1On January 1, 20X2, Alaska Corporation acquired Mercantile Corporations net assets by

1 Chapter 1 1)On January 1, 20X2, Alaska Corporation acquired Mercantile Corporation's net assets by paying $160,000 cash. Balance sheet data for the two companies and fair value information for Mercantile Corporation immediately before the business combination are given below: AlaskaMercantile Book Value Book Value Fair Value Cash$ 200,000 $ 30,000 $ 30,000 Accounts Receivable40,000 22,000 22,000 Inventory120,000 25,000 36,000 Patents50,000 20,000 40,000 Buildings and Equipment 330,000 250,000 150,000

Less: Accumulated

Depreciation

(140,000F (150,000F

Total Assets$ 600,000 $ 197,000 $ 278,000 Accounts Payable$ 85,000 $ 55,000 $ 55,000 Notes Payable100,000 80,000 80,000

Common Stock:

$5 par value120,000 $2 par value20,000 Additional Paid-In Capital

140,000 25,000

Retained Earnings155,000 17,000 Total Liabilities and Equities

$ 600,000 $ 197,000

Required:Prepare the journal entry to record the acquisition of Mercantile Corporation.. Advanced Financial Accounting 13e Theodore Christensen, David Cottrell, Richard Baker (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End Of Each Chapter 1 / 4

Advanced Financial Accounting 13e Theodore Christensen, David Cottrell, Richard Baker (Test Bank All Chapters) 2 2)On January 1, 20X2, Line Corporation acquired all of the common stock of Staff Company for $300,000. On that date, Staff's identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of Staff are considered to be a separate reporting unit of Line Corporation. The carrying value of Staff's net assets at December 31, 20X2, is $310,000. The fair value of the reporting unit is determined to be 260,000.

Required:

1.1) Explain how goodwill is tested for impairment for a reporting unit.

2.2) Determine the amount, if any, of impairment loss to be recognized at December 31, 20X2.3)SeaLine Corporation is involved in the distribution of processed marine products. The fair values of assets and liabilities held by three reporting units and other information related to

the reporting units owned by SeaLine are as follows:

Unit X Unit Y Unit Z Cash$ 15,000 $ 45,000 $ 35,000 Accounts Receivables15,000 18,000 10,000 Inventory35,000 60,000 35,000 Land30,000 45,000 20,000 Buildings120,000 80,000 50,000 Equipment140,000 45,000 50,000 Accounts Payable25,000 45,000 25,000 Fair Value of Reporting Unit 360,000 230,000 220,000 Carrying Value of Investment 375,000 240,000 240,000 Goodwill Included in Carrying Value

50,000 25,000 40,000

Required:Determine the amount of goodwill that SeaLine should report in its current financial statements.

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Advanced Financial Accounting 13e Theodore Christensen, David Cottrell, Richard Baker (Test Bank All Chapters) 3 4) Assuming no impairment in value prior to transfer, assets transferred by a parent company to another entity it has created should be recorded by the newly created entity at the assets':

• cost to the parent company.
• book value on the parent company's books at the date of transfer.
• fair value at the date of transfer.
• fair value of consideration exchanged by the newly created entity.

5) Given the increased development of complex business structures, which of the following regulators is responsible for the continued usefulness of accounting reports?

• Securities and Exchange Commission (SEC)
• Public Company Accounting Oversight Board (PCAOB)
• Financial Accounting Standards Board (FASB)
• All of the other answers are correct

6) A business combination in which the acquired company's assets and liabilities are combined

with those of the acquiring company into a single entity is defined as:

• Stock acquisition
• Leveraged buyout
• Statutory merger
• Reverse statutory rollup

7) In which of the following situations do accounting standards not require that the financial statements of the parent and subsidiary be consolidated?

• A corporation creates a new 100 percent owned subsidiary
• A corporation purchases 90 percent of the voting stock of another company
• A corporation has both control and majority ownership of an unincorporated

company

• A corporation owns less-than a controlling interest in an unincorporated company

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Advanced Financial Accounting 13e Theodore Christensen, David Cottrell, Richard Baker (Test Bank All Chapters) 4 8) Which of the following situations best describes a business combination to be accounted for as a statutory merger?

• Both companies in a combination continue to operate as separate, but related, legal

entities.

• Only one of the combining companies survives and the other loses its separate

identity.

• Two companies combine to form a new third company, and the original two

companies are dissolved.

• One company transfers assets to another company it has created.

9) A statutory consolidation is a type of business combination in which:

• one of the combining companies survives and the other loses its separate identity.
• one company acquires the voting shares of the other company and the two companies

continue to operate as separate legal entities.

• two publicly traded companies agree to share a board of directors.
• each of the combining companies is dissolved and the net assets of both companies

are transferred to a newly created corporation.

10) Burrough Corporation paid $80,000 to acquire all of Helyar Company’s net assets. Helyar reported assets with a book value of $60,000 and fair value of $98,000 and liabilities with a book value and fair value of $23,000 on the date of combination. Burrough also paid $3,000 to a search firm for a finder’s fee related to the acquisition. What amount will be recorded as goodwill by Burrough Corporation while recording its investment in Helyar?

• $0

B) $5,000

C) $8,000

D) $13,000

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