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15. ABC Corporation acquires the assets and liabilities of XYZ Company in a merger. If ABC offers the former shareholders of XYZ an earnings contingency, what is the likely result of having this contingency, on ABCs balance sheet at the date of acquisition?

a. ABC will report less goodwill.

b. ABC will revalue XYZs previously reported assets at higher amounts.

c. ABC will revalue XYZs previously reported liabilities at higher amounts.

d. ABC will report a liability for the earnings contingency.

2. Which item affects the reported net income of an acquiring company at the date of acquisition?

1. An earnout agreement promising future payments to the former owners of the acquired company, dependent on the acquired companys future performance

b. Fees paid to outside accountants and lawyers

c. Identifiable intangible assets acquired, that were not previously reported by the acquired company

d. Goodwill recognized as a result of the acquisition

3. A key concept in determining whether to consolidate an investee is:

a. The percentage ownership of the investees voting stock

b. Whether or not the investee carries a significant amount of debt owed to the investor

c. Whether or not the assets and liabilities of the investee are reported at fair value

d. Whether the investor has the power to direct the activities of the investee

4. ABC has a financial relationship with XYZ and must include XYZs assets and liabilities on its balance sheet. The consolidation process values XYZs assets and liabilities:

a. At their book values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are not already under common control.

b. At their fair values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are already under common control.

c. At their book values at the date it is established that ABC is the primary beneficiary of XYZ, regardless of whether ABC and XYZ are already under common control.

d. At their fair values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are not already under common control.

5.Following U.S. GAAP, a company consolidates its majority-owned subsidiary unless:

1. Control is temporary
2. The subsidiary is a financial institution
3. The subsidiary is substantially smaller than its parent company
4. The subsidiary is highly leveraged, that is, has a substantial amount of debt

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