1. Which of the following is not a reason for a company to expand through a combination rather than by building new facilities?

1. A combination might make the company less likely to be a takeover target as smaller companies tend to be more vulnerable to corporate takeovers
2. A combination might provide easier access to both the tangible and intangible assets of the investee company
3. A combination might provide fewer operating delays as the plant facilities acquired are already operational and meet environmental and governmental regulations.
4. A combination might provide an opportunity to invest in a company without having to suffer consequences for its financial results.
5. A combination might provide cost advantages as it is frequently less expensive to obtain needed facilities through combination rather than development

2. In a business combination, the direct costs of registering and issuing equity securities are:

1. included in the expenses of the period of its acquisition
2. added to the income of the current period
3. added to the parent companys investment account
4. deducted from the income of the current period
5. charged against other paid-in capital of the combined entity

3. On March 1, Pere Company paid $1,600,000 for all the issued and outstanding common stock of Son Corporation in a transaction properly accounted for as an acquisition. Son Corporation is dissolved. The recorded assets and liabilities of Son Corporation on March 1 are:

Cash 160,000

Inventory 480,000

PPE (net of accumulated depreciation of 640,000) 960,000

Liabilities (300,000)

On March 1, it was determined that the inventory of Son had a fair value of 380,000, the PPE (net) had a fair value of 1,120,000 and the liabilities were undervalued by 80,000. What amount of goodwill will result from the acquisition?

4. Pan Corporation accounts for its 40% investment in Silenus Company using the equity method. On the date of the original investment, fair values were equal to the book values except for an unrecorded Silenus patent, with a fair market value of $40,000. The patent had an estimated life of 10 years. Silenus has a steady net income of $20,000 per year and consistently pays out 40% of its net income as dividends to its shareholders. Which one of the following statements is correct?

1. The net change in the investment account for each full year will be a debit of $3,200
2. The net change in the investment account for each full year will be a credit of $3,200
3. The net change in the investment account for each full year will be a debit of $4,800
4. The net change in the investment account for each full year will be a credit of 4,800

5. A business combination in which a new corporation is formed to take over the assets and operations of two or more separate business entities, with the previously separate entities being dissolved is a/an:

1. Consolidation
2. Pooling of interest
3. Merger
4. Noncontrolling interest
5. Acquisition

6. Kermit Inc has two primary business reporting units: Unus and Duo. In preparing its 2013 financial statements, Kermit conducts an annual impairment review of goodwill. Unus has goodwill of $60,000 that has an estimated fair value of $45,000. Duo has recorded goodwill of $70,000 that has an estimated fair value of $80,000. What amount of impairment loss, if any, must Kermit report in its 2013 income statement, ad where in the income statement should this appear?

1. $0
2. $5,000 loss, operations
3. $7,500 loss, operations
4. $12,000 loss, operations
5. $15,000 loss, operations

7. On July 1, 2011, Pushkin II Company acquired a 20% interest in Sergei II Corporation for $60,00 when Sergeis stockholders equity consisted of $200,000 capital stock and $100,000 retained earnings. Book values of Sergeis net assets equaled their fair values on the acquisition date. Sergeis net income and dividends for 2011 through 2013 were as follows:

2011 2012 2013

Net income 12,000 20,000 24,000

Dividends paid (10/1) 7,000 6,000 5,000

The 12/31/2013 Investment account balance for the cost and equity method, respectively, is

Cost Method: Equity Method:

12. In the consolidation income statement of Pride Corporation and its 85% owned Spill subsidiary, the noncontrolling share of income for the year was reported at $45,000. Assume the book value and fair value of Spills net assets were equal at the acquisition date. Calculate the amount of net income Spill had for the year.

13. Pancake acquired 80% of Syrup of 1/1/2013. At acquisition, Syrups equipment, which had a remaining life of five years, had a fair market value which exceeded its book value by $50,00. If Pancake and Syrup had net incomes for 2013 of $300,000 and $100,000 respectively, what is the Noncontrolling Interest Share of Consolidated Net Income for 2013?

14. Pip acquired 75% of Stella in 2012. In preparing the consolidated workpapers at year end, Pip had Dividends Receivable $750 and Dividends Payable of $300. Stella had no Dividends Receivable and Dividends Payable of $120. Write the eliminating entry below.

15. Pepper acquires 80% of Salt at a price above book value on 1/1/2016. On the date of acquisition, the fair market value of Salts buildings (20 year life) was lower than their book value by $100,000. Any remaining difference is Goodwill. If Pepper records Income from Salt for 2016 amounting to $80,000, what is the net income Salt recorded on its books?

16. Pigeon Corporation acquired an 80% interest in Statue Company on January 1, 2011, for $90,000 cash when Statue had Capital Stock of $60,000 and Retained Earnings of $40,000. The fair value/book value differential was attributable to equipment with a 10-year (straight-line) life. Statue suffered a $10,000 net loss in 2011 and paid no dividends. At year-end 2011, Statue owed Pigeon $18,000 on account. Pigeons separate income from 2011 was $150,000. What was the Controlling Interest Share of the Consolidated Net Income for 2011?