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: 3. A business combination occurs when a company acquires an equity interest in another entity and has: 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: 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:
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