Chapter9ed01

Chapter9ed01 - Chapter 1 Test Bank BUSINESS COMBINATIONS...

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Chapter 1 Test Bank BUSINESS COMBINATIONS Multiple Choice Questions LO1 1. Research and development is a driver of business combinations for all of the following reasons except? a. Lower operating costs b. Acquisition of intangible assets c. Operating loss carryforwards d. Reduced business risk of acquiring established product lines LO2 2. A business combination in which a new corporation is created and two or more existing corporations are combined into the newly created corporation is called a: a. merger. b. purchase transaction. c. pooling-of-interests. d. consolidation. 3. A business combination occurs when a company acquires an equity interest in another entity and has: a. at least 20% ownership in the entity. b. more than 50% ownership in the entity. c. 100% ownership in the entity. d. control over the entity, irrespective of the percentage owned. 4. FASB favors consolidation of two entities when a. One acquires at least 20% equity ownership of the other. b. One acquires between 20% and 50% equity ownership in the other. c. One acquires two thirds equity ownership in the other. d. One gains control over the entity, irrespective of the equity percentage owned. LO3 LO4 1
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5. Michangelo Co. paid accountants and lawyers $100,000 in order to acquire Florence Company. Michangelo will treat the $100,000: a. an expense for the current year. b. a prior period adjustment to retained earnings. c. additional cost to investment of Florence on the consolidated balance sheet. d. a reduction in paid-in capital. 6. Picasso Co. issued 10,000 shares of its $1 par common stock, valued at $400,000, to acquire shares of Bull Company in an all-stock transaction. Picasso paid the investment bankers $35,000. Picasso will treat the investment banker fee as: a. an expense for the current year. b. a prior period adjustment to Retained Earnings. c. additional goodwill on the consolidated balance sheet. d. a reduction in paid-in capital. 7. Durer Inc acquired Sea Corporation in a business combination and Sea Corp went out of existence. Sea Corp developed a patent listed as an asset on Sea Corp’s books at the patent office filing cost. In recording the combination: a. fair value is not assigned to the patent because the research and development costs have been expensed by Sea Corp. b. Sea Corp’s prior expenses to develop the patent are recorded as an asset by Durer at purchase. c. the patent is recorded as an asset at fair market value. d. the patent's market value increases goodwill. 8. In an acquisition, the company whose assets are acquired: a. will go out of existence. b. will become a subsidiary of the acquiring company. c. will be dissolved along with the acquiring company to form a new corporation. d. None of the above are correct.
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This note was uploaded on 01/29/2009 for the course BA 459 taught by Professor Slattery during the Spring '09 term at Southern Oregon.

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Chapter9ed01 - Chapter 1 Test Bank BUSINESS COMBINATIONS...

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