Ordnerverwaltung für Financial Reporting and Controlling (FRC) Theory
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Which of the following does not represent a primary motivation for business combinations?
Combinations are often a vehicle to accelerate growth and competitiveness.
Cost savings can be achieved through elimination of duplicate facilities and staff.
Synergies may be available through quick entry for new and existing products into markets.
Larger firms are less likely to fial.
Which of the following is the best theoretical justification for consolidated financial statements?
In form the companies are one entity; in substance they are separate.
In form the companies are seperate; in substance they are one entitiy.
In form and substance the companies are one entity.
In form an substance the companies are separate.
What is a statutory merger?
A merger approved by the Securities and Exchange Commission.
An acquisition involving the purchase of both stock and assets.
A takeover completed within one year of the initial tender offer.
A business combination in which only one company continues to exist as a legal entitiy.
FASB ASC 805, "Business Combinations," provides principles for allocating the fair value of an acquired business. When the collective fair values of the seperately identified assets acquired and liabilites assumed exceed the fair value of the consideraion transferred, the difference should be:
recognized as an ordinary gain from bargain purchase.
treated as negative goodwill to be amortized over the period benefited, not to exceed 40 years.
treated as goodwill and tested for impairment on an annual basis.
Applied pro rata to reduce, but not below zero, the amounts initially assigned to specific non-current assets of the acquired firm.
When does gain recognition accompany a business combination?
When a bargain purchase occcurs.
In a combination created in the middle of a fiscal year.
In an acquisition when the value of all assets and liabilities cannot be determined.
When the amount of a bargain purchase exceeds the value of the applicable noncurrent assets (other than certain exceptions) held by the acquired company.
According to the acquisition method of accounting for business combinations, costs paid to attorneys and accountants for services in arranging a merger should be
capitalized as part of the overall fair value acquired in the merger.
recorded as an expense in the period the merger takes place.
included in recognized goodwill.
written off over a ive-year maximum useful life.
When negotiating a business acquisition, buyers sometimes agree to pay extra amounts to sellers in the future if performance metrics are achieved over specified time horizons. How should buyers account for such ontingent consideration in recording an acquisition.
The amount ultimately paid under the contingent consideration agreement is added to goodwill when and if the performance metrics are met.
The fair value of the contingent consideration is expensed immediately at acquisition date.
The fair value of the contingent consideration is included in the overall fair value of the consideration transferred, and a liability or additional owners' equity is recognized.
The fair value of the contingent consideration is recorded as a reductino of the otherwise determinable fair value of the acquired firm.
An acquireed firm's financial records sometimes show goodwill from previous business combinations. How does a parent company account for the preexisting goodwill of its newly acquired subsidiary?
The parent tests the preexisting goodwill for impairment before recording the goodwill as part of the acquisition.
The parent includes the preexisting goodwill as an identified intangible asset acquired.
The parent ignores preexisting subsidiary goodwill and allocates the subsidiary's fair value among the separatel identifiable assets acquired and liabilites assumed.
Preexisting goodwill is excluded from the identifiable assets acquired unless the subsidiary can demonstrate its continuing value.