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Bac 412 - Advacc2-Reviewer For Final Departmental Exam
Bac 412 - Advacc2-Reviewer For Final Departmental Exam
b.
c.
Either the fair value method or the equity method may be used.
d.
Neither the fair value method or the equity method may be used.
2. Griffon Incorporated holds a 30% ownership in Duck Corporation. Griffon should use the equity method
under which of the following circumstances?
a.
Griffon has surrendered significant stockholder rights by agreement between Griffon and Duck.
b.
Griffon has been unable to secure a position on the Duck Corporation Board of Directors.
c.
d.
3. Swan Corporation uses the fair value method of accounting for its investment in Pond Company. Which
one of the following events would affect the Investment in Pond Co. account?
a.
Investee losses
b.
c.
d.
all of the above would affect the Investment in Pond Co. account
enters the consolidated revenue computation only if the transfer was the result of arms length
bargaining.
b.
affects consolidated net income under a periodic inventory system but not under a perpetual
inventory system.
c.
does not result in consolidated income until the merchandise is sold to outside parties.
d.
does not require a working paper adjustment if the merchandise was transferred at cost..
5. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost
equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2005. In
computing income from the investee for 2005 under the equity method, Honeyeater uses which equation?
a. 40% of Nectars income less 100% of the unrealized profit in Honeyeater's ending inventory.
b. 40% of Nectars income plus 100% of the unrealized profit in Honeyeater's ending inventory.
c. 40% of Nectars income less 40% of the unrealized profit in Honeyeaters ending inventory.
d. 40% of Nectars income plus 40% of the unrealized profit in Honeyeaters ending inventory.
6. In situations where there are routine inventory sales between parent companies and subsidiaries, when
preparing the consolidation statements, which of the following line items is indifferent to the sales being
either upstream or downstream?
a.
b.
c.
d.
7. The consolidation procedures for intercompany sales are similar for upstream and downstream sales
a.
b.
under a periodic inventory system but not under a perpetual inventory system.
c.
d.
8. It is a transaction or other event in which an acquirer obtains control of one or more businesses
a. Business combination
b. Merger
c. Consolidation
d. Controlling interest
9. The acquirer shall classify the obligation to pay the contingent consideration as
a. Financial liability
b. Equity
c. Either financial liability or equity
d. Neither financial liability nor equity
10. In accounting for a business combination, which of the following intangible assets should not be
recognized as an asset apart from goodwill?
a. Trademark
b. Lease Agreement
c. Employee quality
d. Patent
11. Which of the following is a reason why a company would expand through a combination, rather than
by building new facilities?
a.
b.
c.
d.
All of the above are possible reasons that a company might choose a combination.
12. A business combination in which a new corporation is created and two or more existing corporations
are combined into the newly created corporation is called a
a.
merger.
b.
purchase transaction.
c.
pooling-of-interests.
d.
consolidation.
13. A business combination occurs when a company acquires an equity interest in another entity and has
a.
b.
c.
d.
In 2004, Parrot Company sold land to its subsidiary, Tree Corporation, for $12,000. It had a book value of
$10,000. In the next year, Tree sold the land for $18,000 to an unaffiliated firm.
a.
b.
A consolidation working paper entry was required only if the subsidiary was less than 100%
owned in 2004.
c.
A consolidation working paper entry is required each year until the land is sold outside the related
parties.
d.
A consolidated working paper entry was required only if the land was held for resale in 2004.
a.
b.
was eliminated from consolidated net income by a working paper entry that credited land $2,000.
c.
made consolidated net income $2,000 less than it would have been had the sale not occurred.
d.
made consolidated net income $2,000 greater than it would have been had the sale not occurred
17. What is the initial measurement of an investment in subsidiary retained by the investor when control is
lost?
a. Fair value at the date when control is lost
b. Fair value at the beginning of the reporting period
c. Carrying amount at the date when control is lost
d. Carrying amount at the beginning of the reporting period
18. Control is presumed to exist when the parent owns directly or indirectly through subsidiaries
a. More than half of the equity of an entity
b. More than half of the ordinary shares of an entity
c. More than half of the preference and ordinary shares of an entity
d. More than half of the voting power of an entity
19. All of the following acquisition-related costs in a business combination are expensed immediately,
except
a. Professional and consulting fees
b. Finder fess
c. Costs of maintaining an internal acquisition department
d. Costs of issuing debt securities
20. What is the term for the business combination where all combining entities transfer their net assets to
a newly formed entity?
a. True merger
b. Legal merger
c. Roll up transaction
d. Spin off
II. PROBLEMS
1. Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then
dissolved. Paris had no liabilities. The fair values of Paris assets were $2,500,000. Pariss only noncurrent assets were land and equipment with fair values of $160,000 and $640,000, respectively. At what
value will the equipment be recorded by Raphael?
a. $640,000
b. $240,000
c. $400,000
d. $0
2. Pare Company purchased 10% of Tot Companys 100,000 outstanding ordinary shares on January 1,
2013 for P500,000. On December 31, 2013, Pare purchased an additional 20,000 shares of Tot for
P1,500,000. Tot had not issued any additional shares during 2013. The investee reported earnings pf
P3,000,000 for 2013. The fair value of the 10% interest is P900,000 on December 31, 2013. What is the
carrying amount of the investment on December 31, 2013?
a. 2,300,000
b. 2,000,000
c. 2,400,000
d. 2,900,000
Cash
Account receivable
Inventory
Buildings and equipment
(net)
Goodwill
NARRA CORP.
YAKAL CORP.
BOOK VALUE
P40,000
60,000
50,000
BOOK VALUE
P10,000
30,000
35,000
300,000
110,000
COMBINED
ENTITY
P50,000
88,000
96,000
430,000
?
Total Assets
P450,000
P185,000
P?
Accounts payable
Common stock, P5 par
Additonal paid in capital
Retained earnings
P188,000
P84,000
P272,000
100,000
65,000
97,000
40,000
28,000
33,000
126,000
247,000
?
P450,000
P185,000
P?
3.Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp., on January 1, 2005.
Falcon sold the equipment for $110,000 when its book value was $85,000 and it had a 5-year remaining
useful life with no expected salvage value. Separate balance sheets for Falcon and Rodent included the
following equipment and accumulated depreciation amounts on December 31, 2005:
Falco
Equipment
750,000
Rodent
$
550,000
300,000
( 50,000)
250,000
Consolidated amounts for equipment and accumulated depreciation at December 31, 2005 were
respectively
a.
b.
c.
d.
4. Peregrine Corporation acquired a 90% interest in Cliff Corporation in 2004 at a time when Cliffs book
values and fair values were equal to one another. On January 1, 2005, Cliff sold a truck with a $45,000
book value to Peregrine for $90,000. Peregrine is depreciating the truck over 10 years using the straightline method. Separate incomes for Peregrine and Cliff for 2005 were as follows:
Peregrine
Sales
1,800,000
Cliff
$
1,050,000
45,000
( 750,000)
( 285,000)
Depreciation expense
( 450,000)
( 135,000)
Other expenses
( 180,000)
( 450,000)
Separate incomes
420,000
225,000
a.
$161,550.
b.
$162,000.
c.
$166,050.
d.
$202,500.
5. Kestrel Company acquired an 80% interest in Reptile Corporation on January 1, 2004. On January 1,
2005, Reptile sold a building with a book value of $50,000 to Kestrel for $80,000. The building had a
remaining useful life of
ten years and no salvage value. The separate balance sheets of Kestrel and Reptile on December 31,
2005 included the following balances:
Kestrel
Buildings
400,000
Reptile
$
250,000
120,000
75,000
The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared,
respectively, on the balance sheet at December 31, 2005, were
a.
b.
c.
d.
6. Pigeon Corporation purchased land from its 60%-owned subsidiary, Seed Inc., in 2003 at a cost
$30,000 greater than Seeds book value. In 2005, Pigeon sold the land to an outside entity for $40,000
more than Pigeons book value. The 2005 consolidated income statement reported a gain on the sale of
land of
a.
$40,000.
b.
$42,000.
c.
$58,000.
d.
$70,000
7. Pied Imperial-Pigeon Corporation acquired a 90% interest in Offshore Corporation in 2003 when
Offshore book values were equivalent to fair values. Offshore sold equipment with a book value of
$80,000 to Pied Imperial-Pigeon for $130,000 on January 1, 2005. Pied Imperial-Pigeon is fully
depreciating the equipment over a 4-year period by using the straight-line method. Offshore reported net
income for 2005 was $320,000. Pied Imperial-Pigeons 2005 net income from Offshore was
a. $249,250.
b. $250,500.
c. $254,250.
d. $288,000.
8. Lorikeet Corporation acquired a 80% interest in Nectar Corporation on January 1, 2000 at a cost equal
to book value and fair value. In the same year Nectar sold land costing $30,000 to Lorikeet for $50,000
On July 1, 2005, Lorikeet sold the land to an unrelated party for $110,000. What was the gain on the
consolidated income statement?
a. $48,000.
b. $60,000.
c. $64,000.
d. $80,000.
During 2011, Sure Co. reported total comprehensive income of P500,000 and paid dividends of
P100,000.
9. What is the fair value on NCI on January 1, 2011?
a. P500,000
b. P375,000
c. P525,000
d. P400,000
10. How much goodwill (gain on acquisition) is reported in the consolidated statement of financial position
on 1/1/2011?
a. P325,000
b. P200,000
c. P(325,000)
d. (375,000)
11. What is the consolidated total comprehensive income attributable to parent on December 31, 2011, If
Pures net income for 2011 is P600,000?
a. P860,000
b. P888,000
c. P808,000
d. P948,000
12. What is the NCI in net assets of subsidiary on December 31, 2011?
a. P455,000
b. P552,000
c. P495,000
d. P495,900
P50,000
Dividends
5,000
when Whistles book values were equal to their fair values. During 2005, Duck sold merchandise that cost
$75,000 to Whistle for $110,000. On December 31, 2005, three-fourths of the merchandise acquired from
Duck remained in Whistles inventory. Separate incomes (investment income not included) of Duck and
Whistle are as follows:
Duck
Sales Revenue
Whistle
150,000
200,000
90,000
70,000
Operating Expenses
12,000
15,000
Separate incomes
48,000
115,000
13. The consolidated income statement for Duck Corporation and subsidiary for the year ended
December 31, 2005 will show consolidated cost of sales of?
a.
$ 50,000.
b.
$ 76,250.
c.
$133,750.
d.
$160,000.
Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp Corporation. In 2004,
Swamp sold merchandise that cost $80,000 to Grebe for $100,000. Half of this merchandise remained in
Grebes December 31, 2004 inventory. During 2005, Swamp sold merchandise that cost $160,000 to
Grebe for $200,000. $62,500 of the 2005 merchandise inventory remained in Grebes December 31,
2005 inventory. Selected income statement information for the two affiliates for the year 2005 was as
follows:
Grebe
Sales Revenue
Cost of Goods Sold
Swamp
$500,000
$400,000
400,000
320,000
Gross profit
$100,000
$ 80,000
14. Consolidated cost of goods sold for Grebe and Subsidiary for 2005 were
a.
$512,000.
b.
$526,000.
c.
$522,500.
d.
$528,000.
15. What amount of unrealized profit did Grebe Company have at the end of 2004?
a.
$10,000.
b.
$12,500.
c.
$50,000.
d.
$62,500.
ANSWERS:
18. D
I. THEORIES
19. D
1. C
20. C
2. D
II. PROBLEMS
3. C
1. A
4. C
2. C
5. C
3. A
6. B
4. C
7. D
5. A
8. A
6. D
9. C
7. C
10. C
8. D
11. D
9. A
12. D
10. A
13. D
11. C
14. C
12. B
15. B
13. B
16. A
14. C
17. A
15. B