Question

11– Occurs when a new corporation is formed to take over the assets and operations of...

11– Occurs when a new corporation is formed to take over the assets and operations of two or more separate business entities and dissolves the previously separate entities
A- Legal consolidation
B- Legal merger
C- Acquisition
D- Trading securities
12 – T Corporation acquired a 40% interest in K Corporation at book value several years ago. K declared $50,000 dividends in 2011 and reported its income for $300,000. T’s Investment in K account for 2011 should increase by:
a-
$ 75,000
c-
$ 90,000
b-
$ 80,000
d-
$100,000
13 – On March 31, 2010, P Corporation acquired for $1,000,000 cash all the outstanding common stocks of S company when S's balance sheet showed net assets of $1,100,000 at the FMV. Out-of-pocket cost of the business combination was $100,000 indirect costs and $200,000 direct costs. The goodwill is ---------------
a-
$300,000 negative goodwill
c-
$300,000 positive goodwill
b-
$100,000 positive goodwill
d-
$100,000 negative goodwill
14- The realized gains or losses that related to the stock investment- long term [18%] securities will be treated:
a-
In the retained earnings
c-
In the balance sheet.
b-
In the stockholders equity.
d-
In the cash flows statement.
15 – On Jan 1, 2011, X Company acquired 15% of the voting common stocks of Z Company for $200000. The intent of X is to hold the shares for five years. Z Company achieved $100000 net income and announced $80000 cash dividends. On December 31, 2011. The account of "stock investment in Z" will be:
a-
$203,000
c-
$220,000
b-
$200,000
d-
$212,000
16 – B Co. acquires all of the voting stock of N Co. for $900,000 cash. The book values of N’s assets are $850,000, but the fair value of N’s net assets $820,000. Goodwill from the combination is computed as?
a-
$800,000.
c-
$30,000
b-
$80,000.
d-
8000.
17 – X acquires 80% of Y net assets. The carrying value of stock investment in Y voting common stocks is $1000,000 and the fair market value of Y net assets is $1,100,000 . The goodwill is
a-
$100,000
c-
$120,000
b-
$0
d-
$325,000.
18– S Corporation owns 92% of the outstanding common stock of H company; the other 8% is owned by Z Corporation. In the consolidated financial statements of S Corporation and subsidiary, Z is considered:
A
An investor
C
An affiliate
B
An investee
D
A minority interest
19– In a statutory merger, a new corporation is formed to issue its common stock for the common stock of two or more existing corporations, which then are liquidated
A
True
B
False
20– Legal fees for bourse registration of business combination are direct costs.
A
True
B
False

Homework Answers

Answer #1

11. Acquisition- It means dissolving the entities and formation of a new entity.

12. $100000, i.e. 300000×40%-50000×40% = 100000

13. $100000 Negative Goodwill, because Purchase Consideration is less than FMV of Net Assets

14. The Retained Earnings

15. $203000, 200000+(100000-80000)*15%

16. Goodwill is $80000, Goodwill= Purchase Consideration Less FMV of Net Assets, i.e. 900000-820000

17. Goodwill is $0, because Purchase Consideration is not given so goodwill cannot be computed.

18. It is considered as a Minority Interest.

19. False beacuse they are dissolved.

20. True these are considered as Direct Costs.

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