Accounting for Business Combinations
Exam Questions
Course Introduction
Accounting for Business Combinations explores the principles, standards, and practices involved in accounting for mergers, acquisitions, and consolidations of business entities. The course covers topics such as purchase accounting methods, consolidation processes, treatment of goodwill and non-controlling interests, intercompany transactions, and preparation of consolidated financial statements. Students will analyze relevant accounting standards, such as IFRS 3 and ASC 805, and apply them to real-world scenarios to understand the complexities and implications of combining businesses in todays dynamic economic environment.
Recommended Textbook
Advanced Financial Accounting 8th Edition by Richard Baker
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in Other Entities
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Q1) Based on the preceding information,what amount of goodwill impairment will be recognized for this division if its fair value is determined to be $195,000?
A)$5,000
B)$30,000
C)$60,000
D)$55,000
Answer: D
Q2) Based on the preceding information,immediately after the transfer,
A)Conservative's total assets decreased by $23,000.
B)Conservative's total assets decreased by $20,000.
C)Conservative's total assets increased by $56,000.
D)Conservative's total assets remained the same.
Answer: B
Q3) Which of the following observations refers to the term differential?
A)Excess of consideration exchanged over fair value of net identifiable assets.
B)Excess of fair value over book value of net identifiable assets.
C)Excess of consideration exchanged over book value of net identifiable assets.
D)Excess of fair value over historical cost of net identifiable assets.
Answer: C
Page 3
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Chapter 2: Reporting Intercorporate Interests
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Q1) Based on the preceding information,what is Connector's percentage ownership in the joint venture?
A)20 percent
B)50 percent
C)40 percent
D)25 percent
Answer: C
Q2) Based on the preceding information,what is the annual amount of amortization of differential over the ten year period?
A)$0
B)$1,800
C)$4,500
D)$8,500
Answer: C
Q3) Based on the preceding information,during 2008,Firewire will report:
A)an increase in the investment account balance of $8,000.
B)a decrease in the investment account balance of $15,500.
C)an increase in the investment account balance of $20,000.
D)a decrease in the investment account balance of $8,500.
Answer: D
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Chapter 3: The Reporting Entity and Consolidated Financial Statements
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Q1) Based on the preceding information,what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?
A)$500,000
B)$530,000
C)$280,000
D)$660,000
Answer: D
Q2) Based on the preceding information,what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?
A)$220,000
B)$150,000
C)$370,000
D)$350,000
Answer: A
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
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Q1) Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$0
B)$21,000
C)$6,000
D)$15,000
Q2) Based on the preceding information,what amount of differential will appear in the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination,if the acquisition price was $240,000?
A)$0
B)$40,000
C)$25,000
D)$5,000
Q3) Based on the preceding information,the write-up of buildings and equipment will:
A)increase Sirius's reported net income for 2009 by $5,000.
B)decrease Sirius's reported net income for 2009 by $5,000.
C)increase Sirius's reported net income for 2009 by $50,000. D)have no affect on Sirius's reported net income for 2009.
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Chapter 5: Consolidation of Less-Than-Wholly Owned Subsidiaries
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Q1) Based on the preceding information,what amount would be reported as total stockholder's equity in the consolidated balance sheet at December 31,2009?
A)$412,000
B)$394,000
C)$542,000
D)$348,000
Q2) Based on the preceding information,what is the elimination entry made to assign income to noncontrolling interest in the workpaper to prepare a full set of consolidated financial statements for the year 2009?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Based on the preceding information,what balance would Climber report as its investment in Wisden at January 1,2011?
A)$251,100
B)$224,100
C)$215,100
D)$234,000
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Chapter 6: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,in the preparation of the 2009 consolidated financial statements,equipment will be:
A)debited for $1,000.
B)debited for $10,000.
C)credited for $15,000.
D)debited for $25,000.
Q2) Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 2008?
A)$369,400
B)$405,000
C)$465,000
D)$60,000
Q3) Based on the preceding information,what will be the workpaper eliminating entry to remove the effects of the intercompany sale of land in preparing the consolidated financial statements for 2008?
A)Option A
B)Option B
C)Option C
D)Option D
8
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Chapter 7: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the consolidated net income for 2007?
A)$495,000
B)$317,750
C)$486,250
D)$690,000
Q2) Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 2008?
A)$117,000
B)$120,000
C)$150,000
D)$128,000
Q3) Based on the information given above,by what amount should Graceland write down inventory in its books?
A)$14,000
B)$15,000
C)$13,000
D)$16,000
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9
Chapter 8: Intercompany Indebtedness
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Q1) When one company purchases the debt of an affiliate from an unrelated party,a gain or loss on the constructive retirement of debt is recognized by which of the following?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Based on the information given above,what was the effect of DEF's purchase of XYZ's bond on the amount of retained earnings reported in XYZ's June 30,2008,consolidated balance sheet?
A)No effect
B)$85,000 increase
C)$85,000 decrease
D)$35,000 decrease
Q3) Based on the information given above,what price did Senior pay to purchase the Junior bonds?
A)$530,000
B)$516,875
C)$533,750
D)$550,625
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Chapter 9: Consolidation Ownership Issues
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Q1) Windsor Corporation owns 75 percent of Elven Corporation's outstanding common stock.Elven,in turn,owns 15 percent of Windsor's outstanding common stock.What percent of the dividends paid by Windsor is reported as dividends declared in the consolidated retained earnings statement?
A)None
B)100 percent
C)85 percent
D)75 percent
Q2) Based on the preceding information,in the eliminating entry to assign differential and amortize patents for the year:
A)Differential will be credited for $10,000.
B)Amortization Expense will be credited for $2,000.
C)Amortization Expense will be debited for $1,000.
D)Patents will be debited for $10,000.
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11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Assume that New Life uses the direct method of computing cash flows from operating activities.Based on the preceding information,what amount will be reported by the company as cash received from customers during the year?
A)$815,000
B)$785,000
C)$800,000
D)$835,000
Q2) Based on the preceding information,what amount will be reported in the consolidated cash flow statement as net cash provided by operating activities for 2009?
A)$350,000
B)$463,000
C)$335,000
D)$421,000
Q3) Based on the information provided,what amount of income tax expense should be assigned to Company C?
A)$24,000
B)$35,200
C)$19,200
D)$30,400
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Page 12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,what is the overall effect of speculation on 2008 net income?
A)$4,000 gain
B)$6,000 gain
C)$8,000 loss
D)$8,000 gain
Q2) Based on the preceding information,the entries made on April 1,2009 will include:
A)a debit to Other Comprehensive Income for $200,000.
B)a debit to Cost of Goods Sold for $2,240,000.
C)a credit to Oil Inventory for $2,240,000.
D)a credit to Cost of Goods Sold for $100,000.
Q3) Chicago based Corporation X has a number of importing transactions with companies based in UK.Importing activities result in payables.If the settlement currency is the British Pound,which of the following will happen by changes in the direct or indirect exchange rates?
A)Option A
B)Option B
C)Option C
D)Option D
Page 13
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) If the U.S.dollar is the currency in which the foreign affiliate's books and records are maintained,and the U.S.dollar is also the functional currency,
A)the translation method should be used for restatement.
B)the remeasurement method should be used for restatement.
C)either translation or remeasurement could be used for restatement.
D)no restatement is required.
Q2) Use the information given in question 52 to prepare a schedule providing a proof of the translation adjustment.
Q3) All of the following stockholders' equity accounts of a foreign subsidiary are translated at historical exchange rates except:
A)retained earnings.
B)common stock.
C)additional paid-in capital.
D)preferred stock.
Q4) Briefly explain the following terms associated with accounting for foreign entities:
a)Functional Currency
b)Translation
c)Remeasurement
Page 14
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Chapter 13: Segment and Interim Reporting
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Q1) Interim income statements are required for Smith Orchards.Smith does most of its sales in the fall quarter of the year.These sales are both to individual and commercial customers.How do you recommend Smith report sales during the spring quarter of the year?
Q2) Main Manufacturing Corporation reported consolidated revenues of $50,000,000 on its income statement for 2008.The management of the corporation identified 3 industry segments,M,N,and O.These segments had the following intersegment sales and transfers during 2008: For Main Manufacturing Corporation,the revenue test would be satisfied if any of its industry segments had revenue equal to or greater than which of the following?
A)$7,400,000
B)$5,740,000
C)$5,000,000
D)$4,260,000
Q3) Refer to the above information.Which of the operating segments above meet the revenue test?
A)B,D,and E
B)A and D
C)A,B,and D
D)B,C,D,and E
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Chapter 14: Sec Reporting
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Q1) Accountants are liable for any materially false or misleading information contained in the registration statement filed with the SEC up to:
A)the date the registration statement is filed.
B)the date of the audit report.
C)the effective date of the registration statement.
D)the date securities are sold.
Q2) The Securities and Exchange Commission is responsible for:
A)Option A
B)Option B
C)Option C
D)Option D
Q3) The history of securities regulation can be traced to:
A)the stock market crash of 1929.
B)medieval times.
C)18<sup>th</sup> century creation of the New York Stock Exchange.
D)18<sup>th</sup> century English Parliament's passage of the Bubbles Acts.
Q4) Form 8-K
Q5) Financial Reporting Releases
Q6) Staff Accounting Bulletins
Q7) Accounting and Auditing Enforcement Releases
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) When a partnership is formed,noncash assets contributed by partners should be recorded: I.at their respective book values for income tax purposes. II)at their respective fair values for financial accounting purposes.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) Refer to the information provided above.What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?
A)$60,000
B)$36,000
C)$50,000
D)$45,000
Q3) The ABC partnership had net income of $100,000 for 2009.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/2009 books they discovered that $30,000 was spent on a piece of land in December 2009 and was expensed.What should happen?
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Chapter 16: Partnerships: Liquidation
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Q1) In the calculation of the loss absorption power for a partner,a partner's loan balance (an amount that is owed by the partnership)should be: I.Added to the partner's capital balance.
II)Paid to the partner as a creditor of the partnership.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) Based on the preceding information,what amount will be distributed to Page and Larry upon liquidation of the partnership?
A)Option A
B)Option B
C)Option C
D)Option D
Q3) Listen and Hear are thinking of dissolving their partnership.Listen has a friend who told him to complete a "lump-sum" liquidation.Hear wants to complete an "installment" liquidation.They have come to you for advice.What do you recommend and Why?
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) Based on the preceding information,which of the following would be the correct account balances for 2007 if Gotham City used the consumption method of accounting for inventories?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) When an internal service fund (ISF)enters into a capital lease the transaction is recorded in the: I.fixed assets of the ISF.
II)long-term debt of the ISF.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q3) Which of the following funds should use the accrual basis of accounting?
A)Enterprise and private-purpose trust funds.
B)Permanent funds and internal service funds.
C)Debt service and agency funds.
D)Special revenue and capital projects funds.
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Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Chapter 18: Governmental Entities: Special Funds and
Government-Wide Financial Statements
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Q1) At June 30,2009,total assets for the various funds of a local municipality were as follows: Applying GASB 34 criteria,which of the above are major funds for reporting purposes?
A)GF,CPF,EF
B)CPF,EF
C)CPF,ISF,EF
D)GF,CPF,ISF,EF
Q2) For which of the following long-term debt obligations would payments not be accounted for in a debt service fund?
A)Notes and warrants secured by specific tax revenues.
B)Special assessment bonds sold to acquire enterprise fund assets.
C)Notes and warrants.
D)Special assessment bonds may be used to finance capital projects.
Q3) On the statement of revenues,expenditures,and changes in fund balance for a capital projects fund,proceeds of general obligation bonds should be reported:
A)in the revenue section of the statement.
B)as a direct addition to the beginning balance of unreserved fund balance.
C)in the other financing sources (uses)section of the statement.
D)as a subtraction from construction expenditures.
Page 20
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Chapter 19: Not-For-Profit Entities
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Q1) FASB 117 requires that an "other not-for-profit entity" (ONPO)provide three financial statements.Which of the following is NOT one among them?
A)A statement of functional expenses
B)A statement of financial position
C)A statement of activities
D)A statement of cash flows
Q2) Based on the information provided,in Golden Path's statement of activities for the year ended December 31,2008,what amount should be reported under the classification of revenue from unrestricted funds?
A)$980,000
B)$1,100,000
C)$1,210,000
D)$1,020,000
Q3) "Basis for measuring expenditures for contributed services requiring special skills" describes which term listed above?
Q4) "Financial statement of a private NFP entity" describes which term listed above?
Q5) The FASB has issued five standards that have direct applicability to private,not-for-profit entities.From the list given below,match each standard to the area it deals with.
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Chapter 20: Corporations in Financial Difficulty
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Q1) Which of the following observations regarding the use of fresh start accounting is true?
A)It is always required under Chapter 11 bankruptcy proceedings.
B)Prior shareholders will have control of the emerging company.
C)It results in a new reporting entity.
D)It is used under Chapter 7 bankruptcy proceedings.
Q2) Which of the following observations concerning claims by general unsecured creditors is NOT true?
A)They are paid only after secured creditors and unsecured creditors with priority are satisfied to the extent of any legal limits.
B)They often receive less than the full amount of their claim.
C)They are entitled to "preference payments" at the discretion of the debtor's management.
D)The amounts to be paid to them are usually stated as a percentage of the total claim.
Q3) What are the conditions necessary for using fresh start reporting in reorganization?
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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