Advanced Accounting

Chapter 2 Questions

1. In an acquisition where control is achieved, how would the land accounts of the parent and the land
accounts of the subsidiary be combined?

Parent Subsidiary
A) Book Value Book Value
B) Book Value Fair Value
C) Fair Value Fair Value
D) Fair Value Book Value
E) Cost Cost

2. Using the acquisition method for a business combination, goodwill is generally defined as:
A) Cost of the investment less the subsidiary's book value at the beginning of 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 beginning of the year.
D) Cost of the investment less the subsidiary's fair value at acquisition date.
E) is no longer allowed under federal law.

3. What is the primary accounting difference between accounting for when the subsidiary is dissolved
and when the subsidiary retains its incorporation?
A) If the subsidiary is dissolved, it will not be operated as a separate division.
B) If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
C) If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition.
D) If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values.
E) If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting
records of the acquiring company.

4. Acquired in-process research and development is considered as

A) a definite-lived asset subject to amortization.
B) a definite-lived asset subject to testing for impairment.
C) an indefinite-lived asset subject to amortization.
D) an indefinite-lived asset subject to testing for impairment.
E) a research and development expense at the date of acquisition.

5. How are stock issuance costs and direct combination costs treated in a business combination which is
accounted for as an acquisition when the subsidiary will retain its incorporation?
A) Stock issuance costs are a part of the acquisition costs, and the direct combination costs are
expensed.
B) Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a
reduction to additional paid-in capital.
C) Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in
capital.
D) Both are treated as part of the acquisition consideration transferred.
E) Both are treated as a reduction to additional paid-in capital.

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REFERENCE: 02-01
Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book
value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along
with the book value of Bullen's accounts:

Bullen Vicker Vicker

Book Book Fair
Value Value Value
Retained earnings, 1/1/15 $250,000 $240,000
Cash and receivables 170,000 70,000 $70,000
Inventory 230,000 170,000 210,000
Land 280,000 220,000 240,000
Buildings (net) 480,000 240,000 270,000
Equipment (net) 120,000 90,000 90,000
Liabilities 650,000 430,000 420,000
Common stock 360,000 80,000
Additional paid-in capital 20,000 40,000

REFER TO: 02-01

6. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to
obtain all of Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be
recognized?
A) $144,000.
B) $104,000.
C) $ 64,000.
D) $ 60,000.
E) $ 0.

REFER TO: 02-01

7. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for
all of the outstanding stock of Vicker. What is the consolidated balance for Land as a result of this
acquisition transaction?
A) $460,000.
B) $510,000.
C) $500,000.
D) $520,000.
E) $490,000.

REFER TO: 02-01

8. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for
all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and
Retained Earnings (January 1, 2013 balances) as a result of this acquisition transaction?
A) $60,000 and $490,000.
B) $60,000 and $250,000.
C) $380,000 and $250,000.
D) $464,000 and $250,000.
E) $464,000 and $420,000.

2
REFER TO: 02-01
9. Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of $500,000
for all of the outstanding shares of Vicker in an acquisition business combination. What will be the
balance in the consolidated Inventory and Land accounts?
A) $440,000, $496,000.
B) $440,000, $520,000.
C) $425,000, $505,000.
D) $400,000, $500,000.
E) $427,000, $510,000.

REFER TO: 02-01

10. Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition,
Bullen paid $35,000 for secretarial and management time allocated to the acquisition transaction. What
will be the balance in consolidated goodwill?
A) $ 0.
B) $20,000.
C) $35,000.
D) $55,000.
E) $65,000.

11. Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue Town
Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2013, Blue Town
issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill
Company's outstanding common stock. This combination was accounted for as an acquisition.
Immediately after the combination, what was the total consolidated net assets?
A) $2,520,000.
B) $1,190,000.
C) $1,680,000.
D) $2,870,000.
E) $2,030,000.

12. In a transaction accounted for using the acquisition method where consideration transferred exceeds
book value of the acquired company, which statement is true for the acquiring company with regard to its
investment?
A) Net assets of the acquired company are revalued to their fair values and any excess of consideration
transferred over fair value of net assets acquired is allocated to goodwill.
B) Net assets of the acquired company are maintained at book value and any excess of consideration
transferred over book value of net assets acquired is allocated to goodwill.
C) Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values.
Any excess is allocated to goodwill.
D) Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.

13. Which of the following statements is true regarding the acquisition method of accounting for a
business combination?
A) Net assets of the acquired company are reported at their fair values.
B) Net assets of the acquired company are reported at their book values.
C) Any goodwill associated with the acquisition is reported as a development cost.
D) The acquisition can only be effected by a mutual exchange of voting common stock.

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E) Indirect costs of the combination reduce additional paid-in capital.

REFERENCE: 02-04
On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common
stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40
shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid
$20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15
was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the
two companies were as follows:

M oody O so rio
C ash $ 180 $ 40
R ec eiv ab les 810 18 0
In v en to ries 1 ,0 8 0 28 0
Land 600 36 0
B u ild in g s (n et) 1 ,2 6 0 44 0
E q u ipm en t (n et) 480 10 0
A cco u n ts p ay ab le (4 5 0 ) (8 0 )
L o n g -te rm lia b ilities (1 ,2 9 0 ) (4 0 0 )
C o m m o n sto ck ($ 1 p ar) (3 3 0 )
C o m m o n sto ck ($ 2 0 p ar) (2 4 0 )
A d d ition al p aid -in cap ital (1 ,0 8 0 ) (3 4 0 )
R etain ed ea rn in g s (1 ,2 6 0 ) (3 4 0 )

Note: Parentheses indicate a credit balance.

In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books:
Inventory by $10, Land by $40, and Buildings by $60.

REFER TO: 02-04

14. What amount was recorded as the investment in Osorio?
A) $930.
B) $820.
C) $800.
D) $835.
E) $815.

REFER TO: 02-04

15. What amount was recorded as goodwill arising from this acquisition?
A) $230.
B) $120.
C) $520.
D) None. There is a gain on bargain purchase of $230.
E) None. There is a gain on bargain purchase of $265.

REFER TO: 02-04

16. Compute the amount of consolidated inventories at date of acquisition.
A) $1,080.
B) $1,350.
C) $1,360.

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D) $1,370.
E) $ 290.
REFER TO: 02-04
17. Compute the amount of consolidated buildings (net) at date of acquisition.
A) $1,700.
B) $1,760.
C) $1,640.
D) $1,320.
E) $ 500.

REFER TO: 02-04

18. Compute the amount of consolidated land at date of acquisition.
A) $1,000.
B) $ 960.
C) $ 920.
D) $ 400.
E) $ 320.

REFER TO: 02-04

19. Compute the amount of consolidated equipment at date of acquisition.
A) $480.
B) $580.
C) $559.
D) $570.
E) $560.

REFER TO: 02-04

20. Compute the amount of consolidated common stock at date of acquisition.
A) $370.
B) $570.
C) $610.
D) $330.
E) $530.

REFER TO: 02-04

21. Compute the amount of consolidated additional paid-in capital at date of acquisition.
A) $1,080.
B) $1,420.
C) $1,065.
D) $1,425.
E) $1,440.

REFER TO: 02-04

22. Compute the amount of consolidated cash after recording the acquisition transaction.
A) $220.
B) $185.
C) $200.
D) $205.
E) $215.

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23. The following are preliminary financial statements for Black Co. and Blue Co. for the year ending
December 31, 2013.
Black Co. Blue Co.
Sales $360,000 $228,000
Expenses (240,000) (132,000)
Net income $120,000 $ 96,000

Retained earning, January 1, 2013 $480,000 $252,000

Net income (from above) 120,000 96,000
Dividends paid (36,000) -0-
Retained earnings, December 31, 2013 $564,000 $348,000

Current assets $360,000 $120,000

Land 120,000 108,000
Building (net) 480,000 336,000
Total assets $960,000 $564,000

Liabilities $108,000 $132,000

Common stock 192,000 72,000
Additional paid-in capital 96,000 12,000
Retained earnings, December 31,2013 564,000 348,000
Total liabilities and stockholders’ equity $960,000 $564,000

On December 31, 2013 (subsequent to the preceding statements), Black exchanged 10,000 shares of its
$10 par value common stock for all of the outstanding shares of Blue. Black's stock on that date has a fair
value of $50 per share. Black was willing to issue 10,000 shares of stock because Blue's land was
appraised at $204,000. Black also paid $14,000 to several attorneys and accountants who assisted in
creating this combination.
Required:
Assuming that these two companies retained their separate legal identities, prepare a consolidation
worksheet as of December 31, 2013. (8 marks)

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Answer:
Bargain Purchase Acquisition Consolidation Worksheet

For the Year Ended 12/31/2013

Black Blue Consolidation Entries Consolidated

Account Company Company Dr. Cr. Balance
Income Statement
Sales (360,000) (360,000)
Expenses 254,000 254,000
Bargain-Purchase—Gain (28,000) (28,000)
Net Income (134,000) (134,000)

Statement of Retained Earnings

R/E, 1/1/15
Net Income (480,000) (480,000)
Dividends (134,000) (134,000)
Net Income 36,000 36,000
R/E, 12/31/15 (578,000) (578,000)

Balance Sheet
Current assets 346,000 120,000 466,000
Investment in Blue Co. 528,000 0
Land 120,000 108,000 (A) 96,000 324,000
(S) 432,000
Buildings (net) 480,000 336,000 816,000
(A) 96,000

Total Assets 1,474,000 564,000 1,606,000

Liabilities (108,000) (132,000) (240,000)

Common Stock (292,000) (72,000) (S) 72,000 (292,000)
Additional Paid-in Capital (496,000) (12,000) (S) 12,000 (496,000)
R/E, 12/31/15 (578,000) (348,000) (S) (578,000)
348,000

Total Liabilities & Stockholders' Equity (1,474,000) (564,000) 528,000 528,000

(1,606,000)

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 Calculation for Potential Goodwill:
Consideration transferred by Black Co. 500,000
Book value of Blue Co. (432,000) (Entry S)
Excess of Cost over Book Value 68,000 (Entry A)
Allocations:
Land (204,000 - 108,000) (96,000) (Entry A)
Bargain Purchase (28,000) (Entry A)
Entry to record the acquisition on Black Co's books
Professional fee expense 14,000
Investment in Blue Co. 528,000
Common Stock - Black (10,000 x $10 Par) 100,000
Add'l Paid-in Capital - Black (10,000 x $40) 400,000
Cash (paid for direct acquisition 14,000
costs) 28,000
GainS:on Bargain Purchase
Entry
Common Stock 72,000
Additional Paid-in Capital 12,000
Retained Earnings - 12/31/15 348,000
Investment in Blue Co. 432,000
To eliminate Blue Co's stockholders' equity accounts and the book value
of Blue Co's net assets from Black Co's investment account

Entry A:
Land 96,000
Investment in Blue Co. 96,000

To eliminate Black Co's excess payment over book value from its
investment account and reassign the
excess to specific assets from the bargain purchase

Learning Objective: 02-04

Learning Objective: 02-05
LO7
Difficulty: Hard
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement

1-2. In an acquisition where control is achieved, how would the land accounts of the parent and the land
accounts of the subsidiary be combined?

Parent Subsidiary
A) Book Value Book Value
B) Book Value Fair Value
C) Fair Value Fair Value
D) Fair Value Book Value

8
 E) Cost Cost

Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Medium
Bloom’s: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

2-4. Using the acquisition method for a business combination, goodwill is generally defined as:
A) Cost of the investment less the subsidiary's book value at the beginning of 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 beginning of the year.
D) Cost of the investment less the subsidiary's fair value at acquisition date.
E) is no longer allowed under federal law.
Answer: D
Learning Objective: 02-04
Difficulty: Medium
Bloom’s: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

3-7. What is the primary accounting difference between accounting for when the subsidiary is dissolved
and when the subsidiary retains its incorporation?
A) If the subsidiary is dissolved, it will not be operated as a separate division.
B) If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
C) If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition.
D) If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values.
E) If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting
records of the acquiring company.
Answer: E
Learning Objective: 02-06 Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Understand
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

4-10. Acquired in-process research and development is considered as

A) a definite-lived asset subject to amortization.
B) a definite-lived asset subject to testing for impairment.
C) an indefinite-lived asset subject to amortization.
D) an indefinite-lived asset subject to testing for impairment.
E) a research and development expense at the date of acquisition.
Answer: D
Learning Objective: 02-08
Difficulty: Easy

9
Bloom’s: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

5-14. How are stock issuance costs and direct combination costs treated in a business combination which
is accounted for as an acquisition when the subsidiary will retain its incorporation?
A) Stock issuance costs are a part of the acquisition costs, and the direct combination costs are
expensed.
B) Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a
reduction to additional paid-in capital.
C) Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in
capital.
D) Both are treated as part of the acquisition consideration transferred.
E) Both are treated as a reduction to additional paid-in capital.
Answer: C
Learning Objective: 02-05
Learning Objective: 02-06
Difficulty: Medium
Bloom’s: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

REFERENCE: 02-01
Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book
value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along
with the book value of Bullen's accounts:

Bullen Vicker Vicker

Book Book Fair
Value Value Value
Retained earnings, 1/1/15 $250,000 $240,000
Cash and receivables 170,000 70,000 $70,000
Inventory 230,000 170,000 210,000
Land 280,000 220,000 240,000
Buildings (net) 480,000 240,000 270,000
Equipment (net) 120,000 90,000 90,000
Liabilities 650,000 430,000 420,000
Common stock 360,000 80,000
Additional paid-in capital 20,000 40,000

[QUESTION]
REFER TO: 02-01
6-15. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value
to obtain all of Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be
recognized?
A) $144,000.
B) $104,000.

10
C) $ 64,000.
D) $ 60,000.
E) $ 0.
Answer: B
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $47 X 12,000 = $564,000 – ($80,000 + $40,000 + $240,000) = $204,000 - $100,000 =
$104,000
FV>BV: Inv +$40,000; Land +$20,000; +Blgs $30,000; +Liab $10,000 = $100,000

[QUESTION]
REFER TO: 02-01
7-16. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value
for all of the outstanding stock of Vicker. What is the consolidated balance for Land as a result of this
acquisition transaction?
A) $460,000.
B) $510,000.
C) $500,000.
D) $520,000.
E) $490,000.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $280,000 + $240,000 = $520,000

[QUESTION]
REFER TO: 02-01
8-17. Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value
for all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and
Retained Earnings (January 1, 2013 balances) as a result of this acquisition transaction?
A) $60,000 and $490,000.
B) $60,000 and $250,000.
C) $380,000 and $250,000.
D) $464,000 and $250,000.
E) $464,000 and $420,000.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05

11
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $20,000 + ($37 X 12,000) = $464,000 Add’l Paid-In Capital
$250,000 Parent’s R/E Only

[QUESTION]
REFER TO: 02-01
9-18. Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of
$500,000 for all of the outstanding shares of Vicker in an acquisition business combination. What will be
the balance in the consolidated Inventory and Land accounts?
A) $440,000, $496,000.
B) $440,000, $520,000.
C) $425,000, $505,000.
D) $400,000, $500,000.
E) $427,000, $510,000.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: Inventory $230,000 BV + $210,000 FV = $440,000
Land $280,000 BV + $240,000 FV = $520,000

[QUESTION]
REFER TO: 02-01
10-19. Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition,
Bullen paid $35,000 for secretarial and management time allocated to the acquisition transaction. What
will be the balance in consolidated goodwill?
A) $ 0.
B) $20,000.
C) $35,000.
D) $55,000.
E) $65,000.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement

12
Feedback: $480,000 – ($80,000 CS + $40,000 APIC + $240,000 R/E + $100,000 FV) = $20,000 Excess

11-23. Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue
Town Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2013, Blue
Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel
Hill Company's outstanding common stock. This combination was accounted for as an acquisition.
Immediately after the combination, what was the total consolidated net assets?
A) $2,520,000.
B) $1,190,000.
C) $1,680,000.
D) $2,870,000.
E) $2,030,000.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement

12-27. In a transaction accounted for using the acquisition method where consideration transferred
exceeds book value of the acquired company, which statement is true for the acquiring company with
regard to its investment?
A) Net assets of the acquired company are revalued to their fair values and any excess of consideration
transferred over fair value of net assets acquired is allocated to goodwill.
B) Net assets of the acquired company are maintained at book value and any excess of consideration
transferred over book value of net assets acquired is allocated to goodwill.
C) Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values.
Any excess is allocated to goodwill.
D) Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Difficulty: Medium
Bloom’s: Analyze
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

13-29. Which of the following statements is true regarding the acquisition method of accounting for a
business combination?
A) Net assets of the acquired company are reported at their fair values.
B) Net assets of the acquired company are reported at their book values.
C) Any goodwill associated with the acquisition is reported as a development cost.
D) The acquisition can only be effected by a mutual exchange of voting common stock.
E) Indirect costs of the combination reduce additional paid-in capital.
Answer: A
Learning Objective: 02-05

13
Difficulty: Medium
Bloom’s: Remember
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement

REFERENCE: 02-04
On January 1, 2013, the Moody Company entered into a transaction for 100% of the outstanding common
stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and 40
shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid
$20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15
was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the
two companies were as follows:

M oody O so rio
C ash $ 180 $ 40
R ec eiv ab les 810 18 0
In v en to ries 1 ,0 8 0 28 0
Land 600 36 0
B u ild in g s (n et) 1 ,2 6 0 44 0
E q u ipm en t (n et) 480 10 0
A cco u n ts p ay ab le (4 5 0 ) (8 0 )
L o n g -te rm lia b ilities (1 ,2 9 0 ) (4 0 0 )
C o m m o n sto ck ($ 1 p ar) (3 3 0 )
C o m m o n sto ck ($ 2 0 p ar) (2 4 0 )
A d d ition al p aid -in cap ital (1 ,0 8 0 ) (3 4 0 )
R etain ed ea rn in g s (1 ,2 6 0 ) (3 4 0 )

Note: Parentheses indicate a credit balance.

In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books:
Inventory by $10, Land by $40, and Buildings by $60.

[QUESTION]
REFER TO: 02-04
14-45. What amount was recorded as the investment in Osorio?
A) $930.
B) $820.
C) $800.
D) $835.
E) $815.
Answer: C
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $400 Cash + ($1.00 X 40 shares) CS + ($9 X 40 shares) APIC = $800

14
[QUESTION]
REFER TO: 02-04
15-46. What amount was recorded as goodwill arising from this acquisition?
A) $230.
B) $120.
C) $520.
D) None. There is a gain on bargain purchase of $230.
E) None. There is a gain on bargain purchase of $265.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $800 Consideration Given
$240 CS + $340 APIC + $340 R/E = $920 + $10 Inv FV + $40 Land FV + $60 Blgs FV = $1,030
($800 Consideration) – ($1,030 BV/FV) = $230 Bargain Purchase Gain

[QUESTION]
REFER TO: 02-04
16-47. Compute the amount of consolidated inventories at date of acquisition.
A) $1,080.
B) $1,350.
C) $1,360.
D) $1,370.
E) $ 290.
Answer: D
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080 + $280 + $10 = $1,370

[QUESTION]
REFER TO: 02-04
17-48. Compute the amount of consolidated buildings (net) at date of acquisition.
A) $1,700.
B) $1,760.
C) $1,640.
D) $1,320.
E) $ 500.
Answer: B
Learning Objective: 02-05

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Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,260 + $440 + $60 = $1,760

[QUESTION]
REFER TO: 02-04
18-49. Compute the amount of consolidated land at date of acquisition.
A) $1,000.
B) $ 960.
C) $ 920.
D) $ 400.
E) $ 320.
Answer: A
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $600 + $360 + $40 = $1,000

[QUESTION]
REFER TO: 02-04
19-50. Compute the amount of consolidated equipment at date of acquisition.
A) $480.
B) $580.
C) $559.
D) $570.
E) $560.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $480 + $100 = $580

[QUESTION]
REFER TO: 02-04
20-51. Compute the amount of consolidated common stock at date of acquisition.
A) $370.

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B) $570.
C) $610.
D) $330.
E) $530.
Answer: A
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $330 + ($1.00 X 40 shares) = $370

[QUESTION]
REFER TO: 02-04
21-52. Compute the amount of consolidated additional paid-in capital at date of acquisition.
A) $1,080.
B) $1,420.
C) $1,065.
D) $1,425.
E) $1,440.
Answer: D
Learning Objective: 02-04
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Hard
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: $1,080 + ($9.00 X 40 shares) - $15 Issuance Costs = $1,425

[QUESTION]
REFER TO: 02-04
22-53. Compute the amount of consolidated cash after recording the acquisition transaction.
A) $220.
B) $185.
C) $200.
D) $205.
E) $215.
Answer: B
Learning Objective: 02-05
Learning Objective: 02-06
Learning Objective: 02-07
Difficulty: Medium
Bloom’s: Apply
AACSB: Analytic

17
AICPA BB: Critical Thinking
AICPA FN: Measurement
Feedback: ($180 - $20 - $15 Parent) = $145 + ($40 Sub) = $185

116. The following are preliminary financial statements for Black Co. and Blue Co. for the year ending
December 31, 2013.
Black Co. Blue Co.
Sales $360,000 $228,000
Expenses (240,000) (132,000)
Net income $120,000 $ 96,000

Retained earning, January 1, 2013 $480,000 $252,000

Net income (from above) 120,000 96,000
Dividends paid (36,000) -0-
Retained earnings, December 31, 2013 $564,000 $348,000

Current assets $360,000 $120,000

Land 120,000 108,000
Building (net) 480,000 336,000
Total assets $960,000 $564,000

Liabilities $108,000 $132,000

Common stock 192,000 72,000
Additional paid-in capital 96,000 12,000
Retained earnings, December 31,2013 564,000 348,000
Total liabilities and stockholders’ equity $960,000 $564,000

On December 31, 2013 (subsequent to the preceding statements), Black exchanged 10,000 shares of its
$10 par value common stock for all of the outstanding shares of Blue. Black's stock on that date has a fair
value of $50 per share. Black was willing to issue 10,000 shares of stock because Blue's land was
appraised at $204,000. Black also paid $14,000 to several attorneys and accountants who assisted in
creating this combination.
Required:
Assuming that these two companies retained their separate legal identities, prepare a consolidation
worksheet as of December 31, 2013.
Answer:
Bargain Purchase Acquisition Consolidation Worksheet

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For the Year Ended 12/31/2013

Black Blue Consolidation Entries Consolidated

Account Company Company Dr. Cr. Balance
Income Statement
Sales (360,000) (360,000)
Expenses 254,000 254,000
Bargain-Purchase—Gain (28,000) (28,000)
Net Income (134,000) (134,000)

Statement of Retained Earnings

R/E,Income
Net 1/1/15 (480,000) (480,000)
Dividends (134,000) (134,000)
Net Income 36,000 36,000
R/E, 12/31/15 (578,000) (578,000)

Balance Sheet
Current assets 346,000 120,000 466,000
Investment in Blue Co. 528,000 0
Land 120,000 108,000 (A) 96,000 324,000
(S) 432,000
Buildings (net) 480,000 336,000 816,000
(A) 96,000

Total Assets 1,474,000 564,000 1,606,000

Liabilities (108,000) (132,000) (240,000)

Common Stock (292,000) (72,000) (S) 72,000 (292,000)
Additional Paid-in Capital (496,000) (12,000) (S) 12,000 (496,000)
R/E, 12/31/15 (578,000) (348,000) (S) (578,000)
348,000

Total Liabilities & Stockholders' Equity (1,474,000) (564,000) 528,000 528,000

(1,606,000)

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 Calculation for Potential Goodwill:
Consideration transferred by Black Co. 500,000
Book value of Blue Co. (432,000) (Entry S)
Excess of Cost over Book Value 68,000 (Entry A)
Allocations:
Land (204,000 - 108,000) (96,000) (Entry A)
Bargain Purchase (28,000) (Entry A)
Entry to record the acquisition on Black Co's books
Professional fee expense 14,000
Investment in Blue Co. 528,000
Common Stock - Black (10,000 x $10 Par) 100,000
Add'l Paid-in Capital - Black (10,000 x $40) 400,000
Cash (paid for direct acquisition 14,000
costs) 28,000
GainS:on Bargain Purchase
Entry
Common Stock 72,000
Additional Paid-in Capital 12,000
Retained Earnings - 12/31/15 348,000
Investment in Blue Co. 432,000
To eliminate Blue Co's stockholders' equity accounts and the book value
of Blue Co's net assets from Black Co's investment account

Entry A:
Land 96,000
Investment in Blue Co. 96,000

To eliminate Black Co's excess payment over book value from its
investment account and reassign the
excess to specific assets from the bargain purchase

Learning Objective: 02-04

Learning Objective: 02-05
LO7
Difficulty: Hard
Bloom’s: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement

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