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Wiley CPAexcel Exam Review 2014 Study Guide, Financial Accounting and Reporting by O. Ray Whittington

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Multiple-Choice Questions (1–79)

A−C. Accounting for the Combination

1. On April 1, year 1, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1, year 1, follow:

Cash $ 60,000
Inventory 180,000
Property and equipment (net of accumulated depreciation of $220,000) 320,000
Goodwill 100,000
Liabilities (120,000)
Net assets $ 540,000

On April 1, year 1, Wall’s inventory had a fair value of $150,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination?

a. $150,000

b. $120,000

c. $ 50,000

d. $ 20,000

2. Which of the following expenses related to the business acquisition should be included, in total, in the determination of net income of the combined corporation for the period in which the expenses are incurred?

Fees of finders and consultants Registration fees for equity securities issued
a. Yes Yes
b. Yes No
c. No Yes
d. No No

3. On August 31, year 1, Wood Corp. issued 100,000 shares of its $20 par value common stock for the net assets of Pine, Inc., in a business combination accounted for by the acquisition method. The market value of Wood’s common stock on August 31 was $36 per share. Wood paid a fee of $160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the equity securities amounted to $80,000. No goodwill was involved in the acquisition. ...

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