For each of the following situations, select the best letter answer to reflect t

Question

For each of the following situations, select the best letter answer to reflect the effect of the numbered item on the acquirer's accounting entry at the date of combination when separate incorporation will be maintained.

     (A) Increase Investment account.
     (B) Decrease Investment account.
     (C) Increase Liabilities.
     (D) Increase Common stock.
     (E) Decrease common stock.
     (F) Increase Additional paid-in capital.
     (G) Decrease Additional paid-in capital.
     (H) Increase Retained earnings
     (I) Decrease Retained earnings

*Items (4) and (6) require two selections each.*  

________1. Direct costs.

________2. Indirect costs.

________3. Stock issue costs.

________*4. Contingent consideration.

________5. Bargain purchase.

________*6. In-process research and development acquired.

Explanation / Answer

(A) Increase Investment account. 2
(B) Decrease Investment account. 4
(C) Increase Liabilities. 6
(D) Increase Common stock. 1
(E) Decrease common stock. 3
(F) Increase Additional paid-in capital. 4
(G) Decrease Additional paid-in capital. 5
(H) Increase Retained earnings --------
(I) Decrease Retained earnings 6

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