TEST BANK FOR INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES

TEST BANK FOR INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES Intercorporate Acquisitions and Investments in Other Entities Multiple Choice Questions In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: 1. Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative? A. 10,000 B. 7,000 C. 8,000 D. 25,000 2. Based on the preceding information, what was Conservative's book value of assets transferred to Spin Company? A. $243,000 B. $263,000 C. $221,000 D. $201,000 1-2 3. Based on the preceding information, what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities? A. $181,000 B. $221,000 C. $263,000 D. $243,000 4. Based on the preceding information, immediately after the transfer, A. Conservative's total assets decreased by $23,000. B. Conservative's total assets decreased by $20,000. C. Conservative's total assets increased by $56,000. D. Conservative's total assets remained the same. During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary, Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal revealed that the building has a fair value of $200,000. 5. Based on the information provided, at the time of the transfer, Regan Company should record: A. Building at $180,000 and no accumulated depreciation. B. Building at $162,000 and no accumulated depreciation. C. Building at $200,000 and accumulated depreciation of $24,000. D. Building at $180,000 and accumulated depreciation of $18,000. 6. Based on the information provided, what amount would be reported by Devon Company as investment in Regan Company common stock? A. $312,000 B. $180,000 C. $330,000 D. $150,000 1-3 7. Based on the preceding information, Regan Company will report A. additional paid-in capital of $0. B. additional paid-in capital of $150,000. C. additional paid-in capital of $162,000. D. additional paid-in capital of $180,000. 8. Burrough Corporation concluded that the fair value of Helyar Company was $80,000 and paid that amount to acquire all of its net assets. Helyar reported assets with a book value of $60,000 and fair value of $98,000 and liabilities with a book value and fair value of $23,000 on the date of combination. Burrough also paid $3,000 to a search firm for finder's fees related to the acquisition. What amount will be recorded as goodwill by Burrough Corporation while recording its investment in Helyar? A. $0 B. $5,000 C. $8,000 D. $13,000 Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined to be $510,000 on that date. 9. Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $550,000 for the acquisition? A. $0 B. $50,000 C. $150,000 D. $40,000 10. Based on the preceding information, what amount will be recorded by Zenith as its investment in Plummet, if it paid $500,000 for the acquisition? A. $610,000 B. $400,000 C. $500,000 D. $510,000 1-4 11. Based on the preceding information, what amount of goodwill will be reported in consolidated financial statements presented immediately following the combination if Zenith paid $500,000 for the acquisition? A. $0 B. $50,000 C. $150,000 D. $40,000 Octane Company and Bio Company have announced terms of an exchange agreement under which Octane will issue 10,000 shares of its $5 par value common stock to acquire all of Bio's assets. Octane shares are trading at $28, and Bio's $10 par value shares are trading at $15. Historical cost and fair value balance sheet data on January 1, 2008, are as follows: 12. Based on the information provided, what amount will be reported immediately following the business combination for Buildings and Equipment (net) in the combined company's balance sheet? A. $300,000 B. $370,000 C. $330,000 D. $340,000 1-5 13. Based on the information provided, what amount will be reported for Common Stock in the combined company's balance sheet immediately following the business combination? A. $200,000 B. $250,000 C. $300,000 D. $210,000 14. Based on the information provided, what amount will be reported for Additional Paid-In Capital in the combined company's balance sheet immediately following the business combination? A. $60,000 B. $80,000 C. $310,000 D. $290,000 15. Based on the information provided, what amount of goodwill will be reported immediately following the business combination in the combined company's balance sheet? A. $0 B. $50,000 C. $40,000 D. $105,000 16. Based on the information provided, what amount will be reported immediately following the business combination for Retained Earnings in the combined company's balance sheet? A. $170,000 B. $225,000 C. $115,000 D. $210,000 1-6 17. The fair value of net identifiable assets 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 un