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Chapter 1 Introduction to Business Combinations and the Conceptual Framework Multiple Choice 1. Stock given as consideration for a business combination is valued at a. fair market value b. par value c. historical cost d. None of the above 2. Which of the following situations best describes a business combination to be accounted for as a statutory merger? a. Both companies in a combination continue to operate as separate, but related, legal entities. b. Only one of the combining companies survives and the other loses its separate identity. c. Two companies combine to form a new third company, and the original two companies are dissolved. d. One company transfers assets to another company it has created. 3. A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition? a. Cash b. Issuing Debt c. Issuing Stock d. All of the above 4. The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements) are as follows: a. to improve the relevance, comparability, and transparency of financial information related to business combinations. b. to eliminate the amortization of Goodwill. c. to facilitate the convergence project of the FASB and the International Accounting Standards Board. d. a and b only 5. A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n) a. agreeable combination. b. friendly combination. c. hostile combination. d. unfriendly combination
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