Initial Test Business Combinations

Answer True or False Give a brief explanation to the false ones in the space provided.

______ 1. Horizontal integration in a business combination is normal in the same industry and market.

______ 2. When companies of diverse products and/or services are combined, this event is known in accounting as a conglomeration.

____________________________________________________________________

______ 3. The purchase of intangible assets such as patents, databases, and management expertise can be advantageous reasons for companies to combine.

______________________________________________________________________________

______ 4. Taxes are not considered a good reason for firms to consolidate.

___________________________________________________________________

______ 5. The Federal Trade Commission does, but the Securities and Exchange Commission cannot sometimes review and approve business consolidations.

___________________________________________________________________

______ 6. Business consolidation can occur when the productive assets of one company are acquired from another, or by the control exercised by acquiring the majority of its common shares.

____________________________________________________________________

______ 7. When Company A purchases the Net Assets of Company B; Company B always has to be dissolved. That is what is recommended by GAAP.

______________________________________________________________________________

______ 8. EZ Company + AB Company = TUV Company. This equation implies a business combination called consolidation.

____________________________________________________________________

______ 9. The control of one company over another is achieved and established when, for example, one of them becomes a subsidiary of the other.

____________________________________________________________________

______ 10. A subsidiary is established or recognized as such, when the control of the company Matrix (Parent), is more than (>) 50% of the shares with circulating voting rights.

______________________________________________________________________________

______ 11. After June 30, 2011, all business combinations must be treated from an accounting point of view using the Purchase Method.

____________________________________________________________________

______ 12. GAAP prefers Fair Values in an asset acquisition and/or net assets in a business acquisition.

_______________________________________________________________

______ 13. The elimination of the Pooling of Interest Method has nothing to do with the greatest consequence with the International Accounting Standards.

 _____________________________________________________________________________

______ 14. The cost of an acquisition of the net assets of a company is measured by the cash disbursed, the fair value of the net assets, or the fair value of the assets issued, whichever of them is the one that can best be determined.

_______________________________________________________________ 

______ 15. Indirect acquisition costs include registration and issuance costs of the shares issued by the purchase.

_______________________________________________________________

______ 16. GAAP does not provide specific guidelines for valuing assets and liabilities, but it does provide for stocks.

_______________________________________________________________

______ 17. Assets and liabilities arising from contingencies should be recognized at their fair value, if they can be reasonably estimated.

_______________________________________________________________

______ 18. THE "Goodwill" Appreciation arises when Company A pays more, the purchase of the net assets at fair value of Company B.

_______________________________________________________________

______ 19. If the fair value is greater than the cost, the excess is recorded as a profit in the books of the acquired company.

_______________________________________________________________

______ 20. Amortization is to intangible assets, what depreciation is to plant or fixed assets.

_______________________________________________________________

______ 21. The method of amortization of intangible assets will always be the Straight Line Method.

_______________________________________________________________

______ 22. Goodwill resulting from a purchase of net assets is not required to be disclosed in the notes to the financial statements.

_______________________________________________________________ 

______ 23. Sabarnes - Oxley was a law enacted to give strength to the Securities and Exchange Commission -SEC among others, and mitigate somewhat, the financial collapse in the stock markets, caused by companies such as Tyco, Enron and others.

_______________________________________________________________

______ 24. The Sabarnes-Oxley Law, on the other hand, does not require greater independence and responsibilities for the Boards of Directors of companies that trade shares in the stock markets.

_______________________________________________________________

______ 25. GAAP establishes that promissory notes may not be used as a payment instrument for the purchase of net assets in a business combination. Only Cash can be used.

_______________________________________________________________