Question

Octopus Inc. acquired Guppy in 1999. Guppy has a market value of $70 million. Octopus paid...

Octopus Inc. acquired Guppy in 1999. Guppy has a market value of $70 million. Octopus paid $95 million in Octopus common stock to acquire all outstanding shares. Balance sheet information for Guppy includes:

Book Value Fair Value
Accounts Receivable $15.0 million $14.5 million
Inventory 16.5 21.5
Fixed Assets 24.1 29.3
Patents 0 26
Liabilities -6.1 -6.1
Total    $49.5 million $ 85.2 million

This acquisition was recorded as a pooling of interest; the books of Octopus will include:

a.

Debit various asset & liabilities for a total $85.2 million & credit stockholders' equity for the same amount
b.

Debit Guppy acquisition for $70 million & credit stockholders' equity for the same amount
c.

Record the patents at their fair value of $26 million
d.

Debit various assets & liabilities for a total $49.5 million & credit stockholders' equity accounts for the same amount

QUESTION 29

Given the information from Question 28, but the acquisition was recorded using the purchase method; the books of Octopus will include:

a.

Goodwill is recorded for $9.8 million
b.

All asset & liability accounts would be recorded at fair value
c.

The market value of Guppy at $70 million is of no concern
d.

Patents are recorded at $26.0 million
e.

All of the above

1 points   

QUESTION 30

According to SFAS No. 142, goodwill:

a.

Is never recorded under the new rules
b.

Is recorded, but will be written off as an operating expense within the year of acquisition
c.

Will be amortized over a maximum 40 years
d.

Is not amortized, but tested at least annually for impairment

1 points   

QUESTION 31

Exxon acquired Mobil in 1998 for $77.2 billion. This was an example of:

a.

A horizontal merger
b.

The last example of the purchase method ever recorded
c.

A vertical merger
d.

A conglomerate merger
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Homework Answers

Answer #1

(28) In pooling of Interest method we have to record all the assets and liabilities at book value only.

So answer is option (d)

(29) option (e) all of the above is correct.

all options given in (a) to (d) are features of accounting in Purchase Method.

(30) As per SFAS 142 good will be amortised for a maximum period of 40 years.

so correct answer is option (c)

(31) Answer is option (a)

Exxon is a standard oil company of newjersy and mobil is a standard oil company of Newyork.

A horizontal merger is a merger or business consolidation that occurs between firms that operate in the same space, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.

So this merger is horizontal Merger.

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