Ch. 2 Consolidation of Financial Information

Question 1

FASB ASC 805, Business Combinations, provides for allocating the fair value of an acquired business. When the collective fair values of the separately identified assets acquired and liabilities assumed exceed the fair value of the consideration transferred, the difference should be:

a. Recognized as an ordinary gain from a bargain purchase
b. Treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.
c. Treated as goodwill and tested for impairment on an annual basis.

Answer 1

a. Recognized as an ordinary gain from a bargain purchase

Question 2

When the consideration transferred in an acquisition exceeds total net fair value of the identified assets and liabilities, the excess is allocated to an unidentifiable asset known as ________.

Answer 2

goodwill

Question 3

Any business combination in which only one of the original companies continues to exist is referred to in legal terms as a

Answer 3

statutory merger

Question 4

If the fair value of the net identified assets acquired and liabilities assumed exceeds the consideration transferred the acquirer recognizes _______________.

Answer 4

a gain on bargain purchase.

Question 5

When the consideration transferred in an acquisition exceeds total net fair value of the identified assets and liabilities, the excess is allocated to an unidentifiable asset known as ___________

Answer 5

goodwill

Question 6

According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be

a) Capitalized as part of the overall fair value acquired in the merger
b) Recorded as an expense in the period the merger takes place
c) Included in recognized goodwill
d) Written off over a five-year maximum useful life.

Answer 6

b) Recorded as an expense in the period the merger takes place