Accounting for Business Combinations
Textbook Exam Questions
Course Introduction
Accounting for Business Combinations explores the principles and procedures involved in the accounting for mergers, acquisitions, and other forms of business combinations. This course covers topics such as identifying the acquirer, measuring the fair value of assets and liabilities, eliminating intercompany transactions, and preparing consolidated financial statements. Students will learn to apply relevant accounting standards, including IFRS and GAAP, to practical scenarios and gain a thorough understanding of issues such as goodwill, non-controlling interests, and post-combination financial reporting. The course aims to equip students with the technical knowledge and analytical skills needed to account for complex business structures in a global business environment.
Recommended Textbook
Advanced Financial Accounting 12th Edition by Theodore E. Christensen
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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,under the acquisition method,what amount relating to the business combination would be expensed?
A)$72,000
B)$19,000
C)$53,000
D)$63,000
Answer: C
Q2) Based on the information provided,at the time of the transfer,Selvick Company should record
A)the building at $220,000 and accumulated depreciation of $44,000.
B)the building at $220,000 with no accumulated depreciation.
C)the building at $176,000 with no accumulated depreciation.
D)the building at $250,000 with no accumulated depreciation.
Answer: A
Q3) Based on the preceding information,for Delta
A)no goodwill should be reported at year-end.
B)goodwill impairment of $5,000 should be recognized at year-end.
C)goodwill impairment of $20,000 should be recognized at year-end.
D)goodwill of $30,000 should be reported at year-end.
Answer: B
Page 3
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No
Differential
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Q1) Based on the preceding information,what amount would be reported by Pony Company as the balance in its investment account on December 31,20X4?
A)$200,000
B)$220,500
C)$232,500
D)$255,500
Answer: C
Q2) On January 1,20X9 Pathlon Company acquired 30 percent of the common stock of Sopteron Corporation,at underlying book value.For the same year,Sopteron reported net income of $55,000,which includes a gain from discontinued operations of $40,000.It did not pay any dividends during the year.By what amount would Pathlon's investment in Sopteron Corporation increase for the year,if Pathlon used the equity method?
A)$0
B)$16,500
C)$4,500
D)$12,000
Answer: B
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Page 4
Chapter 3: The Reporting Entity and the Consolidation of
Less-Than-Wholly- Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what will be the amount of net income reported by Salmon Corporation in 20X2?
A)$45,000
B)$50,000
C)$75,000
D)$105,000
Answer: B
Q2) Consolidated financial statements tend to be most useful for:
A)Creditors of a consolidated subsidiary.
B)Investors and long-term creditors of the parent company.
C)Short-term creditors of the parent company.
D)Stockholders of a consolidated subsidiary.
Answer: B
Q3) Based on the preceding information,what will be the amount of net income reported by Stitch Corporation in 20X9?
A)$44,000
B)$55,000
C)$66,000
D)$36,000
Answer: B
5
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the preceding information,what amount of differential will arise in the consolidation process?
A)$0
B)$5,000
C)$15,000
D)$65,000
Q2) Based on the preceding information,what amount should be allocated to goodwill in the consolidated balance sheet prepared immediately after the combination?
A)$110,000.
B)$65,000.
C)$45,000.
D)$0.
Q3) Based on the information provided,what amount of net income will be reported in the consolidated financial statements for the year?
A)$226,000
B)$55,000
C)$230,000
D)$171,000
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Chapter 5: Consolidation of Less-Than-Wholly- Owned
Subsidiaries Acquired at More Than Book Value
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Q1) Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?
A)$395,000
B)$280,000
C)$275,000
D)$195,000
Q2) Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$120,000
C)$65,000
D)$20,000
Q3) Based on the preceding information,what amount of differential would Paris amortize during 20X6 in its equity method journal entries?
A)$13,200
B)$15,000
C)$22,000
D)$30,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,by what amount was unadjusted revenue overstated in the combined income statement for 20X8?
A)$25,000
B)$56,892
C)$31,250
D)$6,250
Q2) Based on the information given above,what amount of sales will be reported in the 20X8 consolidated income statement?
A)$90,000
B)$120,000
C)$100,000
D)$67,000
Q3) Based on the information given above,what amount of consolidated net income will be assigned to the controlling shareholders for 20X1?
A)$14,000
B)$16,100
C)$17,900
D)$20,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the preceding information,the gain on sale of equipment recorded by Plesco for 20X8 is:
A)$70,000.
B)$65,000.
C)$50,000.
D)$40,000.
Q2) Based on the preceding information,what should be the amount of income assigned to the controlling shareholders in the consolidated income statement for 20X5?
A)$110,000
B)$474,000
C)$525,000
D)$635,000
Q3) PeopleMag sells a plot of land for $100,000 to Seven Star Company,its 100 percent owned subsidiary,on January 1,20X7.The cost of the land was $75,000,when it was purchased in 20X6.In 20X9,Seven Star sells the land to Hot Properties Inc. ,an unrelated entity,for $120,000.How is the land reported in the consolidated financial statements for 20X7,20X8 and 20X9?
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Chapter 8: Intercompany Indebtedness
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Q1) A loss on the constructive retirement of a parent's bonds by a subsidiary is effectively recognized in the individual accounting records of the parent and its subsidiary: I.at the date of constructive retirement II.over the remaining term of the bonds.
A)I
B)II
C)Both I and II
D)Neither I nor II
Q2) Based on the information given above,what amount of interest income will Puget Corporation recognize on December 31,20X8 relative to the interest received on that day,in its separate financial statements?
A)$13,023
B)$13,096
C)$6,538
D)$6,557
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the preceding information,the investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Retained Earnings for:
A)$200,000
B)$65,000
C)$155,000
D)$20,000
Q2) Based on the preceding information,in the consolidating entries to complete a full consolidation worksheet,Investment in Silver Stock at January 1,20X9,will be credited for:
A)$255,000.
B)$240,000.
C)$204,000.
D)$136,000.
Q3) Based on the preceding information,in the journal entry recorded by Plate for sale of shares:
A)Cash will be credited for $60,000.
B)Investment in Silver Stock will be credited for $51,000.
C)Investment in Silver Stock will be credited for $60,000.
D)Additional Paid-in Capital will be credited for $45,000.
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Page 11
Chapter 10: Additional Consolidation Reporting Issues
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Q1) Dividends paid to noncontrolling shareholders:
I.are reported as a cash outflow in the consolidated cash flow statement.
II.represent funds that are no longer available to the consolidated entity.
III.are reported in the consolidated retained earnings statement.
A)Observation I alone is true.
B)Observation III alone is true.
C)Observations I and II are true.
D)Observations I,II,and III are true.
Q2) Based on the preceding information,what is the fair value of the noncontrolling interest at the time of acquisition?
A)$47,813
B)$57,500
C)$60,000
D)$45,000
Q3) Based on the preceding information,income tax expense for Ponte for the year 20X8 will be:
A)$67,000
B)$64,600
C)$64,000
D)$66,400
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the information given above,how many Swiss francs are required to purchase goods costing $5,000 U.S.?
A)32,785
B)5,186
C)4,821
D)763
Q2) Company X denominated a December 1,20X9,purchase of goods in a currency other than its functional currency.The transaction resulted in a payable fixed in terms of the amount of foreign currency,and was paid on the settlement date,January 10,2010.Exchange rates moved unfavorably at December 31,20X9,resulting in a loss that should:
A)be included as a separate component of stockholders' equity at Dec.31,20X9.
B)be included as a component of income from continuing operations for 20X9.
C)be included as a deferred charge at December 31,20X9.
D)not be reported until January 10,2010,the settlement date.
Q3) Based on the preceding information,the entries on June 30,20X2,include a
A)debit to Dollars Payable to Exchange Broker,$262,500.
B)credit to Cash,$254,000.
C)credit to Premium on Forward Contract,$6,000.
D)credit to Foreign Currency Receivable from Exchange Broker,$262,500.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Based on the preceding information,what amount of translation adjustment is required for increase in differential?
A)$3,000
B)$5,500
C)$4,500
D)$5,000
Q2) Refer to the above information.Assuming Ski's FCU is the functional currency,what is the amount of patent amortization for 20X8 that results from Polaris's acquisition of Ski's stock on January 2,20X8.Round your answer to the nearest dollar.
A)$11,500
B)$11,884
C)$7,667
D)$9,394
Q3) Based on the preceding information,in the journal entry to record the receipt of dividend from Steamship,
A)Investment in Steamship Company will be credited for $3,450.
B)Cash will be debited for $3,300.
C)Investment in Steamship Company will be credited for $4,000.
D)Cash will be debited for $3,600.
Page 14
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Chapter 13: Segment and Interim Reporting
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Q1) During the third quarter of 20X8,Pride Company sold a piece of equipment at an $8,000 gain.What portion of the gain should Pride report in its income statement for the third quarter of 20X8?
A)$0
B)$2,000
C)$4,000
D)$8,000
Q2) During the third quarter of 20X4,Ripley Company sold a piece of equipment at a $10,000 gain.What portion of the gain should Ripley report in its income statement for the third quarter of 20X4?
A)$10,000
B)$7,500
C)$2,500
D)$0
Q3) Refer to the above information.Which of the operating segments above are reportable segments?
A)B,C,and D
B)A,B,D,and E
C)B,D,and E
D)A,B,C,D,and E
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Chapter 14: Sec Reporting
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Q1) Paul's Plumbing acquired Smithtown Distributors on January 15,20X8.Pansy's Flowers acquired Sam's Farm on January 1,20X7.In the 12/31/X7 financial statements filed with the SEC,Paul's Plumbing included a Pro Forma disclosure and Pansy's Flowers did not.If both acquisitions account for 100% of the common stock of the company acquired and are considered to be material,then can both filings be considered proper?
Q2) Which of the following covers new or revised administrative practices and interpretations used by the SEC staff in reviewing financial statements?
A)Securities Exchange Act releases
B)Exchange Act industry guides
C)Accounting and Auditing Enforcement Releases
D)Staff Accounting Bulletins
Q3) Which of the following observations is true of the shelf registration rule?
A)It is an option available to all listed companies.
B)Shelf registration is limited to 25 percent of the company's currently outstanding stock.
C)It allows private placements of an unlimited amount of securities.
D)It allows large companies to select the optimal time to sell their stock.
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Page 16
Chapter 15: Partnerships: Formation,operation,and
Changes
in Membership
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Q1) Refer to the information provided above.What amount will Erin have to invest to give her a one-fourth interest in the capital of the partnership if no goodwill or bonus is recorded?
A)$45,000
B)$50,000
C)$60,000
D)$66,000
Q2) Refer to the information provided above.Allen and Daniel agree that some of the inventory is obsolete.The inventory account is decreased before David is admitted.David invests $40,000 for a one-fifth interest.What is the amount of inventory written down?
A)$4,000
B)$20,000
C)$15,000
D)$10,000
Q3) Transferable interest of a partner includes all of the following except:
A)the partner's share of the profits and losses of the partnership.
B)the right to receive distributions.
C)the right to receive any liquidating distribution.
D)the authority to transact any of the partnership's business operations.
Page 17
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Chapter 16: Partnerships: Liquidation
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Q1) When is a partnership considered to be insolvent?
I.When the total of all partners' capital accounts results in a debit balance.
II.When at least one of the partners is personally insolvent.
A)I only
B)II only
C)Both I and II
D)Neither I nor II
Q2) Refer to the information provided above.How much cash will be distributed to David at the end of the second month?
A)$75,000
B)$60,000
C)$41,250
D)$33,750
Q3) Refer to the above information.If the other assets are sold for $200,000,how much should J receive upon liquidation?
A)$50,000
B)$30,000
C)$20,000
D)$15,000
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Page 18
Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) The general fund of the Town of Dean levied property taxes of $3,000,000 for the fiscal year beginning on January 1,20X8.It was estimated that 1% of the levy would be uncollectible.During the period January 1,20X8,through December 31,20X8,$2,960,000 of the property tax levy was collected.At December 31,20X8,Dean estimated that $10,000 of property taxes levied in 20X8 would be collected during the first 60 days of 20X9.What amount of property tax revenue should be reported by the general fund for the year ended December 31,20X8?
A)$2,960,000
B)$3,000,000
C)$2,970,000
D)$2,990,000
Q2) Which of the following observations concerning encumbrances is NOT true?
A)Their purpose is to ensure that the expenditures within a period do not exceed the budgeted appropriations.
B)They provide a control system and safeguard for governmental unit administrators.
C)They are an unique element of governmental accounting.
D)They are recognized only at the time disbursements are made.
Q3) Briefly discuss the various types of governmental funds and proprietary funds.
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Chapter 18: Governmental Entities: Special Funds and Governmentwide Financial Statements
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Q1) Which presentation method combines the component unit's results into the primary government's financial results?
A)Blended presentation
B)Discrete presentation
C)Combined presentation
D)Consolidated presentation
Q2) On October 15,20X8,an enterprise fund of Blacksburg purchased office supplies at a cost of $10,000.The inventory of office supplies on hand at the June 30,20X9,fiscal year end was $4,000.There was no beginning inventory.Blacksburg should make entries that include:
A)debiting Supplies $10,000 at October 15,and debiting Expenses $4,000 on June 30.
B)debiting Expenditures $10,000 at October 15,and debiting Supplies $4,000 at June 30.
C)debiting Supplies $10,000 at October 15,and crediting Supplies $6,000 on June 30.
D)debiting Expenditures $10,000 at October 15,and crediting Expenses $4,000 at June 30.
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Page 20
Chapter 19: Not-For-Profit Entities
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Q1) The governing board designated assets for plant expansion.
A)Increases net assets with donor restrictions.
B)Decreases net assets with donor restrictions.
C)Increases net assets without donor restrictions.
D)Decreases net assets without donor restrictions.
E)Transaction is not reported on the statement of activities.
Q2) Based on the preceding information,the increase in present value of the contributions receivable recognized at the end of the first year equals:
A)$5,000.
B)$1,264.
C)$4,212.
D)$787.
Q3) Received a multi-year pledge,with cash being received this year and for the next 4 years.Donors did not place any use restrictions on how the pledges were to be spent.
A)Increases net assets with donor restrictions.
B)Decreases net assets with donor restrictions.
C)Increases net assets without donor restrictions.
D)Decreases net assets without donor restrictions.
E)Transaction is not reported on the statement of activities.
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Chapter 20: Corporations in Financial Difficulty
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Q1) Based on the preceding information,what estimated amount will be available for general unsecured creditors upon liquidation?
A)$34,000
B)$52,000
C)$56,000
D)$75,000
Q2) What is defined as a condition in which a company is unable to meet debts as the debts mature?
A)Deficit
B)Liability
C)Insolvency
D)Credit squeeze
Q3) Which monthly report shows the results of the trustee's fiduciary actions beginning at the point the trustee accepts the debtor's assets?
A)Statement of affairs
B)Statement of realization and liquidation
C)Statement of financial position
D)Statement of activities
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
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Chapter 21: Intercompany Indebtednessfully
Adjusted Equity Method Using Straight-Line Interest Amortization
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Q1) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$240,500
B)$200,000
C)$245,000
D)$211,500
Q2) Based on the information given above,what amount of premium on bonds payable will be eliminated in the preparation of the 20X8 consolidated financial statements?
A)$3,500
B)$2,800
C)$5,000
D)$2,500
Q3) Based on the information given above,what amount of gain or loss on bond retirement will be reported in the 20X8 consolidated financial statements?
A)$17,000
B)$12,800
C)$18,500
D)$22,200
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