!able%
AACSB: Analytic AICPA: AICPA: Measurement
1-/
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" Envire Corporation acquired all the assets and liabilities of C@C Corporation b! issuin$ shares of its common stock On ;anuar! 1, 006" 8artial balance sheet data for the companies prior to the business combination and immediatel! followin$ the combination is provided% provided%
2equired% 7hat number of shares did Envire issue for this acquisition) At what price was Envire stock tradin$ when stock was issued for this acquisition) 7hat was the fair value of the net n et assets held b! C@C at the date d ate of combination) 7hat amount of $oodwill will be reported b! the combined entit! immediatel! followin$ the combination) 7hat balance in retained earnin$s will the combined entit! report immediatel! followin$ the combination) 1" Dumber of shares J 0,000 <10,000 K 100,000 J 0,000L 0,000M' par= " tock price J '*
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
AACSB: Analytic AICPA: AICPA: Measurement
1-
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
/" On ;anuar! 1, 00*, 00*, Alaska Corporation acquired Hercantile Corporation.s net assets b! pa!in$ '10,000 cash" &alance sheet data for the two companies and fair value information for Hercantile Corporation immediatel! before the business combination are $iven be low%
2equired% 8repare a combined balance sheet immediatel! followin$ the acquisition"
1-(
Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities
AACSB: Analytic AICPA: AICPA: Measurement
//" eaine Corporation is involved in the distribution of processed marine products" :he fair values of assets and liabilities held b! three reportin$ units and other information related to the reportin$ units owned b! eaine are as follows%
2equired% +etermine the amount of $oodwill that eaine should report in its current financial statements"
:otal :o tal oodwill reported J '(0,000
AACSB: Analytic AICPA: AICPA: Measurement
1-*
