Accounting for Business Combinations
Chapter Exam Questions
Course Introduction
Accounting for Business Combinations explores the principles and practices involved in the accounting for mergers, acquisitions, and other forms of business combinations. The course covers topics such as identifying business combinations, measuring and recognizing assets and liabilities at fair value, accounting for goodwill and non-controlling interests, and applying relevant international and national accounting standards. Students will analyze the financial reporting implications of business combinations, understand consolidation procedures, eliminate intercompany transactions, and learn how to prepare consolidated financial statements. Real-world case studies and practical examples are utilized to reinforce concepts and ensure a comprehensive understanding of the complexities involved in accounting for business combinations.
Recommended Textbook
Fundamentals of Advanced Accounting 7th Edition by Joe Ben Hoyle
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Chapter 1: The Equity Method of Accounting for Investments
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Q1) What was the reported balance of Harley's Investment in Bike Co.at December 31,2018?
A)$2,400,000.
B)$2,480,000.
C)$2,500,000.
D)$2,600,000.
E)$2,680,000.
Answer: E
Q2) What is the amount of the excess of purchase price over book value?
A)$(1,000,000. )
B)$ 400,000.
C)$ 800,000.
D)$ 1,000,000.
E)$ 1,100,000.
Answer: E
Q3) What amount of equity income would Steven have recognized in 2018 from its ownership interest in Nicole?
Answer: [($120,000 × .4)- $12,000 - $840 + $1,500] = $36,660
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Chapter 2: Consolidation of Financial Information
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Q1) Which of the following statements is true regarding a statutory consolidation?
A)The original companies dissolve while remaining as separate divisions of a newly created company.
B)Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.
C)The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.
D)The acquiring company acquires the stock of the acquired company as an investment.
E)A statutory consolidation is no longer a legal option.
Answer: A
Q2) By how much will Flynn's additional paid-in capital increase as a result of this acquisition?
A)$150,000.
B)$160,000.
C)$230,000.
D)$350,000.
E)$360,000.
Answer: A
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Page 4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Q1) What balance would Jaynes' Investment in Aaron Co.account have shown on December 31,2018,when the equity method was applied for this acquisition?
Answer: An allocation of the acquisition value (based on the fair value of the shares issued)must first be made.
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Q2) How much difference would there have been in Franel's income with regard to the effect of the investment,between using the equity method or using the initial value method of internal recordkeeping?
A)$190,000.
B)$360,000.
C)$164,000.
D)$354,000.
E)$150,000.
Answer: C
Q3) If the parent's net income reflected use of the initial value method,what were the consolidated retained earnings on December 31,2018?
Answer: 11ea86f8_4aa6_10e3_8084_f9d43053c89a_TB4173_00
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Q1) Compute the noncontrolling interest in Demers at December 31,2020.
A)$124,000.
B)$126,000.
C)$109,200.
D)$149,600.
E)$ 148,200.
Q2) Prepare a proper presentation of consolidated net income and its allocation for 2019.
Q3) In consolidation at December 31,2020,what adjustment is necessary for Hogan's Buildings account?
A)$1,440 increase.
B)$1,440 decrease.
C)$1,600 increase.
D)$1,600 decrease.
E)No adjustment is necessary.
Q4) How does a parent company account for the sale of a portion of an investment in a subsidiary?
Q5) Prepare a proper presentation of consolidated net income and its allocation for 2020.
Q6) What is pre-acquisition income?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Q1) How would net income attributable to the noncontrolling interest be different if the transfers had been for the same amount and cost,but from Stendall to Edgar?
A)Net income attributable to the noncontrolling interest would have decreased by $6,000.
B)Net income attributable to the noncontrolling interest would have increased by $24,000.
C)Net income attributable to the noncontrolling interest would have increased by $20,000.
D)Net income attributable to the noncontrolling interest would have decreased by $18,000.
E)Net income attributable to the noncontrolling interest would have decreased by $56,000.
Q2) What is the impact on the noncontrolling interest of a subsidiary when there are downstream transfers of inventory between the parent and subsidiary companies?
Q3) What is the purpose of the adjustments to depreciation expense within the consolidation process when there has been an intra-entity transfer of a depreciable asset?
Q4) What is consolidated net income for 2018?
Page 7
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Chapter 6: Variable Interest Entities, Intra-Entity Debt,
Consolidated Cash Flows, and Other Issues
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Q1) Which of the following is not a factor that indicates a business enterprise that establishes a variable interest entity (VIE)should consolidate such VIE with its own financial statements?
A)The business enterprise establishing a VIE has the obligation to absorb potentially significant losses of the VIE.
B)The business enterprise establishing a VIE receives risks and rewards of the VIE in proportion to equity ownership.
C)The business enterprise establishing a VIE has the right to receive potentially significant benefits of the VIE.
D)The business enterprise establishing a VIE has power through voting rights to direct the entity's activities that significantly impact economic performance.
E)The business enterprise establishing a VIE is a primary beneficiary for the VIE.
Q2) Describe how this transaction would affect Panton's books.
Q3) What is the amount of goodwill resulting from this acquisition?
Q4) What consolidation entry would be recorded in connection with these intra-entity bonds on December 31,2019?
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Page 8
Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) Larson Company,a U.S.company,has an India rupee account receivable resulting from an export sale on September 7 to a customer in India.Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable.The spot rate was $.023,and the forward rate was $.021.Which of the following did the U.S.exporter report in net income?
A)Discount revenue.
B)Premium revenue.
C)Discount expense.
D)Premium expense.
E)Both discount revenue and premium expense.
Q2) Pigskin Co. ,a U.S.corporation,sold inventory on credit to a British company on April 8,2018.Pigskin received payment of 35,000 British pounds on May 8,2018.The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8.What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)
A)$10,500 loss
B)$10,500 gain
C)$ 1,750 loss
D)$ 3,850 loss
E)No gain or loss should be recognized.
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Chapter 8: Translation of Foreign Currency Financial
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Q1) Assume Boerkian was a foreign subsidiary of a U.S.multinational company and the U.S.dollar was the functional currency of the subsidiary.Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2018 and properly label the resulting gain or loss.
Q2) Kennedy's share of Hastie's net income for 2018 would be
A)$18,000.
B)$15,000.
C)$18,200.
D)$16,000.
E)$18,500.
Q3) Assume the functional currency is the Euro;compute the U.S.income statement amount for depreciation expense for 2018.
A)$8,190.
B)$8,370.
C)$8,820.
D)$9,090.
E)$8,550.
Q4) What exchange rate should be used to translate (a)revenues and expenses that occur throughout the year and (b)a gain or loss that occurs on a specific day?
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Chapter 9: Partnerships: Formation and Operation
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Q1) Determine the amount of net income allocated to each partner for 2017.
Q2) Brown and Green are forming a business as partners.If they do not create a formal written partnership agreement,what risks are they exposing themselves to?
Q3) What will be the amount of interest attributed to Cleary in the income distribution for 2019?
A)$15,142.
B)$13,942.
C)$12,942.
D)$14,142.
E)$10,000.
Q4) Reed,Sharp,and Tucker were partners with capital account balances of $80,000,$100,000,and $70,000,respectively.They agreed to admit Upton to the partnership.Upton purchased 30% of each partner's interest,with payments directly to Reed,Sharp,and Tucker of $32,000,$40,000,and $28,000,respectively.Before the admission of Upton,the profit and loss sharing ratio was 2:3:2.The partners agreed to use the book value method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
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Chapter 10: Partnerships: Termination and Liquidation
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Q1) Prepare journal entries to record the actual liquidation transactions.
Q2) What accounting transactions are not recorded by an accountant during partnership liquidation?
A)The conversion of partnership assets into cash.
B)The allocation of gains and losses from sales of assets.
C)The payment of liabilities and expenses.
D)The initiation of legal action by creditors of the partnership.
E)Write-off of remaining unpaid debts.
Q3) What is the preferred method of resolving a partner's deficit balance,according to the Uniform Partnership Act?
A)Partners never have a deficit balance.
B)The other partners must contribute personal assets to cover the deficit balance.
C)The partnership must sell assets in order to cover the deficit balance.
D)The partner with a deficit balance must contribute personal assets to cover the deficit balance.
E)The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities.
Q4) Record the journal entry for the sale of the noncash assets.
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Page 12
Chapter 11: Accounting for State and Local Governments, part
I
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Q1) What are the two proprietary fund types?
(1)Internal service funds.
(2)Investment trust funds.
(3)Enterprise funds.
(4)Agency funds.
A)1 and 2.
B)2 and 3.
C)1 and 3.
D)2 and 4.
E)1 and 4.
Q2) Which group of government financial statements reports all revenues and all costs as well as all assets and liabilities of the governmental entity?
A)GAAP-based Financial Statements
B)Fund financial Statements.
C)Governmental fund financial statements.
D)Government-wide financial statements.
E)General fund financial statements.
Q3) Prepare the journal entry and identify the fund to record Simple City's purchase order of two trucks for $100,000.Identify the fund in which the entry is recorded.
Page 13
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Chapter 12: Accounting for State and Local Governments, part II
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Q1) What is meant by the term legally independent?
Q2) Determine and prepare the journal entries for the City of Wetteville,in the general fund,on the dates mentioned for each lettered item,for the purposes of preparing the fund financial statements.
Q3) Prepare the journal entry that should be recorded on December 31,2018 for government-wide financial statements.
.
Q4) Prepare the journal entry/entries for the two transactions for the purposes of preparing the government-wide financial statements.
Q5) Prepare the journal entry/entries for the two transactions for the purposes of preparing the governmental fund financial statements.
Q6) Which item is not included on the government-wide Statement of Activities?
A)Revenues.
B)Expenses.
C)Assets.
D)Operating grants.
E)Capital contributions.
Q7) Prepare a Statement of Activities for the year ended December 31,2018.
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