Advanced Accounting Chapter 3 Acquisitions Juan Lewis

Name: __________________________ Date: _____________ 1. Under the acquisition method, indirect costs relating to acquisitions should be A) included in the investment cost. B) expensed as incurred. C) deducted from other contributed capital. D) none of these. 2. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the A) books of the parent company. B) books of the subsidiary company. C) workpaper only. D) books of both the parent company and the subsidiary. 3. One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is A) an undervaluation of the subsidiary's assets. B) the existence of unrecorded goodwill. C) an overvaluation of the subsidiary's liabilities. D) none of these. 4. In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are A) expensed as incurred. B) deducted from other contributed capital. C) included in the investment cost. D) deducted from the investment cost.

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5. On the consolidated balance sheet, consolidated stockholders' equity is A) equal to the sum of the parent and subsidiary stockholders' equity. B) greater than the parent's stockholders' equity. C) less than the parent's stockholders' equity. D) equal to the parent's stockholders' equity. 6. Majority-owned subsidiaries should be excluded from the consolidated statements when A) control does not rest with the majority owner. B) the subsidiary operates under governmentally imposed uncertainty. C) a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls. D) any of these circumstances exist. 7. Under the economic entity concept, consolidated financial statements are intended primarily for the benefit of the A) stockholders of the parent company. B) creditors of the parent company. C) minority stockholders. D) all of the above. 8. Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following except A) the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation. B) the existence of unrecorded goodwill. C) liabilities may be overvalued. D) stockholders' equity may be undervalued. 9. What is the method of presentation required by SFAS 160 of non-controlling interest on a consolidated balance sheet? A) As a deduction from goodwill from consolidation. B) As a separate item within the long-term liabilities section. C) As a part of stockholders' equity. D) As a separate item between liabilities and stockholders' equity.

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10. Which of the following is a limitation of consolidated financial statements? A) Consolidated statements provide no benefit for the stockholders and creditors of the parent company. B) Consolidated statements of highly diversified companies cannot be compared with industry standards. C) Consolidated statements are beneficial only when the consolidated companies operate within the same industry. D) Consolidated statements are beneficial only when the consolidated companies operate in different industries. 11. Pine Corp. owns 60% of Sage Corp.'s outstanding common stock. On May 1, 2011, Pine advanced Sage $90,000 in cash, which was still outstanding at December 31, 2011. What portion of this advance should be eliminated in the preparation of the December 31, 2011 consolidated balance sheet? A) $90,000. B) $54,000. C) $36,000. D) $-0-. Use the following to answer questions 12-14: On January 1, 2011, Polk Company and Sigler Company had condensed balance sheets as follows: Polk Sigler Current assets $ 280,000 $ 80,000 Noncurrent assets _360,000 160,000 Total assets $640,000 $240,000 Current liabilities Long-term debt Stockholders' equity Total liabilities & stockholders' equity $ 120,000 200,000 120,000 $640,000 $ 40,000 -0200,000 $240,000

On January 2, 2011 Polk borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sigler. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2011. Any difference between book value and the value implied by the purchase price relates to land. On Polk's January 2, 2011 consolidated balance sheet,

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12. Noncurrent assets should be A) $520,000. B) $536,000. C) $544,000. D) $586,667. 13. Current liabilities should be A) $200,000. B) $184,000. C) $160,000. D) $120,000. 14. Noncurrent liabilities should be A) $440,000. B) $416,000. C) $240,000. D) $216,000. 15. A newly acquired subsidiary has pre-existing goodwill on its books. The parent company's consolidated balance sheet will: A) treat the goodwill the same as other intangible assets of the acquired company. B) will always show the pre-existing goodwill of the subsidiary at its book value. C) not show any value for the subsidiary's pre-existing goodwill. D) do an impairment test to see if any of it has been impaired. 16. The Difference between Implied and Book Value account is: A) an account necessary for the preparation of consolidated working papers. B) used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values. C) the excess implied value assigned to goodwill. D) the unamortized excess that cannot be assigned to any related balance sheet accounts 17. The main evidence of control for purposes of consolidated financial statements involves A) possessing majority ownership B) having decision-making ability that is not shared with others. C) being the sole shareholder D) having the parent company and the subsidiary participating in the same industry.

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18. In which of the following cases would consolidation be inappropriate? A) The subsidiary is in bankruptcy. B) Subsidiary's operations are dissimilar from those of the parent. C) The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor. D) Subsidiary is foreign. 19. Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2011. On the date of acquisition, Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination? A) $650,000 B) $500,000 C) $550,000 D) $375,000

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. B C D B D D D D C B A D B B C B B A A

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