Advanced Accounting – 13th Edition
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TEST BANK
UV
IA
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Floyd Beams
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Comprehensive Test Bank for Instructors
RO
and Students
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© Floyd Beams
All rights reserved. Reproduction or distribution without permission is prohibited
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©STUDYSTREAM
, Advanced Accounting, 13e (Beams et al.)
Chapter 1 Business Combinations
ST
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.
UV
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
IA
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) 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.
PP
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.
RO
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.
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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.
D?
Difficulty: Easy
AACSB: Analytical thinking
??
1
Copyright © 2018 Pearson Education, Inc.
, 4) Historically, much of the controversy concerning accounting requirements for business combinations
involved the ________ method.
A) purchase
ST
B) pooling of interests
C) equity
D) acquisition
Answer: B
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
UV
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
5) Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company. Pitch will
treat the $50,000 as
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A) an expense for the current year.
B) a prior period adjustment to retained earnings.
C) additional cost to investment of Slope on the consolidated balance sheet.
D) a reduction in additional paid-in capital.
_A
Answer: A
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Application of knowledge
6) Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of
PP
Seurat Company in an all-stock transaction. Picasso paid the investment bankers $35,000 and 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.
RO
D) a reduction to additional paid-in capital.
Answer: D
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Application of knowledge
VE
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.
D?
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.
Answer: C
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
??
Difficulty: Moderate
AACSB: Analytical thinking
2
Copyright © 2018 Pearson Education, Inc.
, 8) In a business combination, which of the following will occur?
A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
B) All identifiable assets and liabilities are recorded at book value at the date of acquisition.
ST
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets
acquired.
D) The Sarbanes-Oxley Act requires firms to report material aggregate amounts of goodwill as a separate
balance sheet line item.
Answer: A
UV
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Analytical thinking
9) According to ASC 805-30, which one of the following items may not be accounted for as an intangible
asset apart from goodwill?
IA
A) A production backlog
B) A valuable employee workforce
C) Noncontractual customer relationships
D) Employment contracts
_A
Answer: B
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
Difficulty: Easy
AACSB: Analytical thinking
10) Under the provisions of ASC 805-30, in a business combination, when the investment cost exceeds the
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total fair value of identifiable net assets acquired, which of the following statements is correct?
A) The excess is first assigned to identifiable net assets according to their fair values; then the rest is
assigned to goodwill.
B) The difference is allocated first to reduce proportionately (according to market value) non-current
assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit.
RO
C) The difference is allocated first to reduce proportionately (according to market value) non-current
assets, and any negative remainder is classified as an extraordinary gain.
D) The difference is allocated first to reduce proportionately (according to market value) non-current,
depreciable assets to zero, and any negative remainder is classified as a deferred credit.
Answer: A
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
VE
Difficulty: Easy
AACSB: Analytical thinking
11) With respect to goodwill, an impairment
A) will be amortized over the remaining useful life.
D?
B) is a two-step process which first compares book value to fair value at the business reporting unit level.
C) is a one-step process considering the entire firm.
D) occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
??
Difficulty: Easy
AACSB: Analytical thinking
3
Copyright © 2018 Pearson Education, Inc.
ST
TEST BANK
UV
IA
_A
Floyd Beams
PP
Comprehensive Test Bank for Instructors
RO
and Students
VE
© Floyd Beams
All rights reserved. Reproduction or distribution without permission is prohibited
D?
??
©STUDYSTREAM
, Advanced Accounting, 13e (Beams et al.)
Chapter 1 Business Combinations
ST
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.
UV
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
IA
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) 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.
PP
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.
RO
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.
VE
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.
D?
Difficulty: Easy
AACSB: Analytical thinking
??
1
Copyright © 2018 Pearson Education, Inc.
, 4) Historically, much of the controversy concerning accounting requirements for business combinations
involved the ________ method.
A) purchase
ST
B) pooling of interests
C) equity
D) acquisition
Answer: B
Objective: LO1.2 Learn about alternative forms of business combinations, from both the legal and accounting
UV
perspectives.
Difficulty: Easy
AACSB: Analytical thinking
5) Pitch Co. paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company. Pitch will
treat the $50,000 as
IA
A) an expense for the current year.
B) a prior period adjustment to retained earnings.
C) additional cost to investment of Slope on the consolidated balance sheet.
D) a reduction in additional paid-in capital.
_A
Answer: A
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Application of knowledge
6) Picasso Co. issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of
PP
Seurat Company in an all-stock transaction. Picasso paid the investment bankers $35,000 and 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.
RO
D) a reduction to additional paid-in capital.
Answer: D
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Application of knowledge
VE
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.
D?
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.
Answer: C
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
??
Difficulty: Moderate
AACSB: Analytical thinking
2
Copyright © 2018 Pearson Education, Inc.
, 8) In a business combination, which of the following will occur?
A) All identifiable assets and liabilities are recorded at fair value at the date of acquisition.
B) All identifiable assets and liabilities are recorded at book value at the date of acquisition.
ST
C) Goodwill is recorded if the fair value of the net assets acquired exceeds the book value of the net assets
acquired.
D) The Sarbanes-Oxley Act requires firms to report material aggregate amounts of goodwill as a separate
balance sheet line item.
Answer: A
UV
Objective: LO1.3 Introduce accounting concepts for business combinations, emphasizing the acquisition method.
Difficulty: Moderate
AACSB: Analytical thinking
9) According to ASC 805-30, which one of the following items may not be accounted for as an intangible
asset apart from goodwill?
IA
A) A production backlog
B) A valuable employee workforce
C) Noncontractual customer relationships
D) Employment contracts
_A
Answer: B
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
Difficulty: Easy
AACSB: Analytical thinking
10) Under the provisions of ASC 805-30, in a business combination, when the investment cost exceeds the
PP
total fair value of identifiable net assets acquired, which of the following statements is correct?
A) The excess is first assigned to identifiable net assets according to their fair values; then the rest is
assigned to goodwill.
B) The difference is allocated first to reduce proportionately (according to market value) non-current
assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit.
RO
C) The difference is allocated first to reduce proportionately (according to market value) non-current
assets, and any negative remainder is classified as an extraordinary gain.
D) The difference is allocated first to reduce proportionately (according to market value) non-current,
depreciable assets to zero, and any negative remainder is classified as a deferred credit.
Answer: A
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
VE
Difficulty: Easy
AACSB: Analytical thinking
11) With respect to goodwill, an impairment
A) will be amortized over the remaining useful life.
D?
B) is a two-step process which first compares book value to fair value at the business reporting unit level.
C) is a one-step process considering the entire firm.
D) occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Objective: LO1.4 See how firms record fair values of assets and liabilities in an acquisition.
??
Difficulty: Easy
AACSB: Analytical thinking
3
Copyright © 2018 Pearson Education, Inc.
