ACC 440 Week 2 Learning Team Assignment Ch. 1 Textbook Exercises

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Multiple-Choice Questions on Recording Business

Combinations [AICPA Adapted]

Select the correct answer for each of the following questions.

1. Goodwill represents the excess of the sum of the consideration given over the:

2. In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n):

3. Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?

4. In a business combination, the fair value of the identifiable net assets acquired exceeds the fair value of the consideration given. The excess should be reported as a:

5. A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. A Company, in exchange for 40 percent of its voting stock, acquires 80 percent of the common stock of B Company. This is a “tax-free” stock-for-stock (type B) exchange for tax purposes. B Company assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000 and the fair value of the no controlling interest is $175,000. The goodwill reported following the acquisition would be:

a. Zero.

b. $60,000.

c. $75,000.

d. $295,000.


Journal Entries to Record a Business Combination

On January 1, 20X2, Frost Company acquired all of TKK Corporation’s assets and liabilities by issuing 24,000 shares of its $4 par value common stock. At that date, Frost shares were selling at $22 per share. Historical cost and fair value balance sheet data for TKK at the time of acquisition were as follows:

Balance Sheet Item Historical Cost Fair Value

Cash and Receivables $ 28,000 $ 28,000

Inventory 94,000 122,000

Buildings and Equipment 600,000 470,000

Less: Accumulated Depreciation (240,000)

Total Assets $482,000 $620,000

Accounts Payable $ 41,000 $ 41,000

Notes Payable 65,000 63,000

Common Stock ($10 par value) 160,000

Retained Earnings 216,000

Total Liabilities and Equities $482,000

Frost paid legal fees for the transfer of assets and liabilities of $14,000. Frost also paid audit fees of $21,000 and listing application fees of $7,000, both related to the issuance of new shares.


Prepare the journal entries made by Frost to record the business combination

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