Multiple-choice questions Part I of Homework 2 Select the best answer from the alternatives given and circle the letter of your choice. 1. On November 30, Pindar Co. purchased for cash at $26.8 per share all 250,000 shares of the outstanding common stock of Shimada Co., a business entity. Shimada reported net assets on that date with a carrying amount of S6 million. This amount reflected acquisition date Fair value except for property, plant, and equipment, which had a fair value that was lower than its carrying amount by $800,000. In its November 30 consolidated balance sheet, what amount should Pindar report as goodwill? a. $1,500,000 b. $800,000 c. $700,000 d. So 2. MAJ Corporation acquired 90% of the common stock of Min Co. for $441,000. MAJ previously held no equity interest in Min. On the date of acquisition, the carrying amount of Min's identifiable net assets equaled $300,000. The acquisition-date fair values of Min's inventory and equipment exceeded their carrying amounts by S60,000 and $40,000, respectively. The carrying amounts of the other assets and liabilities were equal to their acquisition-date fair values. What amount should MAJ recognize as goodwill immediately after the acquisition? a. $150,000 b. $90,000 c. $65,000 d. $114,000 e. none of these 3. Practicum Co. paid $1.2 million for an 80% interest in the common stock of Sarong Co. Practicum had no previous equity interest in Sarong. On the acquisition date, Sarong's identifiable net assets had a $1.3 million carrying amount, and their fair value equaled $1.4 million. The fair value of the noncontrolling interest (NCI) on the date of acquisition was $360,000. Practicum should record goodwill of a. S(200,000) b. S(100,000) c. $100,000 d. $160,000 4. On January 1, Pathan Corp purchased 80% of Samga Corp.'S SIO par common stock $975,000. Pathan had no prior equity interest in Samoa. The remaining 20% of this stock is het by NCI Co, an unrelated party. On the acquisition date for this business combination, the carry amount of Samoa's net assets was $1 million. The fair values of the assets acquired and liabilities assumed were the same as their carrying amounts on Samoa's balance sheet except for equipment (net), the fair value of which was $100,000 in excess of the carrying amount. The fair value of the noncontrolling interest (NCT) is 20% of the implied fair value of the acquiree's not assets at the acquisition date. (No exceptions to the recognition or measurement principles apply.) For the year ended December 31, Samoa's net income included in consolidated net income was $190,000, and Samoa paid cash dividends totaling $125.000. The equipment has a remaining economic life of 8 years. In the December 31 consolidated balance sheet, the NCI is reported at a. S254.250 b. $276,750 c. S243,750 d. S256,750 c. none of these 5. On April 1. year I Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, year 1, follow: $ 60,000 Cash Inventory 150,000 420,000 Property and equipment (net of accumulated depreciation of $220,000) Liabilities (normal balance) 120,000 On April 1 year I Wall's inventory had a fair value of $180,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination? a. $150,000 b. S120.000 c. $50,000 d. $20,000 6. On December 31, year 1, Saxe Corporation was acquired by Poe Corporation. In the business combination. Poe issued 200,000 shares of its S10 par common stock, with a market price of $10 a share, for all of Saxe's common stock. The stockholders' equity section of each company's balance sheet immediately before the combination was Poe Saxe Common stock $3,000,000 $1,500,000 Additional paid in capital 1,300,000 150,000 Retained earnings 2.500.000 850,000 Total S6,800,000 2,500,000 In the December 31, year 1 consolidated balance sheet, additional paid-in capital should be reported at a. $950,000 b. $1,300,000 c. $1,450,000 d. $2,900,000 acquired by Poe Corporation. In the business common stock. The stockholders' equity section of each company mon stock, with a market price of SIO 1. On December 31. vear 1. Saxe Corneration was acquired by Poc combination, Poe issued 200.000 shares of its $10 par common stock, a share, for all of Saxe's common stock. Thes balance sheet immediately before the combination was Poe Saxe Common stock $3,000,000 $1,500,000 Additional paid in capital 1.300.000 150.000 Retained earnings 2.500.000 850.000 Total S6,800,000 2.500,000 dhe reported at In the December 31. year 1 consolidated ba December 31. year I consolidated balance sheet retained earnings should be reported a. $3,000,000 b. S2,500,000 c. $3,350,000 d. S5,000,000 8. On December 31, year 1, Neal Co, issued 100,000 shares of its $10 par value common stock in exchange for all of Prey Inc.'s outstanding stock. The fair value of Neal's common stock on December 31, year 1, was $19.70 per share. The carrying amounts and fair values of Prey's assets and liabilities on December 31, year 1, were as follows: Carrying amount Fair value Cash $ 240,000 $ 240,000 Receivables 270,000 270,000 Inventory 435.000 405,000 Property, plant, and equipment 1,305,000 1,440,000 Liabilities (normal balance) 525,000 560,000 What is the amount of goodwill resulting from the business combination? a. $175,000 b. S105,000 c. $70,000 d. SO 9. On January 1, year 1, Polk Corp. and Strass Corp. had condensed balance sheets as follows: Polk Strass Current assets $ 70,000 $20,000 Noncurrent assets 90.000 40.000 Total assets $160,000 $60,000 Current liabilities S 30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and stockholders' equity S160,000 60,000 On January 2, year I, Polk borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Strass. This debt is payable in ten equal annual principal payments, plus interest, beginning December 30, year 1. The excess cost of the investment over Struss' book value of acquired net assets should be allocated 60% to inventory and 40% to goodwill. On January 1 year I the fair value of Polk shares held by noncontrolling parties was 10,000. On Polk's January 2. year I consolidated balance sheet, noncurrent assets should be a. S130.000 b. S136,000 c. $138.000 d. $140,000 excess of the implica od 60% to Seville 10. On January 2, Parma borrowed $60.000 and used the proceeds to purchase 80% of the outstanding common shares of Seville. Parma had no prior equity interest in Seville. Ten cqual principal and interest payments begin December 30. The excess of the implied fair value of Seville over the carrying amount of its identifiable net assets, if any, should be assigned 60% to inventory and 40% to goodwill. Moreover, the fair value of the noncontrolling interest (NCT) 15 20% of the implied fair value of the acquiree. The following are the balance sheets of Parma and Seville on January 1- Parma Current assets $70,000 $20 000 Noncurrent assets 90.000 40.000 Total assets $160,000 $60,000 Current liabilities $30,000 $10.000 Noncurrent liabilities 50.000 Equity 50.000 Total liabilities and equity $160,000 $60,000 On Parma's January 2 consolidated balance sheet, noncurrent assets equal a. S130,000 b. S134,000 c. $136,667 d. $140,000 80.000 Parma $70,000 40,000 11. On January 2, Parma borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Seville. Parma had no prior equity interest in Seville. Ten equal principal and interest payments begin December 30. The excess of the implied fair value of Seville over the carrying amount of its identifiable net assets should be assigned 60% to inventory and 40% to goodwill. Moreover, the fair value of the noncontrolling interest (NCI) is 10% of the implied fair value of the acquiree. The following are the balance sheets of Parma and Seville on January 1 Seville Current assets $20 000 Noncurrent assets 90,000 Total assets $160,000 $60,000 Current liabilities $30,000 $10,000 Noncurrent liabilities Equity 80.000 50.000 Total liabilities and equity $160,000 $60,000 On Parma's January 2 consolidated balance sheet, Parma's equity should be a. $80,000 b. $86,667 c. $90,000 d. $130,000 50,000 Multiple-choice questions Part I of Homework 2 Select the best answer from the alternatives given and circle the letter of your choice. 1. On November 30, Pindar Co. purchased for cash at $26.8 per share all 250,000 shares of the outstanding common stock of Shimada Co., a business entity. Shimada reported net assets on that date with a carrying amount of S6 million. This amount reflected acquisition date Fair value except for property, plant, and equipment, which had a fair value that was lower than its carrying amount by $800,000. In its November 30 consolidated balance sheet, what amount should Pindar report as goodwill? a. $1,500,000 b. $800,000 c. $700,000 d. So 2. MAJ Corporation acquired 90% of the common stock of Min Co. for $441,000. MAJ previously held no equity interest in Min. On the date of acquisition, the carrying amount of Min's identifiable net assets equaled $300,000. The acquisition-date fair values of Min's inventory and equipment exceeded their carrying amounts by S60,000 and $40,000, respectively. The carrying amounts of the other assets and liabilities were equal to their acquisition-date fair values. What amount should MAJ recognize as goodwill immediately after the acquisition? a. $150,000 b. $90,000 c. $65,000 d. $114,000 e. none of these 3. Practicum Co. paid $1.2 million for an 80% interest in the common stock of Sarong Co. Practicum had no previous equity interest in Sarong. On the acquisition date, Sarong's identifiable net assets had a $1.3 million carrying amount, and their fair value equaled $1.4 million. The fair value of the noncontrolling interest (NCI) on the date of acquisition was $360,000. Practicum should record goodwill of a. S(200,000) b. S(100,000) c. $100,000 d. $160,000 4. On January 1, Pathan Corp purchased 80% of Samga Corp.'S SIO par common stock $975,000. Pathan had no prior equity interest in Samoa. The remaining 20% of this stock is het by NCI Co, an unrelated party. On the acquisition date for this business combination, the carry amount of Samoa's net assets was $1 million. The fair values of the assets acquired and liabilities assumed were the same as their carrying amounts on Samoa's balance sheet except for equipment (net), the fair value of which was $100,000 in excess of the carrying amount. The fair value of the noncontrolling interest (NCT) is 20% of the implied fair value of the acquiree's not assets at the acquisition date. (No exceptions to the recognition or measurement principles apply.) For the year ended December 31, Samoa's net income included in consolidated net income was $190,000, and Samoa paid cash dividends totaling $125.000. The equipment has a remaining economic life of 8 years. In the December 31 consolidated balance sheet, the NCI is reported at a. S254.250 b. $276,750 c. S243,750 d. S256,750 c. none of these 5. On April 1. year I Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, year 1, follow: $ 60,000 Cash Inventory 150,000 420,000 Property and equipment (net of accumulated depreciation of $220,000) Liabilities (normal balance) 120,000 On April 1 year I Wall's inventory had a fair value of $180,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination? a. $150,000 b. S120.000 c. $50,000 d. $20,000 6. On December 31, year 1, Saxe Corporation was acquired by Poe Corporation. In the business combination. Poe issued 200,000 shares of its S10 par common stock, with a market price of $10 a share, for all of Saxe's common stock. The stockholders' equity section of each company's balance sheet immediately before the combination was Poe Saxe Common stock $3,000,000 $1,500,000 Additional paid in capital 1,300,000 150,000 Retained earnings 2.500.000 850,000 Total S6,800,000 2,500,000 In the December 31, year 1 consolidated balance sheet, additional paid-in capital should be reported at a. $950,000 b. $1,300,000 c. $1,450,000 d. $2,900,000 acquired by Poe Corporation. In the business common stock. The stockholders' equity section of each company mon stock, with a market price of SIO 1. On December 31. vear 1. Saxe Corneration was acquired by Poc combination, Poe issued 200.000 shares of its $10 par common stock, a share, for all of Saxe's common stock. Thes balance sheet immediately before the combination was Poe Saxe Common stock $3,000,000 $1,500,000 Additional paid in capital 1.300.000 150.000 Retained earnings 2.500.000 850.000 Total S6,800,000 2.500,000 dhe reported at In the December 31. year 1 consolidated ba December 31. year I consolidated balance sheet retained earnings should be reported a. $3,000,000 b. S2,500,000 c. $3,350,000 d. S5,000,000 8. On December 31, year 1, Neal Co, issued 100,000 shares of its $10 par value common stock in exchange for all of Prey Inc.'s outstanding stock. The fair value of Neal's common stock on December 31, year 1, was $19.70 per share. The carrying amounts and fair values of Prey's assets and liabilities on December 31, year 1, were as follows: Carrying amount Fair value Cash $ 240,000 $ 240,000 Receivables 270,000 270,000 Inventory 435.000 405,000 Property, plant, and equipment 1,305,000 1,440,000 Liabilities (normal balance) 525,000 560,000 What is the amount of goodwill resulting from the business combination? a. $175,000 b. S105,000 c. $70,000 d. SO 9. On January 1, year 1, Polk Corp. and Strass Corp. had condensed balance sheets as follows: Polk Strass Current assets $ 70,000 $20,000 Noncurrent assets 90.000 40.000 Total assets $160,000 $60,000 Current liabilities S 30,000 $10,000 Long-term debt 50,000 Stockholders' equity 80,000 50,000 Total liabilities and stockholders' equity S160,000 60,000 On January 2, year I, Polk borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Strass. This debt is payable in ten equal annual principal payments, plus interest, beginning December 30, year 1. The excess cost of the investment over Struss' book value of acquired net assets should be allocated 60% to inventory and 40% to goodwill. On January 1 year I the fair value of Polk shares held by noncontrolling parties was 10,000. On Polk's January 2. year I consolidated balance sheet, noncurrent assets should be a. S130.000 b. S136,000 c. $138.000 d. $140,000 excess of the implica od 60% to Seville 10. On January 2, Parma borrowed $60.000 and used the proceeds to purchase 80% of the outstanding common shares of Seville. Parma had no prior equity interest in Seville. Ten cqual principal and interest payments begin December 30. The excess of the implied fair value of Seville over the carrying amount of its identifiable net assets, if any, should be assigned 60% to inventory and 40% to goodwill. Moreover, the fair value of the noncontrolling interest (NCT) 15 20% of the implied fair value of the acquiree. The following are the balance sheets of Parma and Seville on January 1- Parma Current assets $70,000 $20 000 Noncurrent assets 90.000 40.000 Total assets $160,000 $60,000 Current liabilities $30,000 $10.000 Noncurrent liabilities 50.000 Equity 50.000 Total liabilities and equity $160,000 $60,000 On Parma's January 2 consolidated balance sheet, noncurrent assets equal a. S130,000 b. S134,000 c. $136,667 d. $140,000 80.000 Parma $70,000 40,000 11. On January 2, Parma borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Seville. Parma had no prior equity interest in Seville. Ten equal principal and interest payments begin December 30. The excess of the implied fair value of Seville over the carrying amount of its identifiable net assets should be assigned 60% to inventory and 40% to goodwill. Moreover, the fair value of the noncontrolling interest (NCI) is 10% of the implied fair value of the acquiree. The following are the balance sheets of Parma and Seville on January 1 Seville Current assets $20 000 Noncurrent assets 90,000 Total assets $160,000 $60,000 Current liabilities $30,000 $10,000 Noncurrent liabilities Equity 80.000 50.000 Total liabilities and equity $160,000 $60,000 On Parma's January 2 consolidated balance sheet, Parma's equity should be a. $80,000 b. $86,667 c. $90,000 d. $130,000 50,000