Question 1 2 out of 2 points According to the economic unit concept, the primary purpose of consolidated financial statements is to provide

information that is relevant to Answer Selected Answer: both majority and minority stockholders. Correct Answer: both majority and minority stockholders. Question 2 0 out of 2 points A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity. Answer Selected Answer: consolidation. Correct Answer: merger. Question 3 0 out of 2 points The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the Answer Selected Answer:

goodwill. Correct Answer: takeover premium. Question 4 0 out of 2 points The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called Answer Selected Answer: poison pill. Correct Answer: greenmail. Question 5 2 out of 2 points The view that consolidated financial statements represent those of a single economic entity with several classes of stockholder interest is consistent with the Answer Selected Answer: economic unit concept. Correct Answer: economic unit concept. Question 6 0 out of 2 points

Stock given as consideration for a business combination is valued at Answer Selected Answer: historical cost Correct Answer: fair market value Question 7 2 out of 2 points Which of the following statements would not be a valid or logical reason for entering into a business combination? Answer Selected Answer:

the operating costs of the combined entity would be more than the sum of the separate entities.

Correct Answer:

the operating costs of the combined entity would be more than the sum of the separate entities.

Question 8 2 out of 2 points When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n) Answer Selected Answer:

expense deducted from combined income to arrive at consolidated net

income. Correct Answer: expense deducted from combined income to arrive at consolidated net income. Question 9 2 out of 2 points The parent company concept adjusts subsidiary net asset values for the Answer Selected Answer: differences between cost and book value. Correct Answer: differences between cost and book value. Question 10 2 out of 2 points The third period of business combinations started after World War II and is called Answer Selected Answer: merger mania. Correct Answer: merger mania. Question 11 2 out of 2 points

The difference between normal earnings and expected future earnings is Answer Selected Answer: excess earnings. Correct Answer: excess earnings. Question 12 2 out of 2 points Estimated goodwill is determined by computing the present value of the Answer Selected Answer: excess earnings. Correct Answer: excess earnings. Question 13 2 out of 2 points Under the parent company concept, consolidated net income __________ the consolidated net income under the economic unit concept. Answer Selected Answer: is the same as Correct Answer: is the same as

Question 14 2 out of 2 points A merger between a supplier and a customer is a(n) Answer Selected Answer: vertical combination. Correct Answer: vertical combination. Question 15 2 out of 2 points A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n) Answer Selected Answer: friendly combination. Correct Answer: friendly combination. Question 16 2 out of 2 points Potter Corporation acquired Sims Company through an exchange of common shares. All of Sims assets and liabilities were immediately transferred to Potter. Potter Company s common stock was trading at $20 per share at the time of exchange. The following selected information is also available: Potter Company

Before Acquisition Par value of shares outstanding Additional Paid in Capital $200,000 350,000

After Acquisition $250,000 550,000

What number of shares was issued at the time of the exchange? Answer Selected Answer: 12,500 Correct Answer: 12,500 Question 17 2 out of 2 points P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company s assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as: Answer Selected Answer: $90,000. Correct Answer: $90,000. Question 18 2 out of 2 points If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be

Answer Selected Answer: accounted for as goodwill. Correct Answer: accounted for as goodwill. Question 19 2 out of 2 points P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were Current assets $ 120,000 Noncurrent assets 180,000 Total $300,000 How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company? Answer Selected Answer: An ordinary gain of $45,000 should be recorded. Correct Answer: An ordinary gain of $45,000 should be recorded. Question 20 2 out of 2 points Once a reporting unit is determined to have a fair value below its carrying value, the goodwill impairment loss is computed by comparing the Answer

Selected Answer: carrying value of the goodwill to its implied fair value. Correct Answer: carrying value of the goodwill to its implied fair value. Question 21 2 out of 2 points Under SFAS 141R, Answer Selected Answer: both direct and indirect costs are to be expensed. Correct Answer: both direct and indirect costs are to be expensed. Question 22 2 out of 2 points Following its acquisition of the net assets of Sandy Company, Potter Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Cash Inventory Equipment Goodwill Accounts Payable $ 20,000 35,000 125,000 60,000 30,000 30,000 Fair Value $20,000 40,000 160,000

Based on the preceding information, what amount of goodwill will be reported for this division

if its fair value is determined to be $200,000? Answer Selected Answer: $10,000 Correct Answer: $10,000 Question 23 2 out of 2 points Par Company and Sub Company were combined in an acquisition transaction. Par was able to acquire Sub at a bargain Pratt. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Par. After eliminating previously recorded goodwill, there was still some "negative goodwill." Proper accounting treatment by Par is to report the amount as Answer Selected Answer: an ordinary gain. Correct Answer: an ordinary gain. Question 24 2 out of 2 points In a leveraged buyout, the portion of the net assets of the new corporation provided by the management group is recorded at Answer Selected Answer:

book value. Correct Answer: book value. Question 25 2 out of 2 points If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test, the loss should be treated as a(n): Answer Selected Answer: loss from a change in accounting principles. Correct Answer: loss from a change in accounting principles. Question 26 2 out of 2 points In a business combination in which the total fair value of the identifiable assets acquired over liabilities assumed is greater than the consideration paid, the excess fair value is: Answer Selected Answer:

allocated first to eliminate any previously recorded goodwill, and any remaining excess over the consideration paid is classified as an ordinary gain.

Correct Answer:

allocated first to eliminate any previously recorded goodwill, and any remaining excess over the consideration paid is classified as an ordinary gain.

Question 27

2 out of 2 points SFAS 141R requires that all business combinations be accounted for using Answer Selected Answer: the acquisition method. Correct Answer: the acquisition method. Question 28 2 out of 2 points The fair value of net identifiable assets exclusive of goodwill of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, including $60,000 goodwill. If the fair value of the reporting unit is $335,000, what amount of goodwill impairment will be recognized for this unit? Answer Selected Answer: $25,000 Correct Answer: $25,000 Question 29 2 out of 2 points Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase Pratt of the acquired company, the excess should be Answer Selected

Answer:

allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.

Correct Answer:

allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.

Question 30 2 out of 2 points In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures except Answer Selected Answer: the amount of goodwill by reporting segment. Correct Answer: the amount of goodwill by reporting segment. Wednesday, January 11, 2012 7:59:56 PM EST