17 Free Test Bank for Advanced Accounting 12th Edition by Beams 

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Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of Seurat Company in an all-stock transaction. Picasso paid the investment bankers $35,000 and will treat the investment banker fee as

•  A) an expense for the current year.
•  B) a prior period adjustment to Retained Earnings.
•  C) additional goodwill on the consolidated balance sheet.
•  D) a reduction to additional paid-in capital.

In a business combination, which of the following will occur?

•  A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
•  B) All identifiable assets and liabilities are recorded at book value at the date of acquisition.
•  C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets acquired.
•  D) None of the above is correct.

According to FASB Statement No. 141, liabilities assumed in an acquisition will be valued at the ________.

•  A) reasonably estimated fair value
•  B) historical book value
•  C) current replacement cost
•  D) present value using market interest rates

Which of the following is not a reason for a company to expand through a combination, rather than by building new facilities?

•  A) A combination might provide cost advantages.
•  B) A combination might provide fewer operating delays.
•  C) A combination might provide easier access to intangible assets.
•  D) A combination might provide an opportunity to invest in a company without having to take responsibility for its financial results.

A business merger differs from a business consolidation because

•  A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities and forms a new corporation.
•  B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities.
•  C) a merger is created when two entities join, but a consolidation is created when more than two entities join.
•  D) a consolidation is created when two entities join, but a merger is created when more than two entities join.

In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs, which of the following is correct?

•  A) Firms are not required to disclose the name of the acquired company.
•  B) Firms are not required to disclose the business purpose for a combination.
•  C) Firms are required to disclose the nature, terms and fair value of consideration transferred in a business combination.
•  D) All of the above are correct.

With respect to goodwill, an impairment

•  A) will be amortized over the remaining useful life.
•  B) is a two-step process which first compares book value to fair value at the business reporting unit level.
•  C) is a one-step process considering the entire firm.
•  D) occurs when asset values are adjusted to fair value in a purchase.

Following the accounting concept of a business combination, a business combination occurs when a company acquires an equity interest in another entity and has

•  A) at least 20% ownership in the entity.
•  B) more than 50% ownership in the entity.
•  C) 100% ownership in the entity.
•  D) control over the entity, irrespective of the percentage owned.

In reference to international accounting for goodwill, U.S. companies have complained that past U.S. accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners. Why?

•  A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules.
•  B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules.
•  C) Previous rules did not permit the recording of goodwill, thus resulting in a lower asset base than international counterparts would recognize.
•  D) All of the above are correct.

When considering an acquisition, which of the following is NOT a method by which one company may gain control of another company?

•  A) Purchase of the majority of outstanding voting stock of the acquired company.
•  B) Purchase of all assets and liabilities of another company.
•  C) Purchase all the outstanding voting stock of the acquired company.
•  D) All of the above methods result in a company gaining control over another company.

Historically, much of the controversy concerning accounting requirements for business combinations involved the ________ method.

•  A) purchase
•  B) pooling of interests
•  C) equity
•  D) acquisition

Under the current GAAP, Goodwill arising from a business combination is

•  A) charged to Retained Earnings after the acquisition is completed.
•  B) amortized over 40 years or its useful life, whichever is longer.
•  C) amortized over 40 years or its useful life, whichever is shorter.
•  D) never amortized.

Under the provisions of FASB Statement No. 141R, in a business combination, when the fair value of identifiable net assets acquired exceeds the investment cost, which of the following statements is correct?

•  A) A gain from a bargain purchase is recognized for the amount that the fair value of the identifiable net assets acquired exceeds the acquisition price.
•  B) The difference is allocated first to reduce proportionately (according to market value) non-current assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit.
•  C) The difference is allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain.
•  D) The difference is allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit.

Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company. Pitch will treat the $50,000 as

•  A) an expense for the current year.
•  B) a prior period adjustment to retained earnings.
•  C) additional cost to investment of Slope on the consolidated balance sheet.
•  D) a reduction in additional paid-in capital.

Durer Inc. acquired Sea Corporation in a business combination and Sea Corp went out of existence. Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost. In recording the combination,

•  A) fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp.
•  B) Sea Corp's prior expenses to develop the patent are recorded as an asset by Durer at purchase.
•  C) the patent is recorded as an asset at fair market value.
•  D) the patent's market value increases goodwill.