Name ___________Andrew Miller______
AC 432 – Advanced Accounting I
Quiz 1 (Ch. 1)
This quiz consists of 5 multiple choice questions worth 1 point each and 1 problem worth 12 points. Circle the best answer for the multiple choice questions and show all work on problem as partial credit may be given.
1. A tax advantage of business combination can occur when the existing owner of a company sells out and receives:
a. cash to defer the taxable gain as a “tax-free reorganization”
b. stock to defer the taxable gain as a “tax-free reorganization”
c. cash to create a taxable gain
d. stock to create a taxable gain
2. Publics Company acquired the net assets of Citizen Company during 20X9. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities. The fair value of Citizen assets on the acquisition date was as follows:
|Current assets |$ 800,000 |
|Noncurrent assets | 600,000 |
| |$1,400,000 |
How should Publics account for the $200,000 difference between the fair value of the net assets acquired, $1,000,000, and the cost, $800,000?
a. retained earnings should be reduced by $200,000
b. current assets should be recorded at $685,000 and noncurrent assets recorded at
c. a $200,000 gain on acquisition of business should be recognized
d. a deferred credit of $200,000 should be set up and subsequently amortized to
future net income over a period not to exceed 40 years
3. Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are
a. recorded as a deferred asset...