Q1. How are direct combination costs, contingent consideration, and a bargain purchase reflected in recording an acquisition transaction?
Q2. On January 1, 2016, ATM Corporation acquired all of the common stock of ZED Company for $300,000. On that date, ZED's identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of ZED are considered to be a separate reporting unit of ATM Corporation. The carrying value of ZED's investment at December 31, 2016, is $310,000. The fair value of the net assets (excluding goodwill) at that date is $220,000 and the fair value of the reporting unit is determined to be 260,000.
Required:
1) Explain how goodwill is tested for impairment for a reporting unit.
Q3. Brell Corporation manufactures umbrellas. The cloth used in one umbrella costs $ 15. The corporation rents a manufacturing factory for a monthly rent of $ 275. Prepare a table showing the Total Fixed Cost, Total Variable cost, Total Cost and Average Fixed Cost, Average Variable Cost, and Average Cost for three different levels of production. (No. of units at three different levels can be chosen by you).
Q4. A supplier sells company B raw materials at $ 10/unit for the first 500 units, $ 9/unit for the second 500 units and at $8.5/unit for more than 1000 units.
Which type of cost behavior you have in this case? Explain with graphical representation.
Sample Solution