Chapter 2
Answer Key
1. At the date of an acquisition which is not a bargain purchase, the acquisitionmethod
A. consolidates the subsidiary's assets at fair value and the liabilities atbook
value.
B. consolidates all subsidiary assets and liabilities atbook
value.
C. consolidates all subsidiary assets and liabilities atfair
value.
D. consolidates current assets and liabilities at book value, long-term assets andliabilities
at fair value.
E. consolidates the subsidiary's assets at book value and the liabilities atfair
value.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Hoyle - Chapter 02 #1
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific
subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
Topic: Acquisition Method When Dissolution Takes Place
Topic: Financial Reporting for Business Combinations
,2. In an acquisition where control is achieved, how would the land accounts of theparent and
the land accounts of the subsidiary be combined?
A. Option
A
B. Option
B
C. Option
C
D. Option
D
E. Option
E
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #2
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific
subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
Topic: Acquisition Method When Dissolution Takes Place
Topic: Financial Reporting for Business Combinations
,3. Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria willcontinue
to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be
recorded in
A.a
worksheet.
B. Lisa's general
journal.
C. Victoria's general
journal.
D. Victoria's secret consolidation
journal.
E. the general journals of both
companies.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Hoyle - Chapter 02 #3
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business combination if
dissolution does not take place.
Topic: The Acquisition Method When Separate Incorporation is Maintained
4. Using the acquisition method for a business combination, goodwill is generallydefined
as:
A. Cost of the investment less the subsidiary's book value at the beginningof the
year.
B. Cost of the investment less the subsidiary's book value at the
acquisition date.
C. Cost of the investment less the subsidiary's fair value at the beginningof the
year.
D. Cost of the investment less the subsidiary's fair value at
acquisition date.
E. is no longer allowed under
federal law.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #4
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Topic: Financial Reporting for Business Combinations
, 5. Direct combination costs and stock issuance costs are often incurred in the process of making
a controlling investment in another company. How should those costs be accounted for in a
pre-2009 purchase transaction?
A. Option
A
B. Option
B
C. Option
C
D. Option
D
E. Option
E
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #5
Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of interest methods of accounting for
past business combinations. Understand the effects that persist today in financial statements from the use of these
legacy methods.
Topic: Legacy Methods of Accounting for Business Combinations
Answer Key
1. At the date of an acquisition which is not a bargain purchase, the acquisitionmethod
A. consolidates the subsidiary's assets at fair value and the liabilities atbook
value.
B. consolidates all subsidiary assets and liabilities atbook
value.
C. consolidates all subsidiary assets and liabilities atfair
value.
D. consolidates current assets and liabilities at book value, long-term assets andliabilities
at fair value.
E. consolidates the subsidiary's assets at book value and the liabilities atfair
value.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Hoyle - Chapter 02 #1
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific
subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
Topic: Acquisition Method When Dissolution Takes Place
Topic: Financial Reporting for Business Combinations
,2. In an acquisition where control is achieved, how would the land accounts of theparent and
the land accounts of the subsidiary be combined?
A. Option
A
B. Option
B
C. Option
C
D. Option
D
E. Option
E
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #2
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate that fair value to specific
subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain purchase.
Topic: Acquisition Method When Dissolution Takes Place
Topic: Financial Reporting for Business Combinations
,3. Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria willcontinue
to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be
recorded in
A.a
worksheet.
B. Lisa's general
journal.
C. Victoria's general
journal.
D. Victoria's secret consolidation
journal.
E. the general journals of both
companies.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Hoyle - Chapter 02 #3
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business combination if
dissolution does not take place.
Topic: The Acquisition Method When Separate Incorporation is Maintained
4. Using the acquisition method for a business combination, goodwill is generallydefined
as:
A. Cost of the investment less the subsidiary's book value at the beginningof the
year.
B. Cost of the investment less the subsidiary's book value at the
acquisition date.
C. Cost of the investment less the subsidiary's fair value at the beginningof the
year.
D. Cost of the investment less the subsidiary's fair value at
acquisition date.
E. is no longer allowed under
federal law.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #4
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Topic: Financial Reporting for Business Combinations
, 5. Direct combination costs and stock issuance costs are often incurred in the process of making
a controlling investment in another company. How should those costs be accounted for in a
pre-2009 purchase transaction?
A. Option
A
B. Option
B
C. Option
C
D. Option
D
E. Option
E
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Hoyle - Chapter 02 #5
Learning Objective: 02-09 Appendix: Identify the general characteristics of the legacy purchase and pooling of interest methods of accounting for
past business combinations. Understand the effects that persist today in financial statements from the use of these
legacy methods.
Topic: Legacy Methods of Accounting for Business Combinations
