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Lion Company pays $10 million for all outstanding shares of Tiger Company. On the date of the purchase, Tiger company has net identifiable assets with a book value of $8 million and a fair value of $8.5 million. Which of the following statements is true?
Goodwill will be recorded for the difference between the fair value of assets received in the purchase ($8.5M) and the fair value of consideration paid ($10M). Under GAAP, goodwill is not amortized but is tested annually for impairment.
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Herring Company buys 100% of the outstanding shares of Catfish Company during Year 1. On a consolidated balance sheet produced immediately after the sale, goodwill of $250,000 is reported. How was this goodwill determined?
Goodwill will be recorded for the difference between the fair value of assets received in the purchase and the fair value of consideration paid in the purchase.
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Diego Company buys all outstanding assets and liabilities of Francisco Company on January 1, Year 3, by giving up consideration of $3.5 million. On that date, Francisco's net assets have a book value of $3 million and a fair value of $3.7 million. Which of the following statements is true?
A bargain purchase takes place when the amount of consideration paid in a business acquisition is less than the fair value of all assets received. In this case, the bargain purchase amount is equal to FV of $3.7M - consideration of $3.5M. Bargain purchases are reported as gains immediately.
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Of the following factors, which would not be an indicator of an investor's ability to exercise significant influence over the operating and financial policies of an investee?
Significant influence exists when a company owns between 20 and 50 percent of the voting stock of another company. Only option A falls under significant influence.
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ABC Inc owns 55% of the voting stock of DEF Inc. ABC would not produce consolidated financial statements if:
The investor company would not produce consolidated financial statements if DEF is in legal reorganization, bankruptcy, or operates under severe foreign restrictions.
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Under IFRS regulations, goodwill should be tested for impairment at ________.
Goodwill impairment is assessed at the cash generating unit level rather than any other level listed here.
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