1) Big Company buys 80 percent of the outstanding shares of Little Company on January 1, Year One. Big paid an amount that was in excess of the underlying fair value of the subsidiary's assets and liabilities so that this was not viewed as a bargain purchase. On that date, Little held equipment worth $300,000 but with a net book value of $200,000. This equipment had a ten-year remaining life with no expected residual value. One year later, when Little still held this equipment as well as other, newly-bought pieces, Big reported a net account of $900,000 and Little reported a net account of $500,000. Assume no asset impairments have taken place. What is the consolidated balance to be reported for equipment?
A) $1,472,000
B) $1,480,000
C) $1,490,000
D) $1,500,000

2) One company acquires all of the stock of another company. According to US GAAP, what is the basis to be used for recording the assets and liabilities of the new subsidiary within consolidated financial statements?
A) The fair value of the consideration given up by the acquiring company.
B) The fair value of the shares obtained from the owners of the acquired company.
C) The book value of the assets and liabilities of the acquired company.
D) The fair value of the consideration given up by the acquiring company plus any
direct consolidation costs incurred by the acquiring company.

3) Big Company buys 100 percent of the outstanding shares of Little Company on January 1, Year One. Big paid an amount that was in excess of the underlying fair value of the subsidiary's assets and liabilities so that this was not viewed as a bargain purchase. On that date, Little had land worth $300,000 but with a book value of $200,000. Several years later, when Little still held this land as well as other parcels of land, Big reported a Land account of $900,000 and Little reported a Land account of $500,000. Assume no asset impairments have taken place. What is the consolidated balance to be reported for land?
A) $900,000
B) $1,200,000
C) $1,400,000
D) $1,500,000

4) Big Company buys all of the outstanding stock of Little Company on January 1, Year One by giving up consideration of $4.7 million. On that date, Little has identifiable assets and liabilities with a net book value of $4.0 million but a fair value of $5.0 million. According to US GAAP, which of the following statements is true?
A) Goodwill of $700,000 should be recognized and amortized over a period of up to 40 years.
B) Goodwill of $700,000 should be recognized but no subsequent amortization should be recorded.
C) A Bargain purchase of $300,000 has occurred and will be used to reduce the values assigned to Littles long-term assets for consolidation purposes.
D) A Bargain purchase of $300,000 has occurred and will be reported immediately for consolidation purposes as a gain.

5) Company A buys Company B and pays $5 million more than the fair value of the identifiable assets and liabilities. The $5 million was recorded as Goodwill. Which of the following statements is true?
A) Goodwill is amortized to expense over 40 years.
B) The rules have changed so that goodwill is now expensed immediately.
C) Goodwill must be checked for impairment periodically and reduced if impaired.
D) Goodwill is amortized over an appropriate period of 40 years or less

7) Big Company buys Small Company and is now consolidating the financial statements as of the date of the acquisition. Each of the following four items has a fair value. Which of these is most likely to not be recognized on the consolidated balance sheet as an intangible asset at fair value as of the date of the acquisition?

A) Noncompetition agreement with a former employee
B) Unpatented technology
C) An employee who recently won the Nobel Prize for Chemistry
D) Secret formula for Small Company's most popular product.

8) Big Company buys 100 percent of the outstanding shares of Little Company on January 1, Year One. On a consolidated balance sheet produced immediately thereafter, goodwill of $320,000 is reported. How was this goodwill determined?
A) It is the fair value of the consideration given up by Big less the fair value of all identifiable assets and liabilities owned by Little.
B) It was on the previous balance sheet of Little before the acquisition took place.
C) It is a figure calculated based on the expected cash flows to be generated by Little discounted at a reasonable interest rate.
D) The specific components that compose goodwill must be determined and individually valued.

9) Big Company creates Small Company for one specific purpose (ownership of a large building to be leased by Big). Although Big holds only a small equity ownership in Small (a bank holds most of the common stock), Big is viewed as its primary beneficiary because it bears the risks (through guarantees) and receives the benefits from its operations through favorable leasing rates. Small Company qualifies as a variable interest entity since the amount of potential losses to Big goes beyond the amount invested. How does Big report its ownership interest in Small?
A) Through footnote disclosure of the potential risks and rewards
B) As an investment at cost
C) As an investment reported by means of the equity method
D) By including the financial accounts of Small within consolidated financial statements

10) Several years ago, Jumbo Corporation bought Shrimp Company. Shrimp was a supplier of merchandise for Jumbo and one of the primary reasons for this acquisition was so that Jumbo could save money on these purchases. In the current year, Jumbo reports cost of goods sold of $900,000 while Shrimp reports $500,000. Half of Shrimp's sales were made to Jumbo for $400,000. As of the last day of the year, Jumbo still held 10 percent of these goods and planned to sell them early in the following year. What amount should Jumbo report as consolidated cost of goods sold?
A) $1,015,000
B) $1,040,000
C) $1,165,000
D) $1,190,000