Advanced Accounting, 13e (Beams et al.)
Chapter 1 Business Combinations
1.1 Multiple Choice Questions
1) Which of the following is NOT a reason for a company to expand through a combination, rather than
by building new facilities?
A) A combination might provide cost advantages.
B) A combination might provide fewer operating delays.
C) A combination might provide easier access to intangible assets.
D) A combination might provide an opportunity to invest in a company without having to take
responsibility for its financial results.
Answer: D
Objective: LO1.1 Understand the economic motivations underlying business combinations.
Difficulty: Easy
AACSB: Analytical thinking
2) A business merger differs from a business consolidation because
A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities
and forms a new corporation.
B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities.
C) a merger is created when two entities join, but a consolidation is created when more than two entities
join.
D) a consolidation is created when two entities join, but a merger is created when more than two entities
join.
Answer: A
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
3) Following the accounting concept of a business combination, 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.
Answer: D
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
1
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
,4) Historically, #aemuch #aeof #aethe #aecontroversy #aeconcerning #aeaccounting #aerequirements #aefor #aebusiness
#aecombinations #aeinvolved #aethe #ae method.
A) purchase
B) pooling #aeof #aeinterests
C) equity
D) acquisition
#aeAnswer:
# a e B
Objective: # a e LO1.2 # a e Learn #aeabout #aealternative #aeforms #aeof #aebusiness #aecombinations, #aefrom #aeboth #aethe #aelegal
#aeand #aeaccounting #aeperspectives.
Difficulty: # a e Easy
AACSB: # a e Analytical #aethinking
5) Pitch #aeCo. #aepaid #ae$50,000 #aein #aefees #aeto #aeits #aeaccountants #aeand #aelawyers #aein #aeacquiring #aeSlope
#aeCompany. #aePitch #aewill #aetreat #aethe #ae$50,000 #aeas
A) an #aeexpense #aefor #aethe #aecurrent #aeyear.
B) a #aeprior #aeperiod #aeadjustment #aeto #aeretained #aeearnings.
C) additional #aecost #aeto #aeinvestment #aeof #aeSlope #aeon #aethe #aeconsolidated #aebalance #aesheet.
D) a #aereduction #aein #aeadditional #aepaid-in
#aecapital. #aeAnswer: # a e A
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Application #aeof #aeknowledge
6) Picasso #aeCo. #aeissued #ae5,000 #aeshares #aeof #aeits #ae$1 #aepar #aecommon #aestock, #aevalued #aeat #ae$100,000,
#aeto #aeacquire #aeshares #aeof #aeSeurat #aeCompany #aein #aean #aeall-stock #aetransaction. #aePicasso #aepaid #aethe
#aeinvestment #aebankers #ae$35,000 #aeand #aewill #aetreat #aethe #aeinvestment #aebanker #aefee #aeas
A) an #aeexpense #aefor #aethe #aecurrent #aeyear.
B) a #aeprior #aeperiod #aeadjustment #aeto #aeRetained #aeEarnings.
C) additional #aegoodwill #aeon #aethe #aeconsolidated #aebalance #aesheet.
D) a #aereduction #aeto #aeadditional #aepaid-in
#aecapital. #aeAnswer: # a e D
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Application #aeof #aeknowledge
7) Durer #aeInc. #aeacquired #aeSea #aeCorporation #aein #aea #aebusiness #aecombination #aeand #aeSea #aeCorp. #aewent
#aeout #aeof #aeexistence. #aeSea #aeCorp. #aedeveloped #aea #aepatent #aelisted #aeas #aean #aeasset #aeon #aeSea #aeCorp.'s
#aebooks #aeat #aethe #aepatent #aeoffice #aefiling #aecost. #aeIn #aerecording #aethe #aecombination,
A) fair #aevalue #aeis #aenot #aeassigned #aeto #aethe #aepatent #aebecause #aethe #aeresearch #aeand #aedevelopment
#aecosts #aehave #aebeen #aeexpensed #aeby #aeSea #aeCorp.
B) Sea #aeCorp.'s #aeprior #aeexpenses #aeto #aedevelop #aethe #aepatent #aeare #aerecorded #aeas #aean #aeasset #aeby #aeDurer #aeat
#aepurchase.
C) the #aepatent #aeis #aerecorded #aeas #aean #aeasset #aeat #aefair #aemarket #aevalue.
D) the #aepatent's #aemarket #aevalue #aeincreases
#aegoodwill. #aeAnswer: # a e C
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Moderate
AACSB: # a e Analytical #aethinking
2
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
,8) In #aea #aebusiness #aecombination, #aewhich #aeof #aethe #aefollowing #aewill #aeoccur?
A) All #aeidentifiable #aeassets #aeand #aeliabilities #aeare #aerecorded #aeat #aefair #aevalue #aeat #aethe #aedate #aeof #aeacquisition.
B) All #aeidentifiable #aeassets #aeand #aeliabilities #aeare #aerecorded #aeat #aebook #aevalue #aeat #aethe #aedate #aeof #aeacquisition.
C) Goodwill #aeis #aerecorded #aeif #aethe #aefair #aevalue #aeof #aethe #aenet #aeassets #aeacquired #aeexceeds #aethe #aebook
#aevalue #aeof #aethe #aenet #aeassets #aeacquired.
D) The #aeSarbanes-Oxley #aeAct #aerequires #aefirms #aeto #aereport #aematerial #aeaggregate #aeamounts #aeof
#aegoodwill #aeas #aea #aeseparate #aebalance #aesheet #aeline #aeitem.
Answer: # a e A
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Analytical #aethinking
9) According #aeto #aeASC #ae805-30, #aewhich #aeone #aeof #aethe #aefollowing #aeitems #aemay #aenot #aebe #aeaccounted
#aefor #aeas #aean #aeintangible #aeasset #aeapart #aefrom #aegoodwill?
A) A #aeproduction #aebacklog
B) A #aevaluable #aeemployee #aeworkforce
C) Noncontractual #aecustomer #aerelationships
D) Employment
#aecontracts #aeAnswer:
# a e B
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
10) Under #aethe #aeprovisions #aeof #aeASC #ae805-30, #aein #aea #aebusiness #aecombination, #aewhen #aethe #aeinvestment
#aecost #aeexceeds #aethe #aetotal #aefair #aevalue #aeof #aeidentifiable #aenet #aeassets #aeacquired, #aewhich #aeof #aethe
#aefollowing #aestatements #aeis #aecorrect?
A) The #aeexcess #aeis #aefirst #aeassigned #aeto #aeidentifiable #aenet #aeassets #aeaccording #aeto #aetheir #aefair
#aevalues; #aethen #aethe #aerest #aeis #aeassigned #aeto #aegoodwill.
B) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket #aevalue)
#aenon-current #aeassets, #aethen #aeto #aenon-monetary #aecurrent #aeassets, #aeand #aeany #aenegative #aeremainder #aeis
#aeclassified #aeas #aea #aedeferred #aecredit.
C) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket
#aevalue) #aenon-current #aeassets, #aeand #aeany #aenegative #aeremainder #aeis #aeclassified #aeas #aean
#aeextraordinary #aegain.
D) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket
#aevalue) #aenon-current, #aedepreciable #aeassets #aeto #aezero, #aeand #aeany #aenegative #aeremainder #aeis
#aeclassified #aeas #aea #aedeferred #aecredit.
Answer: # a e A
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
11) With #aerespect #aeto #aegoodwill, #aean #aeimpairment
A) will #aebe #aeamortized #aeover #aethe #aeremaining #aeuseful #aelife.
B) is #aea #aetwo-step #aeprocess #aewhich #aefirst #aecompares #aebook #aevalue #aeto #aefair #aevalue #aeat #aethe #aebusiness
#aereporting #aeunit #aelevel.
C) is #aea #aeone-step #aeprocess #aeconsidering #aethe #aeentire #aefirm.
D) occurs #aewhen #aeasset #aevalues #aeare #aeadjusted #aeto #aefair #aevalue #aein
#aea #aepurchase. #aeAnswer: # a e B
3
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
, Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
4
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
Chapter 1 Business Combinations
1.1 Multiple Choice Questions
1) Which of the following is NOT a reason for a company to expand through a combination, rather than
by building new facilities?
A) A combination might provide cost advantages.
B) A combination might provide fewer operating delays.
C) A combination might provide easier access to intangible assets.
D) A combination might provide an opportunity to invest in a company without having to take
responsibility for its financial results.
Answer: D
Objective: LO1.1 Understand the economic motivations underlying business combinations.
Difficulty: Easy
AACSB: Analytical thinking
2) A business merger differs from a business consolidation because
A) a merger dissolves all but one of the prior entities, but a consolidation dissolves all of the prior entities
and forms a new corporation.
B) a consolidation dissolves all but one of the prior entities, but a merger dissolves all of the prior entities.
C) a merger is created when two entities join, but a consolidation is created when more than two entities
join.
D) a consolidation is created when two entities join, but a merger is created when more than two entities
join.
Answer: A
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
3) Following the accounting concept of a business combination, 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.
Answer: D
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
1
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
,4) Historically, #aemuch #aeof #aethe #aecontroversy #aeconcerning #aeaccounting #aerequirements #aefor #aebusiness
#aecombinations #aeinvolved #aethe #ae method.
A) purchase
B) pooling #aeof #aeinterests
C) equity
D) acquisition
#aeAnswer:
# a e B
Objective: # a e LO1.2 # a e Learn #aeabout #aealternative #aeforms #aeof #aebusiness #aecombinations, #aefrom #aeboth #aethe #aelegal
#aeand #aeaccounting #aeperspectives.
Difficulty: # a e Easy
AACSB: # a e Analytical #aethinking
5) Pitch #aeCo. #aepaid #ae$50,000 #aein #aefees #aeto #aeits #aeaccountants #aeand #aelawyers #aein #aeacquiring #aeSlope
#aeCompany. #aePitch #aewill #aetreat #aethe #ae$50,000 #aeas
A) an #aeexpense #aefor #aethe #aecurrent #aeyear.
B) a #aeprior #aeperiod #aeadjustment #aeto #aeretained #aeearnings.
C) additional #aecost #aeto #aeinvestment #aeof #aeSlope #aeon #aethe #aeconsolidated #aebalance #aesheet.
D) a #aereduction #aein #aeadditional #aepaid-in
#aecapital. #aeAnswer: # a e A
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Application #aeof #aeknowledge
6) Picasso #aeCo. #aeissued #ae5,000 #aeshares #aeof #aeits #ae$1 #aepar #aecommon #aestock, #aevalued #aeat #ae$100,000,
#aeto #aeacquire #aeshares #aeof #aeSeurat #aeCompany #aein #aean #aeall-stock #aetransaction. #aePicasso #aepaid #aethe
#aeinvestment #aebankers #ae$35,000 #aeand #aewill #aetreat #aethe #aeinvestment #aebanker #aefee #aeas
A) an #aeexpense #aefor #aethe #aecurrent #aeyear.
B) a #aeprior #aeperiod #aeadjustment #aeto #aeRetained #aeEarnings.
C) additional #aegoodwill #aeon #aethe #aeconsolidated #aebalance #aesheet.
D) a #aereduction #aeto #aeadditional #aepaid-in
#aecapital. #aeAnswer: # a e D
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Application #aeof #aeknowledge
7) Durer #aeInc. #aeacquired #aeSea #aeCorporation #aein #aea #aebusiness #aecombination #aeand #aeSea #aeCorp. #aewent
#aeout #aeof #aeexistence. #aeSea #aeCorp. #aedeveloped #aea #aepatent #aelisted #aeas #aean #aeasset #aeon #aeSea #aeCorp.'s
#aebooks #aeat #aethe #aepatent #aeoffice #aefiling #aecost. #aeIn #aerecording #aethe #aecombination,
A) fair #aevalue #aeis #aenot #aeassigned #aeto #aethe #aepatent #aebecause #aethe #aeresearch #aeand #aedevelopment
#aecosts #aehave #aebeen #aeexpensed #aeby #aeSea #aeCorp.
B) Sea #aeCorp.'s #aeprior #aeexpenses #aeto #aedevelop #aethe #aepatent #aeare #aerecorded #aeas #aean #aeasset #aeby #aeDurer #aeat
#aepurchase.
C) the #aepatent #aeis #aerecorded #aeas #aean #aeasset #aeat #aefair #aemarket #aevalue.
D) the #aepatent's #aemarket #aevalue #aeincreases
#aegoodwill. #aeAnswer: # a e C
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Moderate
AACSB: # a e Analytical #aethinking
2
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
,8) In #aea #aebusiness #aecombination, #aewhich #aeof #aethe #aefollowing #aewill #aeoccur?
A) All #aeidentifiable #aeassets #aeand #aeliabilities #aeare #aerecorded #aeat #aefair #aevalue #aeat #aethe #aedate #aeof #aeacquisition.
B) All #aeidentifiable #aeassets #aeand #aeliabilities #aeare #aerecorded #aeat #aebook #aevalue #aeat #aethe #aedate #aeof #aeacquisition.
C) Goodwill #aeis #aerecorded #aeif #aethe #aefair #aevalue #aeof #aethe #aenet #aeassets #aeacquired #aeexceeds #aethe #aebook
#aevalue #aeof #aethe #aenet #aeassets #aeacquired.
D) The #aeSarbanes-Oxley #aeAct #aerequires #aefirms #aeto #aereport #aematerial #aeaggregate #aeamounts #aeof
#aegoodwill #aeas #aea #aeseparate #aebalance #aesheet #aeline #aeitem.
Answer: # a e A
Objective: # a e LO1.3 # a e Introduce #aeaccounting #aeconcepts #aefor #aebusiness #aecombinations, #aeemphasizing #aethe #aeacquisition
#aemethod. #aeDifficulty: # a e Moderate
AACSB: # a e Analytical #aethinking
9) According #aeto #aeASC #ae805-30, #aewhich #aeone #aeof #aethe #aefollowing #aeitems #aemay #aenot #aebe #aeaccounted
#aefor #aeas #aean #aeintangible #aeasset #aeapart #aefrom #aegoodwill?
A) A #aeproduction #aebacklog
B) A #aevaluable #aeemployee #aeworkforce
C) Noncontractual #aecustomer #aerelationships
D) Employment
#aecontracts #aeAnswer:
# a e B
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
10) Under #aethe #aeprovisions #aeof #aeASC #ae805-30, #aein #aea #aebusiness #aecombination, #aewhen #aethe #aeinvestment
#aecost #aeexceeds #aethe #aetotal #aefair #aevalue #aeof #aeidentifiable #aenet #aeassets #aeacquired, #aewhich #aeof #aethe
#aefollowing #aestatements #aeis #aecorrect?
A) The #aeexcess #aeis #aefirst #aeassigned #aeto #aeidentifiable #aenet #aeassets #aeaccording #aeto #aetheir #aefair
#aevalues; #aethen #aethe #aerest #aeis #aeassigned #aeto #aegoodwill.
B) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket #aevalue)
#aenon-current #aeassets, #aethen #aeto #aenon-monetary #aecurrent #aeassets, #aeand #aeany #aenegative #aeremainder #aeis
#aeclassified #aeas #aea #aedeferred #aecredit.
C) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket
#aevalue) #aenon-current #aeassets, #aeand #aeany #aenegative #aeremainder #aeis #aeclassified #aeas #aean
#aeextraordinary #aegain.
D) The #aedifference #aeis #aeallocated #aefirst #aeto #aereduce #aeproportionately #ae(according #aeto #aemarket
#aevalue) #aenon-current, #aedepreciable #aeassets #aeto #aezero, #aeand #aeany #aenegative #aeremainder #aeis
#aeclassified #aeas #aea #aedeferred #aecredit.
Answer: # a e A
Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
11) With #aerespect #aeto #aegoodwill, #aean #aeimpairment
A) will #aebe #aeamortized #aeover #aethe #aeremaining #aeuseful #aelife.
B) is #aea #aetwo-step #aeprocess #aewhich #aefirst #aecompares #aebook #aevalue #aeto #aefair #aevalue #aeat #aethe #aebusiness
#aereporting #aeunit #aelevel.
C) is #aea #aeone-step #aeprocess #aeconsidering #aethe #aeentire #aefirm.
D) occurs #aewhen #aeasset #aevalues #aeare #aeadjusted #aeto #aefair #aevalue #aein
#aea #aepurchase. #aeAnswer: # a e B
3
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
, Objective: # a e LO1.4 # a e See #aehow #aefirms #aerecord #aefair #aevalues #aeof #aeassets #aeand #aeliabilities
#aein #aean #aeacquisition. #aeDifficulty: # a e Easy
AACSB: # a e Analytical #aethinking
4
Copyright #ae© #ae2018 #aePearson #aeEducation,
#aeInc.
SCHOLARVAULT
