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Final Exam Help - 1 The founders of an acquired company are...

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1. The founders of an acquired company are granted a contingent payment for three years after the acquisition based on those years earnings: (Points: 4) The acquirer typically recognizes the payment as goodwill when the contingency is resolved and payment is given. The acquirer typically recognizes the payment as goodwill when the contingency is resolved. The acquirer typically includes the expected payments based on future earnings as goodwill at acquisition. The acquirer typically amortizes contingencies over the applicable award period. 2. 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: (Points: 4) an expense for the current year. a prior period adjustment to Retained Earnings. additional goodwill on the consolidated balance sheet.
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a reduction in paid-in capital. 3. FASB favors consolidation of two entities when (Points: 4) One acquires at least 20% equity ownership of the other. One acquires between 20% and 50% equity ownership in the other. One acquires two thirds equity ownership in the other. One gains control over the entity, irrespective of the equity percentage owned. 4. According to FASB 141, liabilities assumed in a purchase acquisition will be valued at: (Points: 4) estimated fair value.
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historical book value. current replacement cost. present value using market interest rates. 5. Medici Corporation acquires all of the voting stock of Zeus Corporation for $900,000 cash. The book values of Zeus assets are $850,000, but the fair values are $820,000 because inventory has a fair value below its book value. Zeus has no liabilities. Goodwill from the combination is computed as: (Points: 4) $900,000 less the fair value of Zeus net assets. $900,000 less the book value of Zeus net assets.
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$900,000 less (the assets� fair values minus the assets� book values). $900,000 less (the assets� book values minus the assets� fair values). 6. Goodwill arising from a business combination is: (Points: 4) charged to Retained Earnings after the acquisition is completed. amortized over 40 years or its useful life, whichever is longer. amortized over 40 years or its useful life, whichever is shorter. never amortized.
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7. Which one of the following items, originally recorded in the Investment in Falcon Co. account under the equity method, would not be systematically charged to income on a periodic basis? (Points: 4) amortization expense of goodwill depreciation expense on the excess fair value attributed to machinery amortization expense on the excess fair value attributed to lease agreements interest expense on the excess fair value attributed to long-term bonds payable 8.
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Kestral Inc. owns 10% of Mouse Company. In the most recent year, Mouse had net earnings of $60,000 and paid dividends of $8,000. Kestral�s accountant mistakenly assumed considerable influence and used the equity method instead of the cost method. What is the impact on the investment account and net earnings, respectively?
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