Business Combination
BUSINESS COMBINATIONS
Multiple Choice Questions
1. Which of the following is a reason why a company would expand through a combination, rather than by building new facilities? a. A combination might provide cost advantages. b. A combination might provide fewer operating delays. c. A combination might provide easier access to intangible assets. d. All of the above are possible reasons that a company might choose a combination.
2. A business combination in which a new corporation is created and two or more existing corporations are combined into the newly created corporation is called a a. merger. b. purchase transaction. c. pooling-of-interests. d. consolidation.
3. A business combination occurs when a company acquires an equity interest in another entity and has a. at least 20% ownership in the entity. b. more than 50% ownership in the entity. c. 100% ownership in the entity. d. control over the entity, irrespective of the percentage owned.
4. FASB favors consolidation of two entities when
a. one acquires less than 20% equity ownership of the other.
b. one company’s ownership interest in another gives it control of the acquired company, yet the acquiring company does not have a majority ownership in the acquired. Typically, this is in the 20%-50% interest range.
c. one acquires two thirds equity ownership in the other.
d. one gains control over the entity, irrespective of the equity percentage owned.
5. Michangelo Co. paid $100,000 in fees to its accountants and lawyers in acquiring Florence Company. Michangelo will treat the $100,000 as a. an expense for the current year. b. a prior period adjustment to retained earnings. c. additional cost to investment of Florence on the consolidated balance sheet. d. a reduction in paid-in capital. 6. Picasso Co. issued 10,000 shares of its $1 par common stock, valued at $400,000, to acquire shares of Bull Company in an all-stock transaction. Picasso
Multiple Choice Questions
1. Which of the following is a reason why a company would expand through a combination, rather than by building new facilities? a. A combination might provide cost advantages. b. A combination might provide fewer operating delays. c. A combination might provide easier access to intangible assets. d. All of the above are possible reasons that a company might choose a combination.
2. A business combination in which a new corporation is created and two or more existing corporations are combined into the newly created corporation is called a a. merger. b. purchase transaction. c. pooling-of-interests. d. consolidation.
3. A business combination occurs when a company acquires an equity interest in another entity and has a. at least 20% ownership in the entity. b. more than 50% ownership in the entity. c. 100% ownership in the entity. d. control over the entity, irrespective of the percentage owned.
4. FASB favors consolidation of two entities when
a. one acquires less than 20% equity ownership of the other.
b. one company’s ownership interest in another gives it control of the acquired company, yet the acquiring company does not have a majority ownership in the acquired. Typically, this is in the 20%-50% interest range.
c. one acquires two thirds equity ownership in the other.
d. one gains control over the entity, irrespective of the equity percentage owned.
5. Michangelo Co. paid $100,000 in fees to its accountants and lawyers in acquiring Florence Company. Michangelo will treat the $100,000 as a. an expense for the current year. b. a prior period adjustment to retained earnings. c. additional cost to investment of Florence on the consolidated balance sheet. d. a reduction in paid-in capital. 6. Picasso Co. issued 10,000 shares of its $1 par common stock, valued at $400,000, to acquire shares of Bull Company in an all-stock transaction. Picasso