Question 1

Which of the following statements is true regarding a statutory merger?

Accepted Answer

In a statutory merger, the acquired company ceases to exist as a separate legal entity and becomes part of the acquiring company, often as a division.

Question 2

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

Accepted Answer

When the consideration transferred is less than the fair value of net assets acquired, a gain on bargain purchase is recorded under the acquisition method.

Question 3

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated expenses for 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 4

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated additional paid-in capital at December 31, 2021

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 5

Which of the following is a not a reason for a business combination to take place?

Accepted Answer

Business combinations typically aim to create synergies, expand market reach, or diversify risk, not to increase the stock price of the acquired company, which is not a direct reason for a merger or acquisition.

Question 6

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated cash account at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 7

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated equipment (net) account at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 8

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the goodwill arising from this acquisition at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 9

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.What total amount of additional paid-in capital will Campbell recognize from this acquisition?

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 10

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

Accepted Answer

In the acquisition method, the net assets of the acquired company are revalued to their fair values, and any excess of the consideration transferred over the fair value of the net assets acquired is recognized as goodwill.

Question 11

Crown Company had common stock of $360,000 and retained earnings of $510,000. Baker Inc. had common stock of $750,000 and retained earnings of $970,000. On January 1, 2021, Baker issued 32,000 shares of common stock with a $13 par value and a $37 fair value for all of Crown Company's outstanding common stock. This combination was accounted for using the acquisition method. Immediately after the combination, what was the amount of total consolidated net assets?

Accepted Answer

The total consolidated net assets are calculated by adding Baker Inc.'s net assets (common stock + retained earnings) to the fair value of the consideration given for Crown Company. Baker's net assets are $750,000 + $970,000 = $1,720,000. The fair value of the consideration given is 32,000 shares * $37 = $1,184,000. Therefore, the total consolidated net assets are $1,720,000 + $1,184,000 = $2,904,000.

Question 12

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

Accepted Answer

Under the acquisition method, the net assets of the acquired company are reported at their fair values at the acquisition date.

Question 13

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated revenues for 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 14

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated common stock account at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 15

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Assuming that Newton retains a separate corporate existence after this acquisition, at what amount is the investment recorded on Campbell's books?

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 16

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consideration transferred for this acquisition at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 17

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated receivables and inventory for 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 18

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands):  On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated buildings (net) account at December 31, 2021.

Accepted Answer

The answer of The financial statements for Campbell, Inc., and...

Question 19

Which of the following statements is true?

Accepted Answer

The pooling of interests and purchase methods are no longer allowed for new business combinations; only the acquisition method is permitted.

Question 20

Which of the following statements is true regarding a statutory consolidation?

Accepted Answer

In a statutory consolidation, the original companies dissolve and combine to form a new entity, with the original companies becoming divisions of this newly created company.

Quiz 2: Consolidation of Financial Information

Which of the following statements is true regarding a statutory merger?

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

Which of the following is a not a reason for a business combination to take place?

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

Which of the following statements is true?

Which of the following statements is true regarding a statutory consolidation?