1. Which of the following does not represent a primary motivation for business combinations?
a. Combinations as a vehicle for achieving rapid growth and competitiveness.
b. Cost savings through elimination of duplicate facilities and staff.
c. Quick entry for new and existing products into markets.
d. Larger firms being less likely to fail.

2. Which of the following is the best theoretical justification for consolidated financial statements?
a. In form the companies are one entity; in substance they are separate.
b. In form the companies are separate; in substance they are one entity.
c. In form and substance the companies are one entity.
d. In form and substance the companies are separate.

3. What is a statutory merger?
a. A merger approved by the Securities and Exchange Commission.
b. An acquisition involving the purchase of both stock and assets.
c. A takeover completed within one year of the initial tender offer.
d. A business combination in which only one company continues to exist as a legal entity.

4. What is the appropriate accounting treatment for the value assigned to in-process research and development acquired in a business combination?
a. Expense upon acquisition.
b. Capitalize as an asset.
c. Expense if there is no alternative use for the assets used in the research and development and technological feasibility has yet to be reached.
d. Expense until future economic benefits become certain and then capitalize as an asset.

5. An acquired entity has a long-term operating lease for an office building used for central management.
The terms of the lease are very favorable relative to current market rates. However, the lease prohibits subleasing or any other transfer of rights. In its financial statements, the acquiring firm should report the value assigned to the lease contract as
a. An intangible asset under the contractual-legal criterion.
b. A part of goodwill.
c. An intangible asset under the separability criterion.
d. A building.

6. When does gain recognition accompany a business combination?
a. When a bargain purchase occurs.
b. In a combination created in the middle of a fiscal year.
c. In an acquisition when the value of all assets and liabilities cannot be determined.
d. When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company.

7. According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be
a. Capitalized as part of the overall fair value acquired in the merger.
b. Recorded as an expense in the period the merger takes place.
c. Included in recognized goodwill.
d. Written off over a five-year maximum useful life.

8. When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such contingent consideration in recording an acquisition?
a. The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met.
b. The fair value of the contingent consideration is expensed immediately at acquisition date.
c. The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners’ equity is recognized.
d. The fair value of the contingent consideration is recorded as a reduction of the otherwise determinable fair value of the acquired firm.

9. For the fiscal year ending December 31, how will consolidated net income of this business combination be determined if Hill acquires all of Loring’s stock?
a. Hill’s income for the past year plus Loring’s income for the past six months.
b. Hill’s income for the past year plus Loring’s income for the past year.
c. Hill’s income for the past six months plus Loring’s income for the past six months.
d. Hill’s income for the past six months plus Loring’s income for the past year.