Question

1. Which of the following is not true about goodwill ?

1. Goodwill must be written off over 20 years.
2. Goodwill must be checked for impairment at least annually.
3. The loss of key customers could impair the value of goodwill.
4. Goodwill does not have to be amortized.
5. Goodwill is shown as an asset on the balance sheet.

1. Which of the following are not true of net operating loss carrybacks and carryforwards?

1. Net operating loss carrybacks enable firms to recover previous taxes paid.
2. Net operating loss carryforwards enable firms to shelter future taxable income.
3. Net operating loss carryforwards may be applied to income up to 5 years into the future.

d.         Loss corporations” cannot use a net operating loss carry forward unless they remain viable and in essentially the same business for at least 2 years following the closing of the acquisition.

e.         None of the above

1. Which of the following is generally not true about leveraged buyouts?

1. Borrowed funds are used to pay for all or most of the purchase price, perhaps as much as 90%
2. Tangible assets of the target firm are often used as collateral for loans.
3. Bank loans are often secured by the target firm’s intangible assets
4. Secured debt is often referred to as junk bond financing.
5. C and D only

Answer 1

1. Incorrect is (a). Goodwill can not be written off and cannot be amortized.It has life time value.

2.Incorrect is ( a) .Net operating loss cannot be carryback but can be carry forward.

3.Incorrect is (a). leverage buyout is borrowed fund use for acquiring target company at ratio of 90% debt and 10% unity.Since debt quity ratio is high so called junk bond.