Question

QUESTION 2

1. When negative goodwill occurs in a business combination calculation,

   	a.	The negative goodwill is considered an impairment.
   	b.	The value is allocated first to reduce proportionately (according to market value) non-current assets, then to non-monetary current assets, and any negative remainder is classified as a deferred credit.
   	c.	allocated first to reduce proportionately (according to market value) non-current assets, and any negative remainder is classified as an extraordinary gain.
   	d.	allocated first to reduce proportionately (according to market value) non-current, depreciable assets to zero, and any negative remainder is classified as a deferred credit.

QUESTION 4

Robin Corporation purchased 150,000 previously unissued shares of Nest Inc's $10 par value common stock directly from Nest for $3,400,000. Nest's stockholder's equity immediately before the investment by Robin consisted of $3,000,000 of capital stock and $2,600,000 in retained earnings. What is the book value of Robin's investment in Nest?

	a.	$1,500,000
	b.	$1,680,000
	c.	$2,800,000
	d.	$3,000,000

Answer 1

Ans-2-The correct option is c.

Explanation:- When negative goodwill occurs in business combination calculation then it allocated first to reduce proportionately (according to market value) non current assets and any negative remainder is classified as an extraordinary gain.

Ans-4- The correct option is d.- $3,000,000

Explanation:-

Shares outstanding before new shares are issued	300,000
Shares issued to Robin	150,000
Total shares outstanding	450,000
Percentage owned by Robin equals 150,000/450,000	33.33%
Stockholders; equity before new shares are issued	5,600,000
Add: Investment by Robin	3,400,000
Stockholders' equity after Robin investment	9,000,000
Robin's percentage ownership	33.33%
Book value of Robin's interest ($9,000,000*33.33%)	$3,000,000