FAR 6

Question 1

Only a legal _________ results from the combination of two or more existing entities into one new entity.

Answer 1

consolidation

Question 2

In a _________, one preexisting entity is combined into another preexisting entity; no new entity is formed.

Answer 2

merger

Question 3

In an __________, one preexisting entity acquires controlling interest in another preexisting entity, and both continue to exist as separate legal entities; no new entity is formed.

Answer 3

acquisition

Question 4

For business combinations, what statement correctly reflects the determination of the accounts and amounts for the entry to record the combination?

Answer 4

Legal form determines the entry accounts; accounting method determines entry amounts.

Question 5

If, as a result of gaining control of another entity, the acquiring entity recognizes an investment in the acquired entity on its books, what legal form of business combination could have occurred?

Answer 5

Acquisition. In an acquisition, the acquiring entity recognizes (debits) on its books as an investment in the acquired entity.

Question 6

Which of the following statements concerning the acquisition date of a business combination is/are correct?
I. The acquisition date may be before the closing date.
II. The acquisition date may be on the closing date.
III. The acquisition date may be after the closing date.

Answer 6

I, II, and III. All three statements are correct.

Question 7

Assets (and liabilities) arising from contingencies are likely to be accounted for using ____________ accounting requirements.

Answer 7

specific post-combination

Question 8

__________ cannot be debited at the time of the acquisition, though it may be recognized at the time of consolidation.

Answer 8

Goodwill

Question 9

Under IFRS which of the following would not be recognized as part of a business combination.
A. Contingent asset.
B. Contingent liability.
C. Goodwill.
D. Fair value of the consideration transferred.

Answer 9

A. Contingent asset.
Under IFRS, contingent assets are not recognized. Under U.S. GAAP, contingent assets are recognized if the item meets the criteria of the definition of an asset.

Question 10

Either consolidated ______ or consolidated ______ could be overstated on consolidated statements as a result of failure to eliminate intercompany fixed asset balances.

Answer 10

income

loss