Question

In: Finance

QUESTION 23 According to SFAS No. 141 on business combinations: a. Either method can be used,...

QUESTION 23

According to SFAS No. 141 on business combinations:

a.

Either method can be used, but goodwill is recorded as a nonrecurring item

b.

Goodwill is now outlawed

c.

The purchase method must be used now for all acquisitions

d.

The pooling of interests method must be used now for all acquisitions

1 points   

QUESTION 24

U.S. Steel recently acquired Marathon Oil. This is an example of a(n):

a.

Push-down merger

b.

Conglomerate merger

c.

Horizontal merger

d.

Vertical merger

1 points   

QUESTION 25

In the first quarter 2002, AOL-Time Warner wrote off $54 billion related to their recent merger. This was because:

a.

The merger was restated as a pooling of interests based on SFAS No. 141

b.

Impaired goodwill was written off based on SFAS No. 142

c.

Of normal amortization of goodwill for the year

d.

All goodwill was written off, because goodwill is no longer an asset according to SFAS No. 142

Solutions

Expert Solution

23. SFAS No. 141 on business combination now by opinion 16 states that business combination will now be accounted for by only one method- the purchase method. Option C is correct.

24. US steel acquiring Marathon oil is an example of a company acquiring business in diverse lines. Hence option B should hold true. It is an example of conglomerate merger as both business are completely in unrelated lines of business.

25. "New U.S. accounting rules require companies to quickly account for the "impairment" of assets acquired in mergers.

In a takeover, the price a company pays above the market value of the target's assets is carried as "goodwill" on the balance sheet. Under the new rules, that goodwill must be adjusted if the company believes the asset values are worth substantially less.

The adjustment is taken in the form of a one-time write-off that amounts to a balance-sheet change, but doesn't affect the company's basic operations."

Refrence: http://articles.latimes.com/2002/mar/26/business/fi-aol26

Therefore, option b should hold true.


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