Chapter 1

Question 1

A common way to obtain corporate control is

a) by purchasing more than 50% of an entity’s non-voting preferred stock.
b) by bribing the CEO.
c) by playing a video game about that company.
d) by purchasing more than 50% of an entity’s common stock.
e) none of the above.

Answer 1

d) by purchasing more than 50% of an entity’s common stock.

Question 2

To qualify for acquisition accounting treatment,

a) one company must acquire common stock of the other company.
b) a statutory consolidation must occur.
c) each company must be approximately the same size.
d) a stock-for-stock exchange must occur.
e) non of the above.

Answer 2

e) non of the above.

Question 3

When a parent company creates a subsidiary through internal expansion, the parent’s journal entry to transfer assets to the newly created entity will include a debit to

a) Acquisition Expense.
b) Cash.
c) Investment in Subsidiary.
d) Common Stock.
e) none of the above.

Answer 3

c) Investment in Subsidiary.

Question 4

A way to force out a target company’s dissenting shareholders is to use

a) acquisition accounting.
b) pooling of interests accounting.
c) a statutory merger.
d) a statutory consolidation.
e) none of the above.

Answer 4

d) a statutory consolidation.

Question 5

In acquisition accounting,

a) common stock must be the consideration given.
b) goodwill is not reported.
c) a statutory merger occurs.
d) a change of basis in accounting occurs.
e) none of the above.

Answer 5

d) a change of basis in accounting occurs.

Question 6

A form of consideration that is not allowed in acquisition accounting is

a) Cash.
b) Bonds.
c) Preferred stock.
d) Common stock.
e) none of the above.

Answer 6

e) none of the above.

Question 7

Which of the following costs can be added to the cost of an acquisition?

a) Legal fees.
b) Accounting fees.
c) Costs of issuing common stock.
d) A pro rata portion of the CEO’s salary.
e) Travel costs.
f) Costs of the M&A department.
g) none of the above.

Answer 7

g) none of the above.