Question
2) A business combination in which a new corporation is created and two or more existing corporations are combined into the newly created corporation is
2) A business combination in which a new corporation is created and two or more existing
corporations are combined into the newly created corporation is called a
A. merger.
B. purchase transaction.
C. pooling-of-interests.
D. consolidation.
3) A business combination occurs when a company acquires an equity interest in another entity
and has
A. at least 20% ownership in the entity.
B. more than 50% ownership in the entity.
C. 100% ownership in the entity.
D. control over the entity, irrespective of the percentage owned.
4) With respect to goodwill, an impairment
A. will be amortized over the remaining useful life.
B. is a two-step process which analyzes each business unit of the entity.
C. is a one-step process considering the entire firm.
D. occurs when asset values are adjusted to fair value in a purchase.
5) Swamphen Corporation accounts for its 30% investment in Frog Company using the equity
method. On the date of the original investment, fair values were equal to the book values
except for a patent, which cost Swamphen an additional $40,000. The patent had an
estimated life of 10 years. Frog has a steady net income of $20,000 per year and its dividend
payout ratio is 40%. Which one of the following statements is correct?
A. The net change in the investment account for each full year will be a debit of $400.
B. The net change in the investment account for each full year will be a debit of $3,600.
C. The net change in the investment account for each full year will be a credit of $400.
D. The net change in the investment account for each full year will be a credit of $3,600.
6) On June 1, 2005, Gull Company acquired 100% of the stock of Scrap Inc. On this date, Gull
had Retained Earnings of $200,000 and Scrap had Retained Earnings of $100,000. On
December 31, 2005, Gull had Retained Earnings of $240,000 and Scrap had Retained
Earnings of $120,000. The amount of Retained Earnings that appeared in the December 31,
2005 consolidated balance sheet was:
A. $240,000.
B. $260,000.
C. $300,000.
D. $360,000.
Use the following information to answer questions 7 through 12.
On January 1, 2005, Finch Corporation purchased 75% of the common stock of Grass Co.
Separate balance sheet data for the companies at the combination date are given below:
Finch Grass
Cash $ 24,000 $ 206,000
Accounts Receivable 144,000 26,000
Inventory 132,000 38,000
Land 68,000 32,000
Plant assets 700,000 300,000
Accum. Depreciation ( 240,000 ) ( 60,000 )
Investment in Lapp 392,000
Total assets $ 1,230,000 $ 542,000
Accounts payable $ 206,000 $ 142,000
Capital stock 800,000 300,000
Retained earnings 224,000 100,000
Total liabilities & equities $ 1,230,000 $ 542,000
At the date of combination, the book values of Grass's net assets were equal to the fair value except
for Grass's inventory, which had a fair value of $60,000.
Determine below what the consolidated balance would be for each of the requested accounts.
7) What amount of Inventory will be reported?
A. $170,000.
B. $169,000.
C. $186,500.
D. $192,000.
8) What amount of Goodwill will be reported?
A. $10,500.
B. $20,000.
C. $42,000.
D. $75,500.
9) What amount of total liabilities will be reported?
A. $206,000.
B. $261,000.
C. $302,500.
D. $348,000.
10) What is the reported amount for the minority interest?
A. $ 69,333.
B. $100,000.
C. $130,666.
D. $150,000.
11) What is the amount of consolidated Retained Earnings?
A. $224,000.
B. $299,000.
C. $324,000.
D. $346,666.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started