Copyright 2018 McGraw-Hill Education. All rights reserved.

Copyright © 2018 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.Page 2-1

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 Fundamentals of Advanced Accounting 8th Edition Hoyle Test Bank Visit TestBankDeal.com to get complete for all chapters

Copyright © 2018 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.Page 2-2

• 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

Copyright © 2018 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.Page 2-3

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.

Copyright © 2018 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.Page 2-4

• 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