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Text 1 450 A business combination is accounted for properly as an acquisition. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred? Security issue cost, yes; overhead allocated merger, yes Security issue cost, yes; overhead allocated merger, no Security issue cost, no; overhead allocated merger, yes Security issue cost, no; overhead allocated merger, no 1 points Stock given as consideration for a business combination is valued at: fair market value par value historical cost None of these A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n): agreeable combination. friendly combination. hostile combination. unfriendly combination. On May 1, 2016, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2016, follow: Cash $100,000 Inventory 200,000 Property & equipment (Net of accumulated depreciation) 800,000 Liabilities (160,000) On May 1, 2016, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination? $0. $112,0 00. $140,0 00. $28,00 0. When the acquisition price of an acquired firm is less than the fair value of the identifiable net assets, all of the following are recorded at fair value EXCEPT: Assumed liabilities. Current assets. Long-lived assets. Each of these is recorded at fair value. In a business combination accounted for as an acquisition, how should the excess of fair value of net assets acquired over the consideration paid be treated? Amortized as a credit to income over a period not to exceed forty years. Amortized as a charge to expense over a period not to exceed forty years. Amortized directly to retained earnings over a period not to exceed forty years. Recorded as an ordinary gain. The view that only the parent company's share of the unrealized intercompany profit recognized by the selling affiliate that remains in assets should be eliminated in the preparation of consolidated financial statements is consistent with the: economic unit concept. current practice concept. parent company concept. historical cost company concept. Which of the following is not a component of other comprehensive income under GAAP? earnings. gains and losses that bypass earnings. impairment losses. accumulated other comprehensive income. 1 points Porpoise Corporation acquired Sims Company through an exchange of common shares. All of Sims' assets and liabilities were immediately transferred to Porpoise. Porpoise Company's common stock was trading at $20 per share at the time of exchange. The following selected information is also available: Porpoise Company Before Acquisition After Acquisition Par value of shares outstanding $200,000 $250,000 Additional Paid in Capital 350,000 550,000 What number of shares was issued at the time of the exchange? 5,00 0 17,5 00 12,5 00 10,0 00 1 points The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements) are as follows: to improve the relevance, comparability, and transparency of financial information related to business combinations. to eliminate the amortization of Goodwill. to facilitate the convergence project of the FASB and the International Accounting Standards Board. to improve the relevance, comparability, and transparency of financial information related to business combinations and to eliminate the amortization of Goodwill. If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be: allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain. recognized as ordinary gain or loss. allocated to reduce long-lived assets. accounted for as goodwill. In a business combination, which of the following costs are assigned to the valuation of the security? Professional or Security, yes; Consulting fees issued cost, yes Professional or Security, yes; Consulting fees issued cost, no Professional or Security, no; Consulting fees issued cost, yes Professional or Security, no; Consulting fees issued cost, no Under SFAS 141R, what value of the assets and liabilities is reflected in the financial statements on the acquisition date of a business combination? Carrying value Fair value Book value Average value When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities, the result is a statutory: acquisition . combinatio n. consolidati on. merger. Under the parent company concept, consolidated net income __________ the consolidated net income under the economic unit concept. is the same as is higher than is lower than can be higher or lower than Under the economic unit concept, noncontrolling interest in net assets is treated as: a liability. an asset. stockholders' equity. an expense. When following the economic unit concept in the preparation of consolidated financial statements, the basis for valuing the noncontrolling interest in net assets is the: book values of subsidiary assets and liabilities. fair values of subsidiary assets and liabilities. general price level adjusted values of subsidiary assets and liabilities. fair values of parent company assets and liabilities. SFAS 141R requires that the acquirer disclose each of the following for each material business combination EXCEPT the: name and a description of the acquiree acquired. percentage of voting equity instruments acquired. fair value of the consideration transferred. each of the above is a required disclosure The parent company concept adjusts subsidiary net asset values for the: differences between cost and fair value. differences between cost and book value. total fair value implied by the price paid by the parent. total cost implied by the price paid by the parent. Under SFAS 141R: both direct and indirect costs are to be capitalized. both direct and indirect costs are to be expensed. direct costs are to be capitalized and indirect costs are to be expensed. indirect costs are to be capitalized and direct costs are to be expensed. The view that consolidated financial statements represent those of a single economic entity with several classes of stockholder interest is consistent with the: parent company concept. current practice concept. historical cost company concept. economic unit concept. The difference between normal earnings and expected future earnings is: average earnings. excess earnings. ordinary earnings. target earnings. The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is: to provide information relevant to the controlling stockholders. to represent the view that the affiliated companies are a separate, identifiable economic entity. to emphasis control of the whole by a single management. to include only a portion of the subsidiary's assets, liabilities, revenues, expenses, gains, and losses. The fair value of net identifiable assets exclusive of goodwill of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, including $60,000 goodwill. If the fair value of the reporting unit is $335,000, what amount of goodwill impairment will be recognized for this unit? $0 $10,0 00 $25,0 00 $35,0 00 North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: North Prairie Current Assets $1,314,000 $192,000 Plant and Equipment (net) 1,725,000 408,000 Total $3,039,000 $600,000 Liabilities $ 900,000 $150,000 Common Stock, $20 par value 1,650,000 240,000 Other Contributed Capital 218,000 60,000 Retained Earnings 271,000 150,000 Total $3,039,000 $600,000 If the business combination is treated as an acquisition and the fair value of Prairie Company's current assets is $270,000, its plant and equipment is $726,000, and its liabilities are $168,000, North Company's financial statements immediately after the combination will include: Negative goodwill of $108,000. Plant and equipment of $2,133,000. Plant and equipment of $2,343,000. An ordinary gain of $108,000. 1 points The first step in determining goodwill impairment involves comparing the: implied value of a reporting unit to its carrying amount (goodwill excluded). fair value of a reporting unit to its carrying amount (goodwill excluded). implied value of a reporting unit to its carrying amount (goodwill included). fair value of a reporting unit to its carrying amount (goodwill included). SFAS 141R requires that all business combinations be accounted for using: the pooling of interests method. the acquisition method. either the acquisition or the pooling of interests methods. neither the acquisition nor the pooling of interests methods. 1 points When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n): prorated share of the combined income. addition to combined income to arrive at consolidated net income. expense deducted from combined income to arrive at consolidated net income. deduction from current assets in the balance sheet. P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company's assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as: $130,0 00. $90,00 0. $40,00 0. $0. Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: Posch Sato Current Assets $ 657,000 $ 96,000 Plant and Equipment (net) 863,000 204,000 Total $1,520,000 $300,000 Liabilities $ 450,000 $ 75,000 Common Stock, $20 par value 825,000 120,000 Other Contributed Capital 109,000 30,000 Retained Earnings 136,000 75,000 Total $1,520,000 $300,000 If the business combination is treated as an acquisition and Sato Company's net assets have a fair value of $343,200, Posch Company's balance sheet immediately after the combination will include goodwill of: $15,30 0. $19,20 0. $16,80 0. $28,20 0. The fair value of net identifiable assets of a reporting unit exclusive of goodwill of Y Company is $270,000. The carrying value of the reporting unit's net assets on Y Company's books is $320,000, including $50,000 goodwill. If the reported goodwill impairment for the unit is $10,000, what would be the fair value of the reporting unit? $320,0 00 $310,0 00 $270,0 00 $290,0 00 Under the acquisition method, if the fair values of identifiable net assets exceed the value implied by the purchase price of the acquired company, the excess should be: accounted for as goodwill. allocated to reduce current and long-lived assets. allocated to reduce current assets and classify any remainder as an extraordinary gain. allocated to reduce any previously recorded goodwill on the seller's books and classify any remainder as an ordinary gain. 1 points Estimated goodwill is determined by computing the present value of the: average earnings. excess earnings. expected future earnings. normal earnings. Many of FASB's recent pronouncements indicate a shift away from historical cost accounting toward: an elevated status for the Statements of Financial Accounting Concepts. convergence of standards. fair value accounting. representationally faithful reporting. Following its acquisition of the net assets of Burnt Company, Primrose Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Fair Value Cash $ 20,000 $20,000 Inventory 35,000 40,000 Equipment 125,000 160,000 Goodwill 60,000 Accounts Payable 30,000 30,000 Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000? $0 $60,0 00 $30,0 00 $10,0 00 Which of the following situations best describes a business combination to be accounted for as a statutory merger? Both companies in a combination continue to operate as separate, but related, legal entities. Only one of the combining companies survives and the other loses its separate identity. Two companies combine to form a new third company, and the original two companies are dissolved. One company transfers assets to another company it has created. Parental Company and Sub Company were combined in an acquisition transaction. Parental was able to acquire Sub at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Parental. After eliminating previously recorded goodwill, there was still some "negative goodwill." Proper accounting treatment by Parental is to report the amount as: paid-in capital. a deferred credit, which is amortized. an ordinary gain. an extraordinary gain. In a leveraged buyout, the portion of the net assets of the new corporation provided by the management group is recorded at: appraisal value. book value. fair value. lower of cost or market. P Co. issued 5,000 shares of its common stock, valued at $200,000, to the former shareholders of S Company two years after S Company was acquired in an all-stock transaction. The additional shares were issued because P Company agreed to issue additional shares of common stock if the average post combination earnings over the next two years exceeded $500,000. P Company will treat the issuance of the additional shares as a (decrease in): consolidated retained earnings. consolidated goodwill. consolidated paid-in capital. non-current liabilities of S Company assumed by P Company. Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: Posch Sato Current Assets $ 657,000 $ 96,000 Plant and Equipment (net) 863,000 204,000 Total $1,520,000 $300,000 Liabilities $450,000 $75,000 Common Stock, $20 par value 825,000 120,000 Other Contributed Capital 109,000 30,000 Retained Earnings 136,000 75,000 Total $1,520,000 $300,000 If the business combination is treated as an acquisition and the fair value of Sato Company's current assets is $135,000, its plant and equipment is $363,000, and its liabilities are $84,000, Posch Company's financial statements immediately after the combination will include: Negative goodwill of $54,000. Plant and equipment of $1,226,000. Plant and equipment of $1,172,000. An extraordinary gain of $54,000. If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test, the loss should be treated as a(n): loss from a change in accounting principles. extraordinary loss loss from continuing operations. loss from discontinuing operations. With an acquisition, direct and indirect expenses are: expensed in the period incurred. capitalized and amortized over a discretionary period. considered a part of the total cost of the acquired company. charged to retained earnings when incurred. The first step in estimating goodwill in the excess earnings approach is to: determine normal earnings. identify a normal rate of return for similar firms. compute excess earnings. estimate expected future earnings. North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: North Prairie Current Assets $ 1,314,000 $ 192,000 Plant and Equipment (net) 1,725,000 408,000 Total $ 3,039,000 $ 600,000 Liabilities $ 900,000 $150,000 Common Stock, $20 par value 1,650,000 240,000 Other Contributed Capital 218,000 60,000 Retained Earnings 271,000 150,000 Total $3,039,000 $600,000 If the business combination is treated as an acquisition and Prairie Company's net assets have a fair value of $686,400, North Company's balance sheet immediately after the combination will include goodwill of: $30,60 0. $38,40 0. $33,60 0. $56,40 0. A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition? Cash Issuing Debt Issuing Stock All of these On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common stock of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values of Shaw's assets and liabilities on February 5 were as follows: Book Value Fair Value Cash $160,000 $160,000 Receivables (net) 180,000 180,000 Inventory 315,000 300,000 Plant and equipment (net) 820,000 920,000 Liabilities (350,000) (350,000) Net assets $1,125,000 $1,210,000 What is the amount of goodwill resulting from the business combination? $-0-. $475,0 00. $85,00 0. $390,0 00. In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures EXCEPT: a description of the facts and circumstances leading to the impairment. the amount of goodwill by reporting segment. the method of determining the fair value of the reporting unit. the amounts of any adjustments made to impairment estimates from earlier periods, if significant. 1 points According to the economic unit concept, the primary purpose of consolidated financial statements is to provide information that is relevant to: majority stockholders. minority stockholders. creditors. both majority and minority stockholders. P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properly accounted for as an acquisition. The fair value of S Company's net assets on that date was $220,000. P Company also agreed to issue an additional 2,000 shares of common stock with a fair value of $50,000 to the former stockholders of S Company as an earnings contingency. Assuming that the contingency is expected to be met, the $50,000 fair value of the additional shares to be issued should be treated as a(n): decrease in noncurrent liabilities of S Company that were assumed by P Company. decrease in consolidated retained earnings. increase in consolidated goodwill. decrease in consolidated other contributed capital. The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the: bonus. goodwill. implied offering price. takeover premium According to the economic unit concept, the primary purpose of consolidated financial statements is to provide information that is relevant to: majority stockholders. minority stockholders. creditors. both majority and minority stockholders. IFRS defines control as: the direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise. the power to govern the entity's financial and operating policies as to obtain benefits from its activities. the power to direct the activities that impact economic performance, the obligation to absorb expected losses, and the right to receive expected residual returns. having a majority of the ownership interests entitled to elect management. The main evidence of control for purposes of consolidated financial statements involves: possessing majority ownership having decision-making ability that is not shared with others. being the sole shareholder having the parent company and the subsidiary participating in the same industry. 1 points When the value implied by the purchase price of a subsidiary is in excess of the fair value of identifiable net assets, the workpaper entry to allocate the difference between implied and book value includes a: debit to Difference Between Implied and Book Value. credit to Excess of Implied over Fair Value. credit to Difference Between Implied and Book Value. debit to Difference Between Implied and Book Value and credit to Excess of Implied over Fair Value. The parent company concept of consolidation represents the view that the primary purpose of consolidated financial statements is: to provide information relevant to the controlling stockholders. to represent the view that the affiliated companies are a separate, identifiable economic entity. to emphasis control of the whole by a single management. to include only a portion of the subsidiary's assets, liabilities, revenues, expenses, gains, and losses. On January 1, 2016, Pell Company and Sand Company had condensed balance sheets as follows: Pell Sand Current assets $280,000 $80,000 Noncurrent assets 360,000 160,000 Total assets $640,000 $240,000 Current liabilities $ 120,000 $40,000 Long-term debt 200,000 -0- Stockholders' equity 320,000 200,000 Total liabilities & stockholders' equity $640,000 $240,000 On January 2, 2016 Pell borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sand. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2016. Any difference between book value and the value implied by the purchase price relates to land. On Pell's January 2, 2016 consolidated balance sheet, noncurrent assets should be: $520,0 00. $536,0 00. $544,0 00. $586,6 67. Park Company acquired a 90% interest in Southwestern Company on December 31, 2016, for $320,000. During 2017 Southwestern had a net income of $22,000 and paid a cash dividend of $7,000. Applying the cost method would give a debit balance in the Investment in Stock of Southwestern Company account at the end of 2017 of: $335,0 00 $333,5 00 $313,7 00 $320,0 00 1 points In the preparation of a consolidated statements workpaper, dividend income recognized by a parent company for dividends distributed by its subsidiary is: included with parent company income from other sources to constitute consolidated net income. assigned as a component of the noncontrolling interest. allocated proportionately to consolidated net income and the noncontrolling interest. eliminated. Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net income of $600,000 and paid dividends totaling $225,000 during Year 3. Year 3 amortization of differences between current fair values and carrying amounts of Sleepy's identifiable net assets at the date of the business combination was $112,500. The noncontrolling interest in consolidated net income of Sleepy for Year 3 was: $146,2 50. $33,75 0. $67,50 0. $180,0 00. Following its acquisition of the net assets of Burnt Company, Primrose Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows: Carrying Amount Fair Value Cash $ 20,000 $20,000 Inventory 35,000 40,000 Equipment 125,000 160,000 Goodwill 60,000 Accounts Payable 30,000 30,000 Based on the preceding information, what amount of goodwill will be reported for this division if its fair value is determined to be $200,000? $0 $60,0 00 $30,0 00 $10,0 00 Once a reporting unit is determined to have a fair value below its carrying value, the goodwill impairment loss is computed by comparing the: fair value of the reporting unit and the fair value of the identifiable net assets. carrying value of the goodwill to its implied fair value. fair value of the reporting unit to its carrying amount (goodwill included). carrying value of the reporting unit to the fair value of the identifiable net assets. Estimated goodwill is determined by computing the present value of the: average earnings. excess earnings. expected future earnings. normal earnings. On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method. What amount of investment income will be reported by Puma for the year 2017? $7,50 0 $6,00 0 $4,50 0 $25,0 00 A business combination is accounted for properly as an acquisition. Which of the following expenses related to effecting the business combination should enter into the determination of net income of the combined corporation for the period in which the expenses are incurred? Security issue cost, yes; overhead allocated merger, yes Security issue cost, yes; overhead allocated merger, no Security issue cost, no; overhead allocated merger, yes Security issue cost, no; overhead allocated merger, no When a new corporation is formed to acquire two or more other corporations and the acquired corporations cease to exist as separate legal entities, the result is a statutory: acquisition . combinatio n. consolidati on. merger. Which of the following is not a component of other comprehensive income under GAAP? earnings. gains and losses that bypass earnings. impairment losses. accumulated other comprehensive income. On January 1, 2016, Pell Company and Sand Company had condensed balance sheets as follows: Pell Sand Current assets $280,000 $80,000 Noncurrent assets 360,000 160,000 Total assets $640,000 $240,000 Current liabilities $ 120,000 $40,000 Long-term debt 200,000 -0- Stockholders' equity 320,000 200,000 Total liabilities & stockholders' equity $640,000 $240,000 On January 2, 2016 Pell borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sand. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2016. Any difference between book value and the value implied by the purchase price relates to land. On Pell's January 2, 2016 consolidated balance sheet, noncurrent liabilities should be: $440,0 00. $416,0 00. $240,0 00. $216,0 00. Pina Corp. owns 60% of Simon Corp.'s outstanding common stock. On May 1, 2016, Pina advanced Simon $90,000 in cash, which was still outstanding at December 31, 2016. What portion of this advance should be eliminated in the preparation of the December 31, 2016 consolidated balance sheet? $90,00 0. $54,00 0. $36,00 0. $-0-. The Difference between Implied and Book Value account is: an asset or liability account reflected on the consolidated balance sheet. used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values. the excess implied value assigned to goodwill. the unamortized excess that cannot be assigned to any related balance sheet accounts On January 1, 2016, Pent Company and Shelter Company had condensed balance sheets as follows: Pent Shelter Current assets $210,00 $60,000 Noncurrent assets 270,000 120,000 Total assets $480,000 $180,000 Current liabilities $90,000 $30,000 Long-term debt 150,000 -0- Stock holders' equity 240,000 150,000 Total liabilities & stockholders' equity $480,000 $180,000 On January 2, 2016 Pent borrowed $180,000 and used the proceeds to purchase 90% of the outstanding common stock of Shelter. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2016. Any difference between book value and the value implied by the purchase price relates to land. On Pent's January 2, 2016 consolidated balance sheet, current liabilities should be: $150,0 00. $138,0 00. $120,0 00. $90,00 0. Pinta Company acquired an 80% interest in Strummer Company on January 1, 2016, for $270,000 cash when Strummer Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strummer Company made $30,000 in 2016 and paid no dividends. Pinta Company's separate income in 2016 was $375,000. Controlling interest in consolidated net income for 2016 is: $405,0 00. $399,0 00. $396,0 00. $375,0 00. On the consolidated statement of cash flows, the parent's acquisition of additional shares of the subsidiary's stock directly from the subsidiary is reported as: an investing activity. a financing activity. an operating activity. none of these. North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: North Prairie Current Assets $1,314,000 $192,000 Plant and Equipment (net) 1,725,000 408,000 Total $3,039,000 $600,000 Liabilities $ 900,000 $150,000 Common Stock, $20 par value 1,650,000 240,000 Other Contributed Capital 218,000 60,000 Retained Earnings 271,000 150,000 Total $3,039,000 $600,000 If the business combination is treated as an acquisition and the fair value of Prairie Company's current assets is $270,000, its plant and equipment is $726,000, and its liabilities are $168,000, North Company's financial statements immediately after the combination will include: Negative goodwill of $108,000. Plant and equipment of $2,133,000. Plant and equipment of $2,343,000. An ordinary gain of $108,000. If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price, the workpaper entry to eliminate the investment account: debits Excess of Fair Value over Implied Value. debits Difference Between Implied and Fair Value. debits Difference Between Implied and Book Value. credits Difference Between Implied and Book Value. If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be: allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain. recognized as ordinary gain or loss. allocated to reduce long-lived assets. accounted for as goodwill. When the implied value exceeds the aggregate fair values of identifiable net assets, the residual difference is accounted for as: excess of implied over fair value. a deferred credit. difference between implied and fair value. goodwill. The objectives of FASB 141R (Business Combinations) and FASB 160 (Noncontrolling Interests in Consolidated Financial Statements) are as follows: to improve the relevance, comparability, and transparency of financial information related to business combinations. to eliminate the amortization of Goodwill. to facilitate the convergence project of the FASB and the International Accounting Standards Board. to improve the relevance, comparability, and transparency of financial information related to business combinations and to eliminate the amortization of Goodwill. An investor adjusts the investment account for the amortization of any difference between cost and book value under the: cost method. complete equity method. partial equity method. complete and partial equity methods. The parent company concept adjusts subsidiary net asset values for the: differences between cost and fair value. differences between cost and book value. total fair value implied by the price paid by the parent. total cost implied by the price paid by the parent. A newly acquired subsidiary has pre-existing goodwill on its books. The parent company's consolidated balance sheet will: treat the goodwill the same as other intangible assets of the acquired company. will always show the pre-existing goodwill of the subsidiary at its book value. not show any value for the subsidiary's pre-existing goodwill. do an impairment test to see if any of it has been impaired. Which of the following statements would not be a valid or logical reason for entering into a business combination? to increase market share. to avoid becoming a takeover target. to reduce risk by acquiring established product lines. the operating costs of the combined entity would be more than the sum of the separate entities. When following the economic unit concept in the preparation of consolidated financial statements, the basis for valuing the noncontrolling interest in net assets is the: book values of subsidiary assets and liabilities. fair values of subsidiary assets and liabilities. general price level adjusted values of subsidiary assets and liabilities. fair values of parent company assets and liabilities. SFAS 141R requires that all business combinations be accounted for using: the pooling of interests method. the acquisition method. either the acquisition or the pooling of interests methods. neither the acquisition nor the pooling of interests methods. 1 points Under the cost method, the workpaper entry to establish reciprocity: debits Retained Earnings - S Company. credits Retained Earnings - S Company. debits Retained Earnings - P Company. credits Retained Earnings - P Company Under SFAS 141R, what value of the assets and liabilities is reflected in the financial statements on the acquisition date of a business combination? Carrying value Fair value Book value Average value On January 1, 2017, Panda Company purchased 25% of Skill Company's common stock; no goodwill resulted from the acquisition. Panda Company appropriately carries the investment using the equity method of accounting and the balance in Panda's investment account was $190,000 on December 31, 2017. Skill reported net income of $120,000 for the year ended December 31, 2017 and paid dividends on its common stock totaling $48,000 during 2017. How much did Panda pay for its 25% interest in Skill? $172,0 00 $202,0 00 $208,0 00 $232,0 00 With an acquisition, direct and indirect expenses are: expensed in the period incurred. capitalized and amortized over a discretionary period. considered a part of the total cost of the acquired company. charged to retained earnings when incurred. On January 1, 2017, Puma Corporation acquired 30 percent of Slume Company's stock for $150,000. On the acquisition date, Slume reported net assets of $450,000 valued at historical cost and $500,000 stated at fair value. The difference was due to the increased value of buildings with a remaining life of 10 years. During 2017 Slume reported net income of $25,000 and paid dividends of $10,000. Puma uses the equity method. What will be the balance in the Investment account as of Dec 31, 2017? $150,0 00 $157,5 00 $154,5 00 $153,0 00 P Co. issued 5,000 shares of its common stock, valued at $200,000, to the former shareholders of S Company two years after S Company was acquired in an all-stock transaction. The additional shares were issued because P Company agreed to issue additional shares of common stock if the average post combination earnings over the next two years exceeded $500,000. P Company will treat the issuance of the additional shares as a (decrease in): consolidated retained earnings. consolidated goodwill. consolidated paid-in capital. non-current liabilities of S Company assumed by P Company. In which of the following cases would consolidation be inappropriate? The subsidiary is in bankruptcy. Subsidiary's operations are dissimilar from those of the parent. The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor. Subsidiary is foreign. If an impairment loss is recorded on previously recognized goodwill due to the transitional goodwill impairment test, the loss should be treated as a(n): loss from a change in accounting principles. extraordinary loss loss from continuing operations. loss from discontinuing operations. Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2016, for $380,000. During 2017 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000. Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2017 of: $400,0 00. $394,0 00. $373,0 00. $380,0 00. Pendleton Company acquired a 70% interest in Sunflower Company on December 31, 2016, for $380,000. During 2017 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000. Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2017 of: $400,0 00. $394,0 00. $373,0 00. $380,0 00. Under the cost method, the investment account is reduced when: there is a liquidating dividend. the subsidiary declares a cash dividend. the subsidiary incurs a net loss. none of these. The view that the noncontrolling interest in income reflects the noncontrolling stockholders' allocated share of consolidated income is consistent with the: economic unit concept. parent company concept. current practice concept. historical cost company concept. Price Company acquired 75 percent of the common stock of Shandie Corporation on December 31, 2016. On the date of acquisition, Price held land with a book value of $150,000 and a fair value of $300,000; Shandie held land with a book value of $100,000 and fair value of $500,000. What amount would land be reported in the consolidated balance sheet prepared immediately after the combination? $650,0 00 $500,0 00 $550,0 00 $375,0 00 The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the: bonus. goodwill. implied offering price. takeover premium. Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: Posch Sato Current Assets $ 657,000 $ 96,000 Plant and Equipment (net) 863,000 204,000 Total $1,520,000 $300,000 Liabilities $450,000 $75,000 Common Stock, $20 par value 825,000 120,000 Other Contributed Capital 109,000 30,000 Retained Earnings 136,000 75,000 Total $1,520,000 $300,000 If the business combination is treated as an acquisition and the fair value of Sato Company's current assets is $135,000, its plant and equipment is $363,000, and its liabilities are $84,000, Posch Company's financial statements immediately after the combination will include: Negative goodwill of $54,000. Plant and equipment of $1,226,000. Plant and equipment of $1,172,000. An extraordinary gain of $54,000. The difference between normal earnings and expected future earnings is: average earnings. excess earnings. ordinary earnings. target earnings. Which one of the following describes a difference in how the equity method is applied under GAAP than under IFRS? the equity method is generally applied to limited partnerships under IFRS for investments of more than 3 to 5%, whereas GAAP adopts a "significant influence" principle. IFRS requires uniform accounting policies, whereas GAAP does not. significant influence is presumed if the investor has 20% or more of the voting rights in a corporate investee under GAAP, whereas IFRS adopts a "facts and circumstances" approach that looks beyond the voting rights percentage. GAAP requires consideration of potential voting rights on currently exercisable of convertible instruments, whereas IFRS does not. 1 points Posch Company issued 12,000 shares of its $20 par value common stock for the net assets of Sato Company in a business combination under which Sato Company will be merged into Posch Company. On the date of the combination, Posch Company common stock had a fair value of $30 per share. Balance sheets for Posch Company and Sato Company immediately prior to the combination were as follows: Posch Sato Current Assets $ 657,000 $ 96,000 Plant and Equipment (net) 863,000 204,000 Total $1,520,000 $300,000 Liabilities $ 450,000 $ 75,000 Common Stock, $20 par value 825,000 120,000 Other Contributed Capital 109,000 30,000 Retained Earnings 136,000 75,000 Total $1,520,000 $300,000 If the business combination is treated as an acquisition and Sato Company's net assets have a fair value of $343,200, Posch Company's balance sheet immediately after the combination will include goodwill of: $15,30 0. $19,20 0. $16,80 0. $28,20 0. A firm can use which method of financing for an acquisition structured as either an asset or stock acquisition? Cash Issuing Debt Issuing Stock All of these Pine, Inc. owns 40% of Supra Corporation. During the year, Supra had net earnings of $200,000 and paid dividends of $50,000. Masters used the cost method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively? understate, overstate, overstate. overstate, understate, understate overstate, overstate, overstate understate, understate, understate Porpoise Corporation acquired Sims Company through an exchange of common shares. All of Sims' assets and liabilities were immediately transferred to Porpoise. Porpoise Company's common stock was trading at $20 per share at the time of exchange. The following selected information is also available: Porpoise Company Before Acquisition After Acquisition Par value of shares outstanding $200,000 $250,000 Additional Paid in Capital 350,000 550,000 What number of shares was issued at the time of the exchange? 5,00 0 17,5 00 12,5 00 10,0 00 In a business combination accounted for as an acquisition, how should the excess of fair value of identifiable net assets acquired over implied value be treated? Amortized as a credit to income over a period not to exceed forty years. Amortized as a charge to expense over a period not to exceed forty years. Amortized directly to retained earnings over a period not to exceed forty years. Recognized as an ordinary gain in the year of acquisition. The impairment standard as it relates to goodwill is an example of a: consumption of benefit approach. loss or lack of benefit approach. component of other comprehensive income. direct matching of expenses to revenues. In the preparation of a consolidated statement of cash flows using the indirect method of presenting cash flows from operating activities, the amount of the noncontrolling interest in consolidated income is: combined with the controlling interest in consolidated net income. deducted from the controlling interest in consolidated net income. reported as a significant noncash investing and financing activity in the notes. reported as a component of cash flows from financing activities. 1 points On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Snicker Co. Snicker Co. Pamela Co. Book Values Fair Values Cash $ 18,000 $155,000 $155,000 Accounts receivable 108,000 20,000 20,000 Inventory 99,000 26,000 45,000 Land 60,000 24,000 45,000 Plant assets 525,000 225,000 300,000 Acc. depreciation (180,000) (45,000) Investment in Snicker Co 330,000 Total assets $960,000 $405,000 $565,000 Accounts payable $156,000 $105,000 $105,000 Capital stock 600,000 225,000 Retained earnings 204,000 75,000 Total liabilities & equities $960,000 $405,000 Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016. What amount of goodwill will be reported? ($20,00 0) ($25,00 0) $25,00 0 $0 A parent company uses the partial equity method to account for an investment in common stock of its subsidiary. A portion of the dividends received this year were in excess of the parent company's share of the subsidiary's earnings subsequent to the date of the investment. The amount of dividend income that should be reported in the parent company's separate income statement should be: zero. the total amount of dividends received this year. the portion of the dividends received this year that were in excess of the parent's share of subsidiary's earnings subsequent to the date of investment. the portion of the dividends received this year that were not in excess of the parent's share of subsidiary's earnings subsequent to the date of investment. The first step in estimating goodwill in the excess earnings approach is to: determine normal earnings. identify a normal rate of return for similar firms. compute excess earnings. estimate expected future earnings. The view that consolidated financial statements represent those of a single economic entity with several classes of stockholder interest is consistent with the: parent company concept. current practice concept. historical cost company concept. economic unit concept Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2016. Suburbia reported net income in 2016 of $90,000 and in 2017 of $120,000 earned evenly throughout the respective years. Prime received $24,000 dividends from Suburbia in 2016 and $36,000 in 2017. Prime uses the equity method to record its investment. Prime should record investment income from Suburbia during 2017 of: $36,00 0 $120,0 00 $84,00 0 $48,00 0 Which of the following statements is correct? Total elimination is consistent with the parent company concept. Partial elimination is consistent with the economic unit concept. Past accounting standards required the total elimination of unrealized intercompany profit in assets acquired from affiliated companies. none of these. In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the: complete equity method. cost method. partial equity method. complete and partial equity methods. In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are: expensed as incurred. deducted from other contributed capital. included in the investment cost. deducted from the investment cost. Which of the following is a limitation of consolidated financial statements? Consolidated statements provide no benefit for the stockholders and creditors of the parent company. Consolidated statements of highly diversified companies cannot be compared with industry standards. Consolidated statements are beneficial only when the consolidated companies operate within the same industry. Consolidated statements are beneficial only when the consolidated companies operate in different industries. The excess of fair value over implied value must be allocated to reduce proportionally the fair values initially assigned to: current assets. noncurrent assets. both current and noncurrent assets. none of these On January 1, 2016, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below: Snicker Co. Snicker Co. Pamela Co. Book Values Fair Values Cash $ 18,000 $155,000 $155,000 Accounts receivable 108,000 20,000 20,000 Inventory 99,000 26,000 45,000 Land 60,000 24,000 45,000 Plant assets 525,000 225,000 300,000 Acc. depreciation (180,000) (45,000) Investment in Snicker Co 330,000 Total assets $960,000 $405,000 $565,000 Accounts payable $156,000 $105,000 $105,000 Capital stock 600,000 225,000 Retained earnings 204,000 75,000 Total liabilities & equities $960,000 $405,000 Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2016. What amount of inventory will be reported? $125,0 00 $132,7 50 $139,2 50 $144,0 00 Under which set of circumstances would it not be appropriate to assume the value the noncontrolling shares is the same as the controlling shares? The acquisition is for less than 100% of the subsidiary. The fair value of the noncontrolling shares can be inferred from the value implied by the acquisition price. Active market prices for shares not obtained by the acquirer imply a different value. The amount of the "control premium" cannot be determined . P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were: Current assets $120,000 Noncurrent assets 180,000 Total $300,000 How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company? The noncurrent assets should be recorded at $ 135,000. The $45,000 difference should be credited to retained earnings. The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000. An ordinary gain of $45,000 should be recorded. On January 1, 2016, Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000. The book value of Stork net assets was $640,000 at that time. The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value. In the January 1, 2016, consolidated balance sheet, goodwill would be reported at: $152,0 00. $177,1 43. $80,00 0. $0. Reasons a parent company may pay more than book value for the subsidiary company's stock include all of the following EXCEPT: the fair value of one of the subsidiary's assets may exceed its recorded value because of appreciation. the existence of unrecorded goodwill. liabilities may be overvalued. stockholders' equity may be undervalued. In a leveraged buyout, the portion of the net assets of the new corporation provided by the management group is recorded at: appraisal value. book value. fair value. lower of cost or market. The view that only the parent company's share of the unrealized intercompany profit recognized by the selling affiliate that remains in assets should be eliminated in the preparation of consolidated financial statements is consistent with the: economic unit concept. current practice concept. parent company concept. historical cost company concept. On February 5, Pryor Corporation paid $1,600,000 for all the issued and outstanding common stock of Shaw, Inc., in a transaction properly accounted for as an acquisition. The book values and fair values of Shaw's assets and liabilities on February 5 were as follows: Book Value Fair Value Cash $160,000 $160,000 Receivables (net) 180,000 180,000 Inventory 315,000 300,000 Plant and equipment (net) 820,000 920,000 Liabilities (350,000) (350,000) Net assets $1,125,000 $1,210,000 What is the amount of goodwill resulting from the business combination? $-0-. $475,0 00. $85,00 0. $390,0 00. On January 1, 2016, Prima Corporation acquired 80 percent of Sunder Corporation's voting common stock. Sunders's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition. At what amount will Sunder's buildings and equipment will be reported in the consolidated statements? $350,0 00 $340,0 00 $280,0 00 $300,0 00 On October 1, 2017, Perma Company acquired for cash all of the voting common stock of Street Company. The purchase price of Street's stock equaled the book value and fair value of Street's net assets. The separate net income for each company, excluding Perma's share of income from Street was as follows: Perma Street Twelve months ended $4,500,000 $2,700,000 Three months ended 12/31/17 495,000 450,000 During September, Street paid $150,000 in dividends to its stockholders. For the year ended December 31, 2017, Perma issued parent company only financial statements. These statements are not considered those of the primary reporting entity. Under the partial equity method, what is the amount of net income reported in Perma's income statement? $7,200,0 00. $4,650,0 00. $4,950,0 00. $1,800,0 00. Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2016. Suburbia reported net income in 2016 of $90,000 and in 2017 of $120,000 earned evenly throughout the respective years. Prime received $24,000 dividends from Suburbia in 2016 and $36,000 in 2017. Prime uses the equity method to record its investment. The balance of Prime's Investment in Suburbia account at December 31, 2017 is: $210,0 00 $285,0 00 $297,0 00 $315,0 00 A business combination in which the boards of directors of the potential combining companies negotiate mutually agreeable terms is a(n): agreeable combination. friendly combination. hostile combination. unfriendly combination P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properly accounted for as an acquisition. The fair value of S Company's net assets on that date was $220,000. P Company also agreed to issue an additional 2,000 shares of common stock with a fair value of $50,000 to the former stockholders of S Company as an earnings contingency. Assuming that the contingency is expected to be met, the $50,000 fair value of the additional shares to be issued should be treated as a(n): decrease in noncurrent liabilities of S Company that were assumed by P Company. decrease in consolidated retained earnings. increase in consolidated goodwill. decrease in consolidated other contributed capital. P Company purchased 80% of the outstanding common stock of S Company on May 1, 2017, for a cash payment of $318,000. During the calendar year 2017, S Company earned $210,000 evenly throughout the year and declared a dividend of $75,000 on November 1. What is the amount needed to establish reciprocity under the cost method in the preparation of a consolidated workpaper on December 31, 2017? $52,00 0 $65,00 0 $62,00 0 $108,0 00 Goodwill represents the excess of the implied value of an acquired company over the: aggregate fair values of identifiable assets less liabilities assumed. aggregate fair values of tangible assets less liabilities assumed. aggregate fair values of intangible assets less liabilities assumed. book value of an acquired company. On the consolidated balance sheet, consolidated stockholders' equity is: equal to the sum of the parent and subsidiary stockholders' equity. greater than the parent's stockholders' equity. less than the parent's stockholders' equity. equal to the parent's stockholders' equity. P Company acquires all of the voting stock of S Company for $930,000 cash. The book values of S Company's assets are $800,000, but the fair values are $840,000 because land has a fair value above its book value. Goodwill from the combination is computed as: $130,0 00. $90,00 0. $40,00 0. $0. Under the acquisition method, indirect costs relating to acquisitions should be: included in the investment cost. expensed as incurred. deducted from other contributed capital. none of these. Parental Company and Sub Company were combined in an acquisition transaction. Parental was able to acquire Sub at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Parental. After eliminating previously recorded goodwill, there was still some "negative goodwill." Proper accounting treatment by Parental is to report the amount as: paid-in capital. a deferred credit, which is amortized. an ordinary gain. an extraordinary gain In a period in which an impairment loss occurs, SFAS No. 142 requires each of the following note disclosures EXCEPT: a description of the facts and circumstances leading to the impairment. the amount of goodwill by reporting segment. the method of determining the fair value of the reporting unit. the amounts of any adjustments made to impairment estimates from earlier periods, if significant. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the: books of the parent company. books of the subsidiary company. workpaper only. books of both the parent company and the subsidiary. 1 points Which of the following situations best describes a business combination to be accounted for as a statutory merger? Both companies in a combination continue to operate as separate, but related, legal entities. Only one of the combining companies survives and the other loses its separate identity. Two companies combine to form a new third company, and the original two companies are dissolved. One company transfers assets to another company it has created. Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2016. Sands reported net income in 2016 of $45,000 and in 2017 of $60,000 earned evenly throughout the respective years. Prime received $12,000 dividends from Sands in 2016 and $18,000 in 2017. Prime uses the equity method to record its investment. Prime should record investment income from Sands during 2017 of: $18,00 0. $60,00 0. $48,00 0. $33,60 0. Under SFAS 141R: both direct and indirect costs are to be capitalized. both direct and indirect costs are to be expensed. direct costs are to be capitalized and indirect costs are to be expensed. indirect costs are to be capitalized and direct costs are to be expensed. On May 1, 2016, the Phil Company paid $1,200,000 for 80% of the outstanding common stock of Sage Corporation in a transaction properly accounted for as an acquisition. The recorded assets and liabilities of Sage Corporation on May 1, 2016, follow: Cash $100,000 Inventory 200,000 Property & equipment (Net of accumulated depreciation) 800,000 Liabilities (160,000) On May 1, 2016, it was determined that the inventory of Sage had a fair value of $220,000 and the property and equipment (net) has a fair value of $1,200,000. What is the amount of goodwill resulting from the business combination? $0. $112,0 00. $140,0 00. $28,00 0. Prime Industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of its 30,000 outstanding shares of common stock at book value of $105,000 on January 1, 2016. Sands reported net income in 2016 of $45,000 and in 2017 of $60,000 earned evenly throughout the respective years. Prime received $12,000 dividends from Sands in 2016 and $18,000 in 2017. Prime uses the equity method to record its investment. The balance of Prime's Investment in Sands account at December 31, 2017 is: $105,0 00. $138,6 00. $159,0 00. $165,0 00. When following the parent company concept in the preparation of consolidated financial statements, noncontrolling interest in combined income is considered a(n): prorated share of the combined income. addition to combined income to arrive at consolidated net income. expense deducted from combined income to arrive at consolidated net income. deduction from current assets in the balance sheet. The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called: poison pill. pac-man defense. greenmail. white knight. On November 30, 2016, Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company. Surge 's balance sheet at November 30, 2016, showed a book value of $8,000,000. Additionally, the fair value of Surge's property, plant, and equipment on November 30, 2016, was $1,200,000 in excess of its book value. What amount, if any, will be shown in the balance sheet caption "Goodwill" in the November 30, 2016, consolidated balance sheet of Piani Incorporated, and its wholly owned subsidiary, Surge Company? $0. $800,00 0. $1,200,0 00. $2,000,0 00 Majority-owned subsidiaries should be excluded from the consolidated statements when: control does not rest with the majority owner. the subsidiary operates under governmentally imposed uncertainty. a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls. any of these circumstances exist. A majority-owned subsidiary that is in legal reorganization should normally be accounted for using: consolidated financial statements. the equity method. the market value method. the cost method. North Company issued 24,000 shares of its $20 par value common stock for the net assets of Prairie Company in business combination under which Prairie Company will be merged into North Company. On the date of the combination, North Company common stock had a fair value of $30 per share. Balance sheets for North Company and Prairie Company immediately prior to the combination were as follows: North Prairie Current Assets $ 1,314,000 $ 192,000 Plant and Equipment (net) 1,725,000 408,000 Total $ 3,039,000 $ 600,000 Liabilities $ 900,000 $150,000 Common Stock, $20 par value 1,650,000 240,000 Other Contributed Capital 218,000 60,000 Retained Earnings 271,000 150,000 Total $3,039,000 $600,000 If the business combination is treated as an acquisition and Prairie Company's net assets have a fair value of $686,400, North Company's balance sheet immediately after the combination will include goodwill of: $30,60 0. $38,40 0. $33,60 0. $56,40 0. Under the parent company concept, consolidated net income __________ the consolidated net income under the economic unit concept. is the same as is higher than is lower than can be higher or lower than On January 1, 2017, Pantera Company purchased 40% of Stratton Company's 30,000 shares of voting common stock for a cash payment of $1,800,000 when 40% of the net book value of Stratton Company was $1,740,000. The payment in excess of the net book value was attributed to depreciable assets with a remaining useful life of six years. As a result of this transaction Pantera has the ability to exercise significant influence over Stratton Company's operating and financial policies. Stratton's net income for the ended December 31, 2017 was $600,000. During 2017, Stratton paid $325,000 in dividends to its shareholders. The income reported by Pantera for its investment in Stratton should be: $120,0 00 $130,0 00 $230,0 00 $240,0 00