29 Free Test Bank for Advanced Accounting 11th Edition by Fischer 

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When determining the fair values of assets acquired in an acquisition, the highest level of measurement per GAAP is

•  adjusted market value based on prices of similar assets.
•  unadjusted market values in an actively traded market.
•  based on discounted cash flows.
•  the entity’s best estimate of an exit or sale value.

ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value; Current Assets $50,000 $ 50,000; Building 80,000 100,000; Equipment 40,000 50,000; Liabilities 30,000 30,000. What is the amount of gain or loss on disposal of business should Comb Corp. recognize?

•  Gain of $60,000
•  Gain of $60,000
•  Loss of $30,000
•  Loss of $60,000

Which of the following income factors should not be considered in expected future income when estimating the value of goodwill?

•  sales for the period
•  income tax expense
•  extraordinary items
•  cost of goods sold

ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value: Current Assets $50,000 $ 50,000; Building 80,000 100,000; Equipment 40,000 50,000; Liabilities 30,000 30,000. What is the amount of goodwill or gain related to the acquisition?

•  Goodwill of $70,000
•  Goodwill of $30,000
•  A gain of $30,000
•  A gain of $70,000

In performing the impairment test for goodwill, the company had the following 20X6 and 20X7 information available. 20X6 20X7 Fair value of the reporting unit $350,000 $400,000; Net book value (including $50,000 goodwill) $360,000 $380,000. Assume that the carrying value of the identifiable assets are a reasonable approximation of their fair values. Based upon this information what are the 20X6 and 20X7 adjustment to goodwill, if any? 20X6 ;20X7

•  no adjustment $20,000 decrease
•  $10,000 increase $20,000 decrease
•  $10,000 decrease $20,000 decrease
•  $10,000 decrease no adjustment

Orbit Inc. purchased Planet Co. on January 1, 20X3. At that time an existing patent having a 5-year estimated life was assigned a provisional value of $10,000 and goodwill was assigned a value of $100,000. By the end of fiscal year 20X3, better information was available that indicated the fair value of the patent was $20,000. How should intangible assets be reported at the beginning of fiscal year 20X4?

•  Goodwill $100,000 Patent $10,000
•  Goodwill $90,000 Patent $16,000
•  Goodwill $84,000 Patent $16,000
•  Goodwill $90,000 Patent $20,000

Goodwill results when:

•  a controlling interest is acquired.
•  the price of the acquisition exceeds the sum of the fair values of the net identifiable assets acquired.
•  the fair value of net assets acquired exceeds the acquisition price.
•  the price of the acquisition exceeds the book value of an acquired company.

A contingent liability of an acquiree

•  refers to future consideration due that is part of the acquisition agreement.
•  is recorded when it is probable that future events will confirm its existence.
•  may be recorded beyond the measurement period under certain circumstances.
•  should be recorded even if the amount cannot be reasonably estimated.

Jones company acquired Jackson Company for $2,000,000 cash. At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively. If Jackson meets specified sales targets, Jones is required to pay an additional $200,000 in cash per the acquisition agreement. Jones estimates the probability of this to be 50%. The direct costs related to the acquisition were $50,000. What was the amount of the goodwill related to the acquisition?

•  $900,000
•  $950,000
•  $850,000
•  $750,000

Which of the following costs of a business combination can be deducted from the value assigned to paid-in capital in excess of par?

•  Direct and indirect acquisition costs.
•  Direct acquisition costs.
•  Direct acquisition costs and stock issue costs if stock is issued as consideration.
•  Stock issue costs if stock is issued as consideration.