Advanced accounting, 11th edition fischer, solutions manual and test bank

Advanced accounting, 11th edition  fischer, solutions manual  and test bank

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test bank

Chapter 1 — Business Combinations: America's Most Popular
Business Activity, Bringing an End to the Controversy
MULTIPLE CHOICE
1. An economic advantage of a business combination includes
a. Utilizing duplicative assets.
b. Creating separate management teams.
c. Coordinated marketing campaigns.
d. Horizontally combining levels within the marketing chain.
ANS: C DIF: E OBJ: 1
2. A tax advantage of business combination can occur when the existing
owner of a company sells out and receives:
a. cash to defer the taxable gain as a "tax-free reorganization."
b. stock to defer the taxable gain as a "tax-free reorganization."
c. cash to create a taxable gain.
d. stock to create a taxable gain.
ANS: B DIF: E OBJ: 1
3. A controlling interest in a company implies that the parent company
a. owns all of the subsidiary's stock.
b. has influence over a majority of the subsidiary's assets.
c. has paid cash for a majority of the subsidiary's stock.
d. has transferred common stock for a majority of the subsidiary's
outstanding bonds and debentures.
ANS: B DIF: M OBJ: 2
4. Which of the following is a potential abuse that may arise when a
business combination is accounted for as a pooling of interests?
a. Assets of the buyer may be overvalued when the price paid by the
investor is allocated among specific assets.
b. Earnings of the pooled entity may be increased because of the
combination only and not as a result of efficient operations.
c. Liabilities may be undervalued when the price paid by the investor
is allocated to specific liabilities.
d. An undue amount of cost may be assigned to goodwill, thus
potentially allowing an understatement of pooled earnings.
ANS: B DIF: M OBJ: 3, Appendix A
Chapter 1
1-2
5. Company B acquired the assets (net of liabilities) of Company S in
exchange for cash. The acquisition price exceeds the fair value of the
net assets acquired. How should Company B determine the amounts to be
reported for the plant and equipment, and for long-term debt of the
acquired Company S?
Plant and Equipment Long-Term Debt
a. Fair value S's carrying amount
b. Fair value Fair value
c. S's carrying amount Fair value
d. S's carrying amount S's carrying amount
ANS: B DIF: E OBJ: 4
6. Publics Company acquired the net assets of Citizen Company during 20X5.
The purchase price was $800,000. On the date of the transaction,
Citizen had no long-term investments in marketable equity securities
and $400,000 in liabilities. The fair value of Citizen assets on the
acquisition date was as follows:
Current assets................................. $ 800,000
Noncurrent assets.............................. 600,000
$1,400,000
==========
How should Publics account for the $200,000 difference between the fair
value of the net assets acquired, $1,000,000, and the cost, $800,000?
a. Retained earnings should be reduced by $200,000.
b. Current assets should be recorded at $685,000 and noncurrent
assets recorded at $515,000.
c. The noncurrent assets should be recorded at $400,000.
d. A deferred credit of $200,000 should be set up and subsequently
amortized to future net income over a period not to exceed 40
years.
ANS: C DIF: M OBJ: 4
7. ABC Co. is acquiring XYZ Inc. XYZ has the following Intangible assets:
Patent on a product that is deemed to have no useful life $10,000.
Customer List with an observable fair value of $50,000.
A 5-year operating lease with favorable terms with a discounted
present value of $8,000.
Identifiable R & D of $100,000.
ABC will record how much for acquired Intangible Assets from the
Purchase of XYZ Inc?
a. $168,000
b. $58,000
c. $158,000
d. $150,000
ANS: B DIF: D OBJ: 4
Chapter 1
1-3
8. Vibe Company purchased the net assets of Atlantic Company in a business
combination accounted for as a purchase. As a result, goodwill was
recorded. For tax purposes, this combination was considered to be a
tax-free merger. Included in the assets is a building with an appraised
value of $210,000 on the date of the business combination. This asset
had a net book value of $70,000, based on the use of accelerated
depreciation for accounting purposes. The building had an adjusted tax
basis to Atlantic (and to Vibe as a result of the merger) of $120,000.
Assuming a 36% income tax rate, at what amount should Vibe record this
building on its books after the purchase?
a. $120,000
b. $134,400
c. $140,000
d. $210,000
ANS: D DIF: M OBJ: 4
9. Goodwill represents the excess cost of an acquisition over the
a. sum of the fair values assigned to intangible assets less
liabilities assumed.
b. sum of the fair values assigned to tangible and intangible assets
acquired less liabilities assumed.
c. sum of the fair values assigned to intangibles acquired less
liabilities assumed.
d. book value of an acquired company.
ANS: B DIF: M OBJ: 5
10. When purchasing a company occurs, FASB recommends disclosing all of the
following EXCEPT:
a. goodwill related to each reporting segment.
b. contingent payment agreements, options, or commitments included in
the purchase agreement, including accounting methods to be
followed.
c. results of operations for the current period if both companies had
remained separate.
d. amount of in-process R&D purchased and written-off during the
period.
ANS: C DIF: M OBJ: 5
Chapter 1
1-4
11. Cozzi Company is being purchased and has the following balance sheet as
of the purchase date:
Current assets.......... $200,000 Liabilities.... $ 90,000
Fixed assets............ 180,000 Equity......... 290,000
Total................. $380,000 Total........ $380,000
======== ========
The price paid for Cozzi's net assets (the purchaser assumes the
liabilities) is $500,000. The fixed assets have a fair value of
$220,000, and the liabilities have a fair value of $110,000. The amount
of goodwill to be recorded in the purchase is __________.
a. $0
b. $50,000
c. $70,000
d. $90,000
ANS: C DIF: M OBJ: 6
12. Separately identified intangible assets are accounted for by
amortizing:
a. exclusively by using impairment testing.
b. based upon a pattern that reflects the benefits conveyed by the
asset.
c. over the useful economic life less residual value using only the
straight-line method.
d. amortizing over a period not to exceed a maximum of 40 years.
ANS: B DIF: E OBJ: 6
13. Acme Co. is preparing a pro-forma set of financial statements after an
acquisition of Coyote Co. The purchase price is less than the fair
value of the assets acquired. However, the purchase price is greater
than net book value of the acquired company.
a. Acme's goodwill will decrease over time.
b. Acme's amortization of intangible assets will increase over time.
c. Depreciation expense will be greater than Coyote Company's
expense.
d. Coyote's loss on the sale of the assets will create a net loss
carryforward.
ANS: C DIF: D OBJ: 6
Chapter 1
1-5
14. While performing a goodwill impairment test, the company had the
following information:
Estimated implied fair value of reporting unit
(without goodwill) $420,000
Existing net book value of reporting unit
(without goodwill) $380,000
Book value of goodwill $60,000
Based upon this information the proper conclusion is:
a. The existing net book value plus goodwill is in excess of the
implied fair value, therefore, no adjustment is required.
b. The existing net book value plus goodwill is less than the implied
fair value plus goodwill, therefore, no adjustment is required.
c. The existing net book value plus goodwill is in excess of the
implied fair value, therefore, goodwill needs to be decreased.
d. The existing net book value is less than the estimated implied
fair value; therefore, goodwill needs to be decreased.
ANS: C DIF: D OBJ: 6
15. Balter Inc. acquired Jersey Company on January 1, 20X5. When the
purchase occurred Jersey Company had the following information related
to fixed assets:
Land $ 80,000
Building 200,000
Accumulated Depreciation (100,000)
Equipment 100,000
Accumulated Depreciation (50,000)
The building has a 10-year remaining useful life and the equipment has
a 5-year remaining useful life. The fair value of the assets on that
date were:
Land $100,000
Building 130,000
Equipment 75,000
What is the 20X5 depreciation expense Balter will record related to
purchasing Jersey Company?
a. $8,000
b. $15,000
c. $28,000
d. $30,000

ANS: C DIF: M OBJ: 6

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