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Accounting Consolidations Quiz Ch. 1 Essay

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Name ___________Andrew Miller______

AC 432 – Advanced Accounting I
Quiz 1 (Ch. 1)
17 points

      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...

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