Question 11

A statutory ______________ results when one company acquires all the net assets of another company and the acquired company ceases to exist as a separate legal entity.

	a.	merger.
	b.	acquisition.
	c.	combination.
	d.	consolidation.

Question 12

In which of the following cases would consolidation be inappropriate?

	a.	The subsidiary is in bankruptcy.
	b.	Subsidiary's operations are dissimilar from those of the parent.
	c.	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.
	d.	Subsidiary is foreign.

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?

Question 14

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

	a.	combination.
	b.	acquisition.
	c.	consolidation.
	d.	merger.

Question 16

If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be

	a.	allocated to reduce current and long-lived assets.
	b.	accounted for as goodwill
	c.	allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.
	d.	allocated to reduce long-lived assets.

Question 17

On the consolidated balance sheet, consolidated stockholders' equity is

	a.	equal to the sum of the parent and subsidiary stockholders' equity.
	b.	less than the parent's stockholders' equity.
	c.	greater than the parent's stockholders' equity.
	d.	equal to the parent's stockholders' equity.

Question 18

Which of the following statements would not be a valid or logical reason for entering into a business combination?

	a.	to avoid becoming a takeover target.
	b.	the operating costs of the combined entity would be more than the sum of the separate entities.
	c.	to reduce risk by acquiring established product lines.
	d.	to increase market share.

Question 19

The main evidence of control for purposes of consolidated financial statements involves

	a.	being the sole shareholder
	b.	having decision-making ability that is not shared with others.
	c.	possessing majority ownership
	d.	having the parent company and the subsidiary participating in the same industry.

Question 20

On January 1, 2011, Primer Corporation acquired 80 percent of Sutter Corporation's voting common stock. Sutters'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 Sutter's buildings and equipment will be reported in the consolidated statements ?

	a.	$280,000
	b.	$300,000
	c.	$340,000
	d.	$350,000