02 Jan The fair value of the

Question 1

4 / 4 pts

(TCO 2) Which of the following is a characteristic of a business combination that should be accounted for as an acquisition?

The combination must involve the exchange of equity securities only.

The transaction establishes an acquisition fair value basis for the company being acquired.

The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.

The transaction may be considered to be the uniting of the ownership interests of the companies involved.

The acquired subsidiary must be smaller in size than the acquiring parent.

Question 2

4 / 4 pts

(TCO 2) According to SFAS No. 141, the pooling of interest method for business combinations

is preferred to the purchase method.

is allowed for all new acquisitions.

is no longer allowed for business combinations after June 30, 2001.

is no longer allowed for business combinations after December 31, 2001.

is only allowed for large corporate mergers, such as Exxon and Mobil.

Question 3

0 / 4 pts

(TCO 2) Which of the following is a characteristic of a business combination that should be accounted for as a purchase?

The transaction clearly establishes an acquisition price for the company being acquired.

The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.

The transaction may be considered to be the uniting of the ownership interests of the companies involved.

The acquired subsidiary must be smaller in size than the acquiring parent.

Question 4

4 / 4 pts

(TCO 2) In a transaction accounted for using the purchase method, where cost exceeds book value, which statement is true for the acquiring company with regard to its investment?

Net assets of the acquired company are revalued to their fair values, and any excess of cost over fair value is allocated to goodwill.

Net assets of the acquired company are maintained at book value, and any excess of cost over book value is allocated to goodwill.

Assets are revalued to their fair values. Liabilities are maintained at book values. Any excess is allocated to goodwill.

Long-term assets are revalued to their fair values. Any excess is allocated to goodwill.

Question 5

4 / 4 pts

(TCO 2) Plenty Corp. paid $300,000 for the outstanding common stock of Shirley Co. At that time, Shirley had the following condensed balance sheet.

(Carrying amounts)

Current assets: $40,000

Plant and equipment, net: $380,000

Liabilities: $200,000

Stockholders’ equity: $220,000

The fair value of the plant and equipment was $60,000 more than its recorded carrying amount. The fair values and carrying amounts were equal for all other assets and liabilities. Which amount of goodwill, related to Shirley’s acquisition, should Plenty report in its consolidated balance sheet?

$20,000

$40,000

$60,000

$80,000