Wiley MCQ - Business Combinations and Consolidations

Question 1

What is the appropriate basis for valuing fixed assets acquired in a business combination accounted for as a business acquisition carried out by exchanging cash for common stock?

Answer 1

Fair value

Question 2

In a business combination accounted for as an acquisition, the appraisal values of the identifiable assets acquired exceeds the acquisition price. The excess appraisal value should be reported as a:

Answer 2

Bargain purchase

Question 3

Are receivables from non-consolidated subsidiaries included on the balance sheet?

Answer 3

Yes - receivables from consolidated subsidiaries are eliminated.

Question 4

Under the “full” equity method of accounting, what is included in financial statement net income? Retained earnings?

Answer 4

The parent’s net income is the consolidated net income.

The parent’s RE is the consolidated RE.

Question 5

Under IFRS, a parent may exclude a subsidiary from consolidation if:

Answer 5

It reports only one class of stock in its balance sheet.

Question 6

Does IFRS and the SEC permit push-down accounting?

Answer 6

SEC - Yes

IFRS - No

Question 7

How is goodwill calculated in a business combination?

Answer 7

Excess paid over fair value of net assets - for example, if a company pays $200,000 for 30% share and net assets are $600,000, the companies share of net assets is $600,000x30% = $180,000; so goodwill is $20,000 (200,000-180,000)

Question 8

How are finder’s and consultant’s fees treated in business combinations? SEC registration fees?

Answer 8

Expensed

Netted against additional paid in capital