Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc. and Spot is then dissolved. Polka paid the following costs and expenses related to the business combination:

Costs of special shareholders' meeting

to vote on the merger$12,000

Registering and issuing securities10,000

Accounting and legal fees18,000

Salaries of Polka's employees assigned

to the implementation of the merger27,000

Cost of closing duplicate facilities13,000

12) In the business combination of Polka and Spot

A) the costs of registering and issuing the securities are included as part of the purchase price for Spot.

B) the salaries of Polka's employees assigned to the merger are treated as expenses.

C) all of the costs except those of registering and issuing  the securities are included in the purchase price of Spot.

D) only the accounting and legal fees are included in the purchase price of Spot.

13) In the business combination of Polka and Spot,

A) all of the items listed above are treated as expenses.

B) all of the items listed above except the cost of registering and issuing the securities are included in the purchase price

C) the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Spot.

D) only the costs of closing duplicate facilities, the salaries of Polka's employees assigned to the merger, and the costs of the shareholders' meeting would be treated as expenses.

14) Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

A) Senior executive's estimates

B) Financial analyst forecasts

C) Market value

D) The present value of future cash flows discounted at the firm's cost of capital

15) Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then dissolved. Salt had no liabilities. The fair values of Salt's assets were $3,750,000. Salt's only non-current assets were land and buildings with book values of $100,000 and $520,000, respectively, and fair values of $180,000 and $730,000, respectively. At what value will the buildings be recorded by Pepper?

A) $730,000

B) $520,000

C) $210,000

D) $0

16) According to FASB Statement No. 141, liabilities assumed in an acquisition will be valued at the ________.

A) estimated fair value

B) historical book value

C) current replacement cost

D) present value using market interest rates

17) In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs, which of the following is correct?

A) Firms are not required to disclose the name of the acquired company.

B) Firms are not required to disclose the business purpose for a combination.

C) Firms are required to disclose the nature, terms and fair value of consideration transferred in a business combination.

D) All of the above are correct.

18) Goodwill arising from a business combination is

A) charged to Retained Earnings after the acquisition is completed.

B) amortized over 40 years or its useful life, whichever is longer.

C) amortized over 40 years or its useful life, whichever is shorter.

D) never amortized.

19) In reference to international accounting for goodwill, U.S. companies have complained that past U.S. accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners. Why?

A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules.

B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules.

C) Previous rules did not permit the recording of goodwill, thus resulting in a lower asset base than international counterparts would recognize.

D) All of the above are correct.

20) When considering an acquisition, which of the following is NOT a method by which one company may gain control of another company?

A) Purchase of the majority of outstanding voting stock of the acquired company.

B) Purchase of all assets and liabilities of another company.

C) Purchase the assets, but not necessarily the liabilities, of another company previously in bankruptcy.

D) All of the above methods result in a company gaining control over another company.