Solution for Advanced Accounting 11, Chapter 1, Exercises Unit, General question

Answer for Advanced Accounting beams 11 [beams, Anthony, Betinghaus, Smith], Chapter 1 Business Combination, Page 19, Exercises Unit, E1-1 General question

1. A business combination in which a new corporation is formed to take over the assets and operations of two or more separate business entities, with the previously separate entities being dissolved, is a/an:
a Consolidation
b Merger
c Pooling of interests
d Acquisition
Answer : a Consolidation

2. In a business combination, the direct costs of registering and issuing equity securities are:
a Added to the parent/investor company’s investment account
b Charged against other paid-in capital of the combined entity
c Deducted from income in the period of combination
d None of the above
Answer : b Charged against other paid-in capital of the combined entity

3. An excess of the fair value of net assets acquired in a business combination over the price paid is:
a Reported as a gain from a bargain purchase
b Applied to a reduction of noncash assets before negative goodwill may be reported
c Applied to reduce noncurrent assets other than marketable securities to zero before negative goodwill may be reported
d Applied to reduce goodwill to zero before negative goodwill may be reported
Answer : a Reported as a gain from a bargain purchase

4. Cork Corporation acquires Dart Corporation in a business combination. Which of the following would be excluded from the process of assigning fair values to assets and liabilities for purposes of recording the acquisition? (Assume Dart Corporation is dissolved.)
a Patents developed by Dart because the costs were expensed under GAAP
b Dart’s mortgage payable because it is fully secured by land that has a market value far in excess of the mortgage
c An asset or liability amount for over- or underfunding of Dart’s defined-benefit pension plan
d None of the above
Answer : d None of the above
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