Select the correct answer for each of the following questions. 1. Goodwill represents the excess of the
1. Goodwill represents the excess of the sum of the fair value of the
(1) Consideration given,
(2) Shares already owned, and
(3) The noncontrolling interest over the
a. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed.
b. Sum of the fair values assigned to tangible assets acquired less liabilities assumed.
c. Sum of the fair values assigned to intangible assets acquired less liabilities assumed.
d. Book value of an acquired company.
2. In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n)
a. Expense of the combined company for the period in which the costs were incurred.
b. Direct addition to stockholders’ equity of the combined company.
c. Reduction of the recorded value of the securities.
d. Addition to goodwill.
3. Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?
a. Historical cost.
b. Book value.
c. Cost plus any excess of purchase price over book value of assets acquired.
d. Fair value.
4. In a business combination in which an acquiring company purchases 100 percent of the outstanding common stock of another company, if the fair value of the net identifiable assets acquired exceeds the fair value of the consideration given. The excess should be reported as a
a. Deferred credit.
b. Reduction of the values assigned to current assets and a deferred credit for any unallocated portion.
c. Pro rata reduction of the values assigned to current and noncurrent assets and a deferred credit for any unallocated portion.
d. No answer listed is correct.
5. A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange for 40 percent of its voting stock A Company, acquires 80 percent of the common stock of B Company. This is a “tax-free” stock-for-stock exchange for tax purposes. B Company’s identifiable assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000, and the fair value of the noncontrolling interest is $175,000. The goodwill reported following the
acquisition would be
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
Fantastic news! We've located the answer you've been seeking!
Step by Step Answer: