Questions -
Chapter_01_Business_Combinations_New_Rul
es_for_a_L
1. An economic advantage of a business combination includes:
A. Utilizing duplicative assets.
B. Creating separate management teams.
C. Shared fixed costs.
D. Horizontally combining levels within the marketing chain.
Answer: C
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2. One large bank’s acquisition of another bank would be an example of a:
A. market extension merger.
B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: D
--------------------------------------------------
3. A large nation-wide bank’s acquisition of a major investment advisory firm
would be an example of a:
A. market extension merger.
B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: C
--------------------------------------------------
4. A building materials company’s acquisition of a television station would be
an example of a:
A. market extension merger.
,B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: B
--------------------------------------------------
5. A tax advantage of business combination can occur when the existing
owner of a company sells out and receives:
A. cash to defer the taxable gain as a "tax-free reorganization."
B. stock to defer the taxable gain as a "tax-free reorganization."
C. cash to create a taxable gain.
D. stock to create a taxable gain.
Answer: B
--------------------------------------------------
6. A controlling interest in a company implies that the parent company
A. owns all of the subsidiary's stock.
B. has acquired a majority of the subsidiary's common stock.
C. has paid cash for a majority of the subsidiary's stock.
D. has transferred common stock for a majority of the subsidiary's
outstanding bonds and debentures.
Answer: B
--------------------------------------------------
7. Some advantages of obtaining control by acquiring a controlling interest in
stock include all but:
A. Negotiations are made directly with the acquiree’s management.
B. The legal liability of each corporation is limited to its own assets.
C. The cost may be lower since only a controlling interest in the assets, not
the total assets, is acquired.
D. Tax advantages may result from preservation of the legal entities.
Answer: A
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,8. A(n) ________________ occurs when the management of the target company
purchases a controlling interest in that company and the company incurs a
significant amount of debt as a result.
A. greenmail
B. statutory merger
C. poison pill
D. leveraged buyout
Answer: D
--------------------------------------------------
9. Acquisition costs such as the fees of accountants and lawyers that were
necessary to negotiate and consummate the purchase are
A. recorded as a deferred asset and amortized over a period not to exceed
15 years
B. expensed if immaterial but capitalized and amortized if over 2% of the
acquisition price
C. expensed in the period of the purchase
D. included as part of the price paid for the company purchased
Answer: C
--------------------------------------------------
10. Which of the following costs of a business combination can be deducted
from the value assigned to paid-in capital in excess of par?
A. Direct and indirect acquisition costs.
B. Direct acquisition costs.
C. Direct acquisition costs and stock issue costs if stock is issued as
consideration.
D. Stock issue costs if stock is issued as consideration.
Answer: D
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11. When determining the fair values of assets acquired in an acquisition, the
highest level of measurement per GAAP is
A. adjusted market value based on prices of similar assets.
, B. unadjusted market values in an actively traded market.
C. based on discounted cash flows.
D. the entity’s best estimate of an exit or sale value.
Answer: B
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12. Larry’s Liquor acquired the net assets of Drake’s Drinks in exchange for
cash. The acquisition price exceeds the fair value of the net assets acquired.
How should Larry’s Liquor determine the amounts to be reported for the
plant and equipment, and for long-term debt of the acquired Drake’s
Drinks? Plant and Equipment Long-Term Debt
A. Fair value Drake's carrying amount
B. Fair value Fair value
C. Drake's carrying amount Fair value
D. Drake's carrying amount Drake's carrying amount
Answer: B
--------------------------------------------------
13. Crystal Co. purchased all of the common stock of Sill Corp. on January 1
of the current year. Five years prior to the acquisition, Sill Corp. had issued
30-year bonds bearing an interest rate of 8%. At the time of the acquisition,
the prevailing interest rate for similar bonds was 5%. These bonds should be
included in the consolidated balance sheet at
A. face value.
B. at a value higher than Sill’s recorded value due to the change in interest
rates.
C. at a value lower than Sill’s recorded value due to the change in interest
rates.
D. at Sill’s recorded value.
Answer: B
--------------------------------------------------
14. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of
the acquisition the following information was available related to Comb's
balance sheet:Book ValueFair ValueCurrent Assets$50,000$
50,000Building80,000100,000Equipment40,00050,000Liabilities30,00030,00
0What is the amount recorded by ACME for the Building?
Chapter_01_Business_Combinations_New_Rul
es_for_a_L
1. An economic advantage of a business combination includes:
A. Utilizing duplicative assets.
B. Creating separate management teams.
C. Shared fixed costs.
D. Horizontally combining levels within the marketing chain.
Answer: C
--------------------------------------------------
2. One large bank’s acquisition of another bank would be an example of a:
A. market extension merger.
B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: D
--------------------------------------------------
3. A large nation-wide bank’s acquisition of a major investment advisory firm
would be an example of a:
A. market extension merger.
B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: C
--------------------------------------------------
4. A building materials company’s acquisition of a television station would be
an example of a:
A. market extension merger.
,B. conglomerate merger.
C. product extension merger.
D. horizontal merger.
Answer: B
--------------------------------------------------
5. A tax advantage of business combination can occur when the existing
owner of a company sells out and receives:
A. cash to defer the taxable gain as a "tax-free reorganization."
B. stock to defer the taxable gain as a "tax-free reorganization."
C. cash to create a taxable gain.
D. stock to create a taxable gain.
Answer: B
--------------------------------------------------
6. A controlling interest in a company implies that the parent company
A. owns all of the subsidiary's stock.
B. has acquired a majority of the subsidiary's common stock.
C. has paid cash for a majority of the subsidiary's stock.
D. has transferred common stock for a majority of the subsidiary's
outstanding bonds and debentures.
Answer: B
--------------------------------------------------
7. Some advantages of obtaining control by acquiring a controlling interest in
stock include all but:
A. Negotiations are made directly with the acquiree’s management.
B. The legal liability of each corporation is limited to its own assets.
C. The cost may be lower since only a controlling interest in the assets, not
the total assets, is acquired.
D. Tax advantages may result from preservation of the legal entities.
Answer: A
--------------------------------------------------
,8. A(n) ________________ occurs when the management of the target company
purchases a controlling interest in that company and the company incurs a
significant amount of debt as a result.
A. greenmail
B. statutory merger
C. poison pill
D. leveraged buyout
Answer: D
--------------------------------------------------
9. Acquisition costs such as the fees of accountants and lawyers that were
necessary to negotiate and consummate the purchase are
A. recorded as a deferred asset and amortized over a period not to exceed
15 years
B. expensed if immaterial but capitalized and amortized if over 2% of the
acquisition price
C. expensed in the period of the purchase
D. included as part of the price paid for the company purchased
Answer: C
--------------------------------------------------
10. Which of the following costs of a business combination can be deducted
from the value assigned to paid-in capital in excess of par?
A. Direct and indirect acquisition costs.
B. Direct acquisition costs.
C. Direct acquisition costs and stock issue costs if stock is issued as
consideration.
D. Stock issue costs if stock is issued as consideration.
Answer: D
--------------------------------------------------
11. When determining the fair values of assets acquired in an acquisition, the
highest level of measurement per GAAP is
A. adjusted market value based on prices of similar assets.
, B. unadjusted market values in an actively traded market.
C. based on discounted cash flows.
D. the entity’s best estimate of an exit or sale value.
Answer: B
--------------------------------------------------
12. Larry’s Liquor acquired the net assets of Drake’s Drinks in exchange for
cash. The acquisition price exceeds the fair value of the net assets acquired.
How should Larry’s Liquor determine the amounts to be reported for the
plant and equipment, and for long-term debt of the acquired Drake’s
Drinks? Plant and Equipment Long-Term Debt
A. Fair value Drake's carrying amount
B. Fair value Fair value
C. Drake's carrying amount Fair value
D. Drake's carrying amount Drake's carrying amount
Answer: B
--------------------------------------------------
13. Crystal Co. purchased all of the common stock of Sill Corp. on January 1
of the current year. Five years prior to the acquisition, Sill Corp. had issued
30-year bonds bearing an interest rate of 8%. At the time of the acquisition,
the prevailing interest rate for similar bonds was 5%. These bonds should be
included in the consolidated balance sheet at
A. face value.
B. at a value higher than Sill’s recorded value due to the change in interest
rates.
C. at a value lower than Sill’s recorded value due to the change in interest
rates.
D. at Sill’s recorded value.
Answer: B
--------------------------------------------------
14. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of
the acquisition the following information was available related to Comb's
balance sheet:Book ValueFair ValueCurrent Assets$50,000$
50,000Building80,000100,000Equipment40,00050,000Liabilities30,00030,00
0What is the amount recorded by ACME for the Building?
