Consolidations and Mergers
Chapter Exam Questions
Course Introduction
This course offers a comprehensive examination of the accounting and financial reporting issues related to business combinations, consolidations, and mergers. Students will explore the principles and procedures for preparing consolidated financial statements, including the treatment of intercompany transactions, minority interests, and goodwill. The course also covers the legal, strategic, and ethical considerations underlying mergers and acquisitions, as well as the implications these transactions have on corporate financial statements and stakeholder interests. Emphasis is placed on the application of relevant accounting standards and the analysis of real-world case studies to develop practical skills in addressing complex problems related to consolidations and mergers.
Recommended Textbook
Advanced Financial Accounting 9th 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 will be recorded by Zenith as its investment in Plummet,if it paid $500,000 for the acquisition?
A)$610,000
B)$400,000
C)$500,000
D)$510,000
Answer: D
Q2) Assuming no impairment in value prior to transfer,assets transferred by a parent company to another entity it has created should be recorded by the newly created entity at the assets':
A)cost to the parent company.
B)book value on the parent company's books at the date of transfer.
C)fair value at the date of transfer.
D)fair value of consideration exchanged by the newly created entity.
Answer: B
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3
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 is Son's post closing retained earnings balance on December 31,20X1?
A)$141,000
B)$150,000
C)$159,000
D)$165,000
Answer: C
Q2) Based on the preceding information,what amount will be reported by Yang as balance in investment in Spiel on December 31,20X8,if it used the equity method of accounting?
A)$111,250
B)$118,750
C)$100,000
D)$122,500
Answer: D
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Chapter 3: The Reporting Entity and Consolidation of
Less-Than-Wholly-Owned Subsidiaries With No Differential
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Q1) In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet.
Required:
a.What is a non-controlling interest?
b.Why must it be reported in the financial statements as an element of equity rather than a liability?
Answer: a.Noncontrolling interest occurs when less than 100 percent equity is acquired in a subsidiary.It represents the fact that the parent may control but not own the entire subsidiary.The noncontrolling shareholders have a claim on the subsidiary's assets and earnings through their percentage ownership of the stock.
b.Noncontrolling interest clearly does not meet the definition of a liability.FASB 160 makes clear that the noncontrolling interest's claim on net assets is an element of equity,not a liability.It requires reporting the noncontrolling interest in equity.
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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 information provided,the beginning differential assigned to buildings and equipment is:
A)$50,000.
B)$40,000.
C)$10,000.
D)$36,000.
Q2) Based on the information given above,goodwill will be reported in the consolidated balance sheet in the amount of:
A)$240,000.
B)$130,000.
C)$150,000.
D)$270,000.
Q3) Which term refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition?
A)Fair value accounting
B)Push-down accounting
C)Fully adjusted method
D)Reciprocal ownership
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Chapter 5: Consolidation of Less-Than-Wholly-Owned
Subsidiaries Acquired at More Than Book Value
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Q1) When a parent owns less than 100% of a subsidiary,the noncontrolling interest shareholders are allocated their ownership percentage of income or net assets in all of the following eliminating entries except for:
A)The basic investment account elimination entry
B)The excess value (differential)reclassification entry
C)The optional accumulated depreciation elimination entry
D)The amortized excess value reclassification entry
Q2) Based on the preceding information,what amount will be reported as investment in Silver Corporation stock in the consolidated balance sheet immediately following the acquisition?
A)$0
B)$210,000
C)$300,000
D)$400,000
Q3) Based on the information given,X Company and Y Company reported wages payable of
A)$50,000 and $28,000 respectively.
B)$60,000 and $32,000 respectively.
C)$40,000 and $35,000 respectively.
D)$28,000 and $60,000 respectively.
Page 7
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what amount of cost of goods sold must be reported in the consolidated income statement for 20X8?
A)$2,765,000
B)$1,620,000
C)$1,422,000
D)$2,963,000
Q2) Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X8?
A)$117,000
B)$120,000
C)$150,000
D)$128,000
Q3) Based on the information given above,what amount of cost of goods sold must be eliminated from the consolidated income statement for 20X9?
A)$187,000
B)$221,000
C)$1,422,000
D)$2,963,000
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8
Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) 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?
Q2) Based on the preceding information,in the preparation of elimination entries related to the equipment transfer for the 20X9 consolidated financial statements,net effect on accumulated depreciation will be:
A)a decrease of $110,000.
B)an increase of $110,000.
C)an increase of $100,000.
D)a decrease of $100,000.
Q3) Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A)debited for $25,000 in the eliminating entries.
B)credited for $15,000 in the eliminating entries.
C)debited for $15,000 in the eliminating entries.
D)credited for $25,000 in the eliminating entries.
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Chapter 8: Intercompany Indebtedness
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Q1) Which of the following statements is (are)correct?
I.The amount assigned to the noncontrolling interest may be affected by a constructive retirement of bonds.
II.A constructive retirement of bonds normally results in an extraordinary gain or loss.
III.In constructive retirement,the bonds are considered outstanding,even though they are treated as if they were retired in preparing consolidated financial statements.
A)I
B)II
C)I and III
D)I,II,and III
Q2) Based on the information given above,what amount of interest receivable will be recorded by Light Corporation on December 31,20X8,in its separate financial statements?
A)$5,000
B)$6,500
C)$10,000
D)$6,000
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Chapter 9: Consolidation Ownership Issues
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Q1) Based on the information provided,what amount of consolidated net income will X Corporation report for 20X8?
A)$148,750
B)$175,000
C)$150,000
D)$158,750
Q2) Based on the preceding information,in the elimination entries to complete a full consolidation worksheet for 20X9,noncontrolling interest in the net income of Meta Co.will be credited for:
A)$12,000.
B)$7,500.
C)$8,000.
D)$2,500.
Q3) Based on the information provided,what amount of income will be assigned to the noncontrolling interest in the 20X8 consolidated income statement?
A)$23,750
B)$25,000
C)$18,000
D)$33,750
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what journal entry would Fair Logic make to record equity method income for the year?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) 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
Q3) Based on the preceding information,what was the change in cash balance for the consolidated entity for 20X9?
A)Increase of $49,000
B)Decrease of $66,000
C)Increase of $17,000
D)Increase of $32,000
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Page 12
Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) All of the following are management tools available for a U.S.company to hedge its net investment in a foreign affiliate except for:
A)Forward exchange contracts
B)Foreign currency commitments
C)Intercompany financing arrangements including intercompany transactions
D)None of the above.
Q2) If 1 British pound can be exchanged for 180 cents of U.S.currency,what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?
A.1/180
B.1/.56
C.1.8/1
D.1/1.8
Q3) Based on the preceding information,the entries on January 30,20X9,include a:
A)Credit to Foreign Currency Units (SFr),$184,000.
B)Credit to Cash,$180,000.
C)Debit to Foreign Currency Transaction Loss,$4,000.
D)Debit to Dollars Payable to Exchange Broker,$184,000.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Refer to the above information.Assuming Perth's local currency is the functional currency,what is the amount of translation adjustments that result from translating Perth's trial balance into U.S.dollars at December 31,20X8?
A)$396,500 debit
B)$285,000 credit
C)$405,000 credit
D)$411,000 credit
Q2) In cases of operations located in highly inflationary economies:
A)The reporting currency of the U.S.parent-the U.S.dollar-should be used as the foreign entity's functional currency.
B)The foreign currency should be used as the functional currency with a footnote to the financials displaying what the earnings would have been using the U.S.dollar as the functional currency.
C)The foreign currency should be used as the functional currency with a single line item-foreign translation-reporting the adjustment using the U.S.dollar as the functional currency.
D)None of the above.
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Chapter 13: Segment and Interim Reporting
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Q1) The income tax expense applicable to the second quarter's income statement is determined by:
A)dividing the estimated annual income tax expense by four and allocating the amount to the second quarter.
B)multiplying the effective income tax rate times the income before tax for the second quarter.
C)subtracting the income tax expense applicable to the first quarter from the income tax expense applicable to the first two quarters.
D)subtracting the income tax liability applicable to the first quarter from the income tax liability applicable to the first two quarters.
Q2) Refer to the above information.Which of the operating segments above meet the operating profit (loss)test?
A)B and E
B)A and B
C)A,B,and E
D)A,B,C,and E
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Chapter 14: Sec Reporting
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Q1) Which of the following best describes a "red herring" prospectus?
A)A shortened version of registration Form S-1 available to those companies that already have publicly traded securities.
B)A prospectus containing material irregularities and deficiencies.
C)Preliminary information provided to investors about an upcoming issue,and issued between the time a registration statement is presented to the SEC and its effective date.
D)Disclosure in the business press,outlined in red,informing investors of an upcoming offering.
Q2) Regulation S-X and Regulation S-K:
A)govern the preparation of financial statements and associated disclosures.
B)govern the registration requirements for private placements.
C)outline responsibilities for audit committees of publicly held companies.
D)prohibit artificial pyramids of capital in public utilities.
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 above information.What is the balance in each partner's capital account for financial accounting purposes?
A)Option A
B)Option B
C)Option C
D)Option D
Q2) Refer to the above information.Tiffany is paid $60,000,and no goodwill is recorded.What is the Ron's capital balance after Tiffany withdraws from the partnership?
A)$74,000
B)$71,000
C)$75,000
D)$86,000
Q3) 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
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Chapter 16: Partnerships: Liquidation
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Q1) A partnership may be involved in "Dissociation" or "Dissolution."
Required:
Describe "Dissociation" and "Dissolution."
Q2) Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Lilly at the end of the second month?
A)$27,000
B)$36,000
C)$18,000
D)$0
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?
Q4) Refer to the information provided above.Using a safe payments schedule,how much cash will be distributed to Dennis at the end of the first month?
A)$64,000
B)$60,000
C)$24,000
D)$36,000
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Chapter 17: Governmental Entities: Introduction and General
Fund Accounting
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Q1) The general fund of Hatteras acquired a fire truck during the fiscal year ended June 30,20X9.The purchase order for the fire truck was recorded on February 15,20X9.Hatteras' acquisition of the fire truck required which of the following sequences of accounting activities?
I.Appropriation
II.Encumbrance
III.Expenditure
A)II,I,III.
B)I,III,II.
C)III,II,I.
D)I,II,III.
Q2) Which of the following items should not be included as revenue for a state government?
A)Property taxes levied in the current fiscal year.
B)Private property for which a state takes custody when the legal owner cannot be found.
C)Amounts received from other financing sources.
D)Fines and licensing fees for which amounts cannot be budgeted.
Q3) Briefly discuss the various types of governmental funds and proprietary funds.
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Chapter 18: Governmental Entities: Special Funds and Government-Wide Financial Statements
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Q1) Agency funds report:
A)only assets and liabilities.
B)assets,liabilities,fund balance,revenues,and expenditures.
C)assets,liabilities,and fund balance.
D)only revenues and expenditures.
Q2) What account should be debited in the debt service fund to recognize an installment payment currently due on general obligation serial bonds?
I.Matured Bonds Payable.
II.Expenditures-Principal.
A)I
B)II
C)Either I or II
D)Neither I nor II
Q3) 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
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Chapter 19: Not-For-Profit Entities
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Q1) A private,not-for-profit hospital uses a fund structure which includes a general fund and donor restricted funds.The hospital's revenues from nursing programs and gift shops should be accounted for in the:
A)specific purpose fund.
B)restricted current fund.
C)general fund.
D)time-restricted fund.
Q2) "Tangible fixed assets not depreciated by a private college or university" describes which term listed above?
Q3) A private college received an offer from a CPA who is an alumnus to teach a one-semester advanced accounting course at no cost.FASB 116 (ASC 958)prescribes that this contribution of service:
A)need only be disclosed in the footnotes to the financial statements.
B)be recorded as an asset with an equivalent amount recorded in the unrestricted fund balance.
C)be recorded as a revenue with an equivalent amount recorded as an expenditure.
D)need not be recorded if the service is for a period less than one academic year.
Q4) "Financial statement of a private NFP entity" describes which term listed above?
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Chapter 20: Corporations in Financial Difficulty
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Q1) On a debtor-in-possession income statement,which of the following items should be reported under the heading "Reorganization Items"?
A)Sales
B)Selling expenses
C)Income tax benefit
D)Loss on disposal of assets
Q2) In which of the following ways can debt be restructured?
I.Assets can be transferred to the creditor.
II.An equity interest can be granted to the creditor.
III.The terms of the debt can be modified.
A)I and II only
B)I and III only
C)II and III only
D)I,II,and III
Q3) Based on the preceding information,what is the total amount of unsecured claims?
A)$113,000
B)$126,000
C)$93,000
D)$121,000
Q4) Briefly explain the three classes of creditors specified in the Bankruptcy Code.
Page 22
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