Q1. GTO Corporation purchased all of the common stock of Charger Company for $4 million. At the time, Charger reported total assets of $3 million and total liabilities of $1 million. At the acquisition date, the fair value of Charger’s assets was $3.5 million and the fair value of Charger’s liabilities was $1.3 million. What amount of goodwill should GTO report as a result of the acquisition and is it necessary for GTO to amortize the goodwill?

          Goodwill                       Amortization required

A) $1.8 million                              No

B) $1.8 million                              Yes

C) $2.2 million                              No

Q2. Consider the following:

Statement #1 – Copyrights and patents are tangible assets that can be separately identified.
Statement #2 – Purchased copyrights and patents are amortized on a straight line basis over 30 years.

With respect to the statements about copyrights and patents acquired from an independent third party:

A)   both are incorrect.

B)   only statement #2 is incorrect.

C)   only statement #1 is incorrect.

Q3. According to the Financial Accounting Standards Board, what is the appropriate measurement basis for equipment used in the manufacturing process and inventory that is held for sale?

          Equipment                               Inventory

A) Historical cost                          Historical cost

B) Historical cost                          Lower of cost or market

C) Fair value                                 Lower of cost or market

答案和详解如下：

Q1. GTO Corporation purchased all of the common stock of Charger Company for $4 million. At the time, Charger reported total assets of $3 million and total liabilities of $1 million. At the acquisition date, the fair value of Charger’s assets was $3.5 million and the fair value of Charger’s liabilities was $1.3 million. What amount of goodwill should GTO report as a result of the acquisition and is it necessary for GTO to amortize the goodwill?

          Goodwill                       Amortization required

A) $1.8 million                              No

B) $1.8 million                              Yes

C) $2.2 million                              No

Correct answer is A)

The acquisition goodwill is equal to $1.8 million [$4 million purchase price – $2.2 million fair value of net assets acquired ($3.5 million assets at fair value – $1.3 million liabilities at fair value)]. Under IFRS or U.S. GAAP, goodwill is not amortized but is subject to an annual impairment test.

Q2. Consider the following:

Statement #1 – Copyrights and patents are tangible assets that can be separately identified.
Statement #2 – Purchased copyrights and patents are amortized on a straight line basis over 30 years.

With respect to the statements about copyrights and patents acquired from an independent third party:

A)   both are incorrect.

B)   only statement #2 is incorrect.

C)   only statement #1 is incorrect.

Correct answer is A)

Acquired copyrights and patents are intangible assets that can be separately identified. Identifiable intangible assets are amortized over their useful lives.

Q3. According to the Financial Accounting Standards Board, what is the appropriate measurement basis for equipment used in the manufacturing process and inventory that is held for sale?

          Equipment                               Inventory

A) Historical cost                          Historical cost

B) Historical cost                          Lower of cost or market

C) Fair value                                 Lower of cost or market

Correct answer is B)

Equipment is reported in the balance sheet at historical cost less accumulated depreciation. Inventory is reported in the balance sheet at the lower of cost or market.

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