Question

QUESTION 17

GE pays health & life insurance to employees who retire early. How are these obligations accounted for according to SFAS No. 106 (OPEB)?

	a.	On a pay-as-you-go basis
	b.	Other post-employment benefits obligations that are liabilities
	c.	Other post-employment benefit obligations that are reported as other comprehensive income
	d.	Extraordinary item

1 points   

QUESTION 18

America On-line & Time Warner, an internet company & an old line economy company but both media giants, recently merged. This was an example of a:

	a.	Secondary equity market transaction
	b.	Vertical merger
	c.	Horizontal merger
	d.	Conglomerate merger

1 points   

QUESTION 19

Ford acquired Land Rover using the purchase method for $2.6 billion. Land Rover had a book value of $1.2 billion & a fair value of $1.8 billion. Therefore, Ford would record goodwill of:

	a.	$800 million
	b.	$600 million
	c.	$0
	d.	$1.4 billion

Answer 1

17. Under statement no 106, the present value for post retirement benefits as far as health and life benefits are concerned must be accrued by the date employee is eligible to receive benefits. hence pay as you go (cash basis) or terminal accrual (accrue at retirement) approaches are not longer acceptable.

Hence point B is correct.

18. Vertical Merger is a merger when two companies representing different steps in the buyer-seller relationship or production process joins force.

The merger of America Online and Time Warner is a Vertical Merger since Time Warner supplied content to customer while AOL distributed such content or information through its internet services.

Hence Option B is correct. Vertical Merger.

19. Correct Option is "A" i.e. 800 Mn

Goodwill simply calculated as difference between the amount paid for acquisition and the fair valur of the acquisition.

Hence = 2.6 Bn - 1.6Bn = 800Mn.