29 Jun uestion 1. An economic advantage of a business combination includes
uestion
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.
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.]]”
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.
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.
Chapter 1
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?
a.
Plant and Equipment
Long-Term Debt
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
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
.gif”>$1,400,000
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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.
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