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1Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallAdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter1BusinessCombinationsMultipleChoiceQuestions1)Whichofthefollowingisnotareasonforacompanytoexpandthroughacombination,ratherthanbybuildingnewfacilities?A)Acombinationmightprovidecostadvantages.B)Acombinationmightprovidefeweroperatingdelays.C)Acombinationmightprovideeasieraccesstointangibleassets.D)Acombinationmightprovideanopportunitytoinvestinacompanywithouthavingtotakeresponsibilityforitsfinancialresults.Answer:DObjective:LO1Difficulty:Easy2)AbusinessmergerdiffersfromabusinessconsolidationbecauseA)amergerdissolvesallbutoneofthepriorentities,butaconsolidationdissolvesallofthepriorentities.B)aconsolidationdissolvesallbutoneofthepriorentities,butamergerdissolvesallofthepriorentities.C)amergeriscreatedwhentwoentitiesjoin,butaconsolidationiscreatedwhenmorethantwoentitiesjoin.D)aconsolidationiscreatedwhentwoentitiesjoin,butamergeriscreatedwhenmorethantwoentitiesjoin.Answer:AObjective:LO2Difficulty:Easy3)Followingtheaccountingconceptofabusinesscombination,abusinesscombinationoccurswhenacompanyacquiresanequityinterestinanotherentityandhasA)atleast20%ownershipintheentity.B)morethan50%ownershipintheentity.C)100%ownershipintheentity.D)controlovertheentity,irrespectiveofthepercentageowned.Answer:DObjective:LO2Difficulty:Easy4)Historically,muchofthecontroversyconcerningaccountingrequirementsforbusinesscombinationsinvolvedthe________method.A)purchaseB)poolingofinterestsC)equityD)acquisitionAnswer:BObjective:LO2Difficulty:Easy2Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall5)PitchCo.paid$50,000infeestoitsaccountantsandlawyersinacquiringSlopeCompany.Pitchwilltreatthe$50,000asA)anexpenseforthecurrentyear.B)apriorperiodadjustmenttoretainedearnings.C)additionalcosttoinvestmentofSlopeontheconsolidatedbalancesheet.D)areductioninadditionalpaid-incapital.Answer:AObjective:LO3,4Difficulty:Moderate6)PicassoCo.issued5,000sharesofits$1parcommonstock,valuedat$100,000,toacquiresharesofSeuratCompanyinanall-stocktransaction.Picassopaidtheinvestmentbankers$35,000andwilltreattheinvestmentbankerfeeasA)anexpenseforthecurrentyear.B)apriorperiodadjustmenttoRetainedEarnings.C)additionalgoodwillontheconsolidatedbalancesheet.D)areductiontoadditionalpaid-incapital.Answer:DObjective:LO3Difficulty:Moderate7)DurerInc.acquiredSeaCorporationinabusinesscombinationandSeaCorpwentoutofexistence.SeaCorpdevelopedapatentlistedasanassetonSeaCorp'sbooksatthepatentofficefilingcost.Inrecordingthecombination,A)fairvalueisnotassignedtothepatentbecausetheresearchanddevelopmentcostshavebeenexpensedbySeaCorp.B)SeaCorp'spriorexpensestodevelopthepatentarerecordedasanassetbyDureratpurchase.C)thepatentisrecordedasanassetatfairmarketvalue.D)thepatent'smarketvalueincreasesgoodwill.Answer:CObjective:LO4Difficulty:Moderate8)Inabusinesscombination,whichofthefollowingwilloccur?A)Allidentifiableassetsandliabilitiesarerecordedatfairvalueatthedateofacquisition.B)Allidentifiableassetsandliabilitiesarerecordedatbookvalueatthedateofacquisition.C)Goodwillisrecordedifthefairvalueofthenetassetsacquiredexceedsthebookvalueofthenetassetsacquired.D)Noneoftheaboveiscorrect.Answer:AObjective:LO3Difficulty:Moderate3Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall9)AccordingtoFASBStatement141R,whichoneofthefollowingitemsmaynotbeaccountedforasanintangibleassetapartfromgoodwill?A)AproductionbacklogB)AtalentedemployeeworkforceC)NoncontractualcustomerrelationshipsD)EmploymentcontractsAnswer:BObjective:LO4Difficulty:Easy10)UndertheprovisionsofFASBStatementNo.141R,inabusinesscombination,whenthefairvalueofidentifiablenetassetsacquiredexceedstheinvestmentcost,whichofthefollowingstatementsiscorrect?A)Againfromabargainpurchaseisrecognizedfortheamountthatthefairvalueoftheidentifiablenetassetsacquiredexceedstheacquisitionprice.B)Thedifferenceisallocatedfirsttoreduceproportionately(accordingtomarketvalue)non-currentassets,thentonon-monetarycurrentassets,andanynegativeremainderisclassifiedasadeferredcredit.C)Thedifferenceisallocatedfirsttoreduceproportionately(accordingtomarketvalue)non-currentassets,andanynegativeremainderisclassifiedasanextraordinarygain.D)Thedifferenceisallocatedfirsttoreduceproportionately(accordingtomarketvalue)non-current,depreciableassetstozero,andanynegativeremainderisclassifiedasadeferredcredit.Answer:AObjective:LO4Difficulty:Easy11)Withrespecttogoodwill,animpairmentA)willbeamortizedovertheremainingusefullife.B)isatwo-stepprocesswhichanalyzeseachbusinessreportingunitoftheentity.C)isaone-stepprocessconsideringtheentirefirm.D)occurswhenassetvaluesareadjustedtofairvalueinapurchase.Answer:BObjective:LO4Difficulty:Easy4Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallUsethefollowinginformationtoanswerthequestion(s)below.PolkaCorporationexchanges100,000sharesofnewlyissued$1parvaluecommonstockwithafairmarketvalueof$20pershareforalloftheoutstanding$5parvaluecommonstockofSpotInc.andSpotisthendissolved.Polkapaidthefollowingcostsandexpensesr