02 Jan 10. In a business combination,

CHAPTER 1 Interoperate Acquisitions and Investments in Other Entities

1. On April 1, 2012, Jack Company paid $800,000 for all of Ann Corporation’s issued and outstanding common stock. Ann’s recorded assets and liabilities on April 1, 2012, were as follows:

Cash $80000

Inventory $240000

Property&Equipment(net annual depreciation$320000) $480000

Liabilities ($180000)

On April 1, 2012, Ann’s inventory was determined to have a fair value of $190,000 and the property and equipment had a fair value of $560,000. What is the amount of goodwill resulting from the business combination?

a) $0.

b) $50,000.

c) $150,000.

d) $180,000.

2. Topper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Topper had purchased the equipment with an expected life of 10 years four years earlier for $100,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record:

a) Equipment at $72,000, and no accumulated depreciation.

b) Equipment at $60,000, and no accumulated depreciation.

c) Equipment at $100,000, and accumulated depreciation of $40,000.

d) Equipment at $120,000, and accumulated depreciation of $48,000.

3. Lead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The transfer will result in:

a) A reduction of net assets reported by Lead Corporation of $90,000.

b) A reduction of net assets reported by Lead Corporation of $75,000.

c) No change in the reported net assets of Lead Corporation.

d) An increase in the net assets reported by Lead Corporation of $25,000.

4. Tear Company, a newly established subsidiary of Stern Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in exchange for 7,000 shares of Tear’s $8 par value common stock. Tear should record:

a) Additional paid-in capital of $0.

b) Additional paid-in capital of $84,000.

c) Additional paid-in capital of $144,000.

d) Additional paid-in capital of $204,000

5. Twill Company has a reporting unit with the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit’s net assets on Twill’s books is $575,000, which includes $90,000 of goodwill. The fair value of the reporting unit is $560,000. Twill should report impairment of goodwill of:

a) $60,000.

b) $30,000.

c) $15,000.

d) $0.

Following its acquisition of the net assets of Dan Company, Empire Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:

Carrying Amt Fair Value

Cash $20000 $20000

Inventory $35000 $40000

Equipment $125000 $160000

Goodwill $60000

Account Payable $35000 $35000

6. Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000?

A. $0

B. $60,000

C. $30,000

D. $10,000

7. Based on the preceding information, what amount of goodwill impairment will be recognized for this division if its fair value is determined to be $195,000?

A. $5,000

B. $30,000

C. $60,000

D. $55,000

8. Based on the preceding information, what amount of amount of goodwill impairment will be recognized for this division if its fair value is determined to be $245,000?

A. $0

B. $30,000

C. $60,000

D. $55,000

9. Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet’s net assets was determined to be $510,000 on that date. What amount of goodwill will be reported in consolidated financial statements presented immediately following the combination

if Zenith paid $550,000 for the acquisition?

A. $0

B. $50,000

C. $150,000

D. $40,000

10. In a business combination, the fair values 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.