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File: Chapter 02 - Consolidation of Financial Information

Multiple Choice:

[QUESTION]

• At the date of an acquisition which is not a bargain purchase, the acquisition method
• Consolidates the subsidiary’s assets at fair value and the liabilities at book value.
• Consolidates all subsidiary assets and liabilities at book value.
• Consolidates all subsidiary assets and liabilities at fair value.
• Consolidates current assets and liabilities at book value, and long-term assets and liabilities at

fair value.

• Consolidates the subsidiary’s assets at book value and the liabilities at fair value.

Answer: C

Learning Objective: 02-04

Learning Objective: 02-05

Topic: Acquisition―Valuation principles

Topic: Acquisition―Allocate fair value

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• In an acquisition where 100% control is acquired, how would the land accounts of the parent

and the land accounts of the subsidiary be reported on consolidated financial statements?Parent Subsidiary

• Book ValueBook Value
• Book ValueFair Value
• Fair ValueFair Value
• Fair ValueBook Value
• Cost Cost

Answer: B

Learning Objective: 02-04

Learning Objective: 02-05

Topic: Acquisition―Valuation principles

Topic: Acquisition―Allocate fair value

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue

to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in Advanced Accounting 13th Edition Hoyle Test Bank Visit TestBankDeal.com to get complete for all chapters

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• A worksheet.
• Lisa's general journal.
• Victoria's general journal.
• Victoria's secret consolidation journal.
• The general journals of both companies.

Answer: A

Learning Objective: 02-07

Topic: Consolidation worksheet

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• Using the acquisition method for a business combination, goodwill is generally calculated as

the:

• Cost of the investment less the subsidiary's book value at the beginning of the year.
• Cost of the investment less the subsidiary's book value at the acquisition date.
• Cost of the investment less the subsidiary's fair value at the beginning of the year.
• Cost of the investment less the subsidiary's fair value at acquisition date.
• Zero, it is no longer allowed under federal law.

Answer: D

Learning Objective: 02-04

Learning Objective: 02-05

Topic: Acquisition―Valuation principles

Topic: Acquisition―Calculate goodwill or bargain

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• Direct combination costs and amounts incurred to register and issue stock in connection with a

business combination. How should those costs be accounted for in a pre-2009 business combination?

Answer: B

Learning Objective: 02-09

Topic: Legacy methods―Purchase and pooling

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

Direct Combination Costs Stock Issuance Costs

• Increase Investment Decrease Investment
• Increase Investment Decrease Additional Paid-in Capital
• Increase Investment Increase Expenses
• Decrease Additional Paid-in Capital Increase Investment
• Increase ExpensesDecrease Investment

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AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• How are direct and indirect costs accounted for when applying the acquisition method for a

business combination?

Answer: A

Learning Objective: 02-06b

Topic: Costs of combination

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• What is the primarydifference between: (i) accounting for a business combination when the

subsidiary is dissolved; and (ii) accounting for a business combination when the subsidiary retains its incorporation?

• If the subsidiary is dissolved, it will not be operated as a separate division.
• If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
• If the subsidiary retains its incorporation, there will be no goodwill associated with the

acquisition.

• If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book

values.

• If the subsidiary retains its incorporation, the consolidation is not formally recorded in the

accounting records of the acquiring company.

Answer: E

Learning Objective: 02-03

Learning Objective: 02-06a

Learning Objective: 02-06c

Topic: Business combination―Differentiate across forms

Topic: Journal entry―Dissolution

Topic: Journal entry―Investment with no dissolution

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• According to GAAP, which of the following is true with respect to the pooling of interest

method of accounting for business combinations?

• It was the only method used prior to 2002.

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• It must be used for all new acquisitions.
• GAAP allowed its use prior to 2002.
• It, or the acquisition method, may be used at the acquirer’s discretion.
• GAAP requires it to be used instead of the acquisition method for business combinations for

which $50 billion or more in consideration is transferred.

Answer: C

Learning Objective: 02-09

Topic: Legacy methods―Purchase and pooling

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• Which of the following examples accurately describes a difference in the types of business

combinations?

• A statutory merger can only be effected through an asset acquisition while a statutory

consolidation can only be effected through a capital stock acquisition.

• A statutory merger can only be effected through a capital stock acquisition while a statutory

consolidation can only be effected through an asset acquisition.

• A statutory merger requires the dissolution of the acquired company while a statutory

consolidation requires dissolution of the companies involved in the combination following the transfer of assets or stock to a newly formed entity.

• A statutory consolidation requires dissolution of the acquired company while a statutory

merger does not require dissolution.

• Both a statutory merger and a statutory consolidation can only be effected through an asset

acquisition but only a statutory consolidation requires dissolution of the acquired company.

Answer: C

Learning Objective: 02-03

Topic: Business combination―Differentiate across forms

Difficulty: 3 Hard

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking

AICPA: FN Measurement

[QUESTION]

• Acquired in-process research and development is considered as
• A definite-lived asset subject to amortization.
• A definite-lived asset subject to testing for impairment.
• An indefinite-lived asset subject to amortization.
• An indefinite-lived asset subject to testing for impairment.
• A research and development expense at the date of acquisition.

Answer: D

Learning Objective: 02-08

Topic: In-process research and development

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Critical Thinking