Scribd Logo
Upload

Welcome to Scribd!

  • Business Combination Seatwork 1

    Uploaded by

    Caelah Jamie Tuble
    37 views8 pages
    dayag chapter 15 volume 2

    Original Title

    Business_Combination_Seatwork_1

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    dayag chapter 15 volume 2

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    37 views8 pages

    Business Combination Seatwork 1

    Uploaded by

    Caelah Jamie Tuble
    dayag chapter 15 volume 2

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 8
    284 CHAPTER | 1 MULTIPLE CHOICE . 1. Attne date of an acquisition whichis not a bargain purchase. the acquisition method, . ‘Consolidates the subsidiary’ assets at fair valve and the liabilities at book value Consolidates all subsidiary assets and liabilities al book value Consolidates oll subsidiary assets and liabllies at foir value Consolidates all subsidiary assets and liabilities at fair value Consolidates curent assets ond liabilities at book value. long-term assets and tabi, te, value e eaoge 2. Uso Co, paid cosh for al of the voting common stock of Victoria Corp. Victoria wil continu ‘separate corporation. Entries for the consolidation of Lisa and Victoria would be recordegin ‘Aworkshee! liso’s general journal Victoria's general journal Victoria's secret consolidation joumal The general journals of both companies eange 4. Whot is the primary accounting citference between accounting for when the subsisay ‘ond when the subsidiary retain its incorporation? | It the subsidiary is dissolved, it wil not be operated os a separate division ifthe subsidiary is dissolved, assets and lilies are Consolidated at their book values ifthe subsiciory retains its incorporation, there will be no goodwil associated wih he ccayy. It the subsidiary retains its incorporation, asséts and labillies ore consolidated of te, volves | fe. It the subsidiary retains is incorporation, the consolidation is not formally recorded ny accounting records of the acauiing company ; aoge 4 Accompany is not required to consolidate @ subsidiary in which il holds more than 50% ofthe stock when ° The subsidiary is located in a foreign country The subsidiary in question is a finance subsidiary - The company holds more than 50% but less than 60% of the subsidiary’s voting stock The company holds less than 75% of the subsidiary’s voting stock The subsidiary isin bankruptcy 2. b. c. a. 5. Which one of the following is a characteristic of a business combination that should be accous' _ asen acquisition? The combination must involve the exchange of equity securities only -b. The transaction estabishes an acquisition fair value basis for the company being acquied ©The two companies may be about the same size and it is difficult to determine the 0-2: company and the acquiting company The transaction may be considered to be the uniting of the ownership interests of the corez* involved 5 @. The acquired subsidicry must be smaller in size than the acquiring parent 6. Which of the following is the best theoretical justification for consolidated financial statement ©. Inform the companies are one entity: in substance they are separate. ©. Inform the companies are separate: in substance they are one entity €._ Inform and substance the companies arc one entity. . Inform and substance the companies are separate. 7 What is the appropriate accounting treatment for the value assigned to in-process res" development acquired in a business combination? 2. Expense upon acauisition. ’. Capitalize as an asset. _ ¢ Expense if there is no allemative use for the assels used in the research and devel” ‘Scanned with CanScanner THEORIES 285 ___ technojogical feasibility has yet to be reached 4. Expense until future economic benefits become certain and then capitalize as an asset, 8 An acquired entity has a longterm operating lease for an office building used for central management, The terms of the tease are very favorable relative 10 curent market rates. However, the lease prohibits subleasing or any other transfer of righls. In its financial statements, the acquiring fim Should report the valve assigned to the lease contract as .Anintangible asset under the conlracival- legal criterion. _ b, Apart of goodwil ©. Anintangible asset under the separebilly criterion. d. Abulding, 9 WW Company oblains all of the outstanding stock of JJ, Inc. In a consolidation prepared immedictely offer the takeover. at what value will J's inventory be consolidated? @. AL's historical cost, b. Apercentage of the acquisilion cost paid by WW. ¢. The Inventory will be omitled in the consolidation. d. At the acauisiion- date foir value. 10. Under PFRS 3, when is a gain recognized in consolidating financial information? 9. When any bargain purchase is created. 'b. Ino. combination created in the middle of a fiscal year. ¢ In an acquisition when the value of all assets and labiilies cannot be determined. d. When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company. 11. What is push- down accounting? 2. Arequirement that a subsidiary must use the same accounting principles as a parent company. b. Inventory transfers made from a parent company to @ subsidiary. <. _ Asubsidiary’s recording of the fair-valve allocations as well as subsequent amortization. _ The adjustments required for consolidation when a parent has applied the equity method of _ accounting for internal reporting purposes. 12. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next yeor. In slep acquisition of this type, the original 32 percent acquisition should be @. maintained at its intial value. 'b. adjusted tots equity method baance ait the date of the second acauisiion. adjusted to fair value at the date of the second acquisition with o resulling gain or loss recorded adjusled to fair value at the date of the second ccauisition with a resulting aojustment to odditional paid-in capital 13. I AA Company acquires 80 percent of the stock of BB Company on January 1, 20x2. immediately after "the acquisition: 8. Consolidated retcined earnings wil be equal to the combined retained earnings of the two "companies. 'b. Goodwil wil be reported in the consolidated balance sheel, . _€. AA Company's additional paid-in capital may be reduce to permit the camy forward of 88 Company retained earings. “d. Consolidated retained earnings and AA Company retained earnings wil be the some. 14, Which of the following statements is corect? a. The non-controling shareholders’ claim of the subsidiar's ne! asses is based on the book value of the subsidiary's net assets. : * “b. Only the parent's portion of the difference between book value and fair vaive of the subsiciary's "assets is assigned fo those assets. Geran represents Ino differences between the book value of the subsiary’s nel assets ond “the amount paid by the parent fo buy ownership. Tolel ostels reported by he parent general wl be less than fotal asels reported on the f Beetles bchonce sheet. VOLUME II | Advanced Financial Accounting - (A Comprehensive & Procedural Approach) ee 7 d ee Sed hare 286 CHAPTER, rect? edo or onsoldated if hey are ep SePOFAHe oe, 15. Which of the folowing statements is co a. Foreign subsidiaries do not need to we Te une so ered earings do not include the nencon c. Sy cing shorenoldes claim should be adjusted for changes in the fair voiyg , include GOOc A 135 ignificant nfl subsidiary assets but should no! g d. Consolidation is expected any time the investor q.non-controling interest in a con troling Interests loin, 5 ' jence over the investeg 16, What i the theoretically preferred method of presenting balance sheet? a ©. Asa separate item within the liability section. tony. B. Asa deduction from (contra to) goodwil from, consafdation i ©. Bymeans of notes or footnotes fo the balance Nee, §. _Rarseparate item within the stockholders’ equity S60 ‘ar when statements of indi statements this ye 17. Presenting consolidated fina presented lost year is: a. The correction of an error. Pon Ar satingy change that should be reported prospecliw Y. e Aneceounting Change that should be reported by restating ne financial statements of ot sr, periods presented. d. Not an accounting change. spsidicry, acquired for cash in a business combination, owned equipment wit a Fate! aa 18. A subsidence ob of the date of combination. A consolidated Polonce shee! pepo immediately after the acquisition would treat this excess as: <. Goodwill . b. Plant and equipment €. Relained Eamings 4d. Deferted Credit 19. Goodwill is: ‘a, Seldom reported because itis too difficult to measure. b._ Reported when more than book vaive is paid in purchasing another company. ©. Reported when the fair valve of the acquire is greater than the fair value of the net identco+ assets acquired. 4. Generally smaller for small companies and increases in amount as the companies aca increase in size. Consolidated financial statements are designed to provide: «. inlrmative information al shoreholden. he results of operations, cash flow, and the bal i a the rests of cperot lance sheet in an understandable and inion c._ the results of operations, 7 > esesus of cpeatons cath flow, and the balance sheet as if the parent and subsidiov "*" - d._ subsidiary information for the subsidiary shareholders. Censoldoted fnanca stalements are appropriate even without « majorly ownenti i wi 2 : . the ea ros he th fe sere members Of the parent companys board of direclOF 3: 2 Seles cia tatty eae a nae oh monte te the paren Cooma, age iat voting ineest in he parent company. ros Beene Say eens oe os paar oes ‘Scanned with CanScanner hasy : THEORIES 287 22, The IASB has recommended that a parent corporation should consolidate the financial statements of _the subsidiary into ils financial statements when it exercises control over the subsidiary, even without _ majority ownership. In which of the following situations would control NOT be evident? 10. Access to subsidiary assets is available fo all shareholders b. Dividend policy is set by the parent. ¢,_The subsidiary does not determine compensation for ils main employees. <4. Substantially all cash flows of the subsidiary flow fo he controling shareholders. 2. The goa! of the consolidation process is fo 2. asset acavisitions and 100% stock acquisitions to resuitin the same bolance sheet. _ b. goodwill to appeor on the balance sheet of the consolidated entity. -¢-_ the ossels of the non-controling interest to be predominately displayed on the balance sheet. 4. the investment in the subsidiary to be property valued on the consolidated balance sheet. 24, A subsidiary wos acquired for cash in a business combination on December 31, 20x4. The purchase price exceeded the fair value of identifiable net assets. The acquired company owned equipment , with @ foir value in excess of the book valve as of the date of the combination. A consolidated balance sheet prepared on December 31. 20X1, would | 9. report the excess of the fair value over the book value of the equipment as part of goodwil. » B. feport the excess of the fair value over the book value of the equipment as part of the plant and equipment account. - &_teduce retained eomings for the excess ofthe fair valve of the equipment over its book value. 6. make no adjustment for the excess of the fair vaive of the equipment over book valve. Instead, i is an adjustment to expense over the life of the eavipment. 25. The investment in a subsidiary should be recorded on the parent's books at the 9. underlying book value of the subsidiary’s net assets. 'b. fairvaive of the subsiciory’s net identiioble assets, - ._ {oir value of the consideration given. | d._ {air value of the consideration given plus an estimated valve for goodwill 26. Which of the folowing cos of « business combination can be included in the value charged to paid " in-capital in excess of part @. direct ond indirect acauisilion costs )._ direct acquisition costs “¢. direct acquisition costs and stock issue costs if stock is issued os consideration -d. stock issue costs if stock is issued as consideration 27. When a company purchases another company that has existing goodwil and the transaction is ‘accounted for as a stock acquisition, the goodwil should be treated in the following manner. ‘2. Goodwill on the books of an acquired company should be disregarded. b. Goodwil is recorded prior to recording fixed assets. ¢. Goodwil is not recorded until all assets are stated at full foir valve. / d. Goodwil is treated consistent with other tangible assets. 28. The SEC requires the use of push-down accounting in some specific situations. Push-down accounting ‘results “G. _goodwil be tecordedin the parent company separate accounts. ©. eliminating subsidiary retained earrings and paid-in copital in excess of por. “feflecting foir volves on the subsidiary separate accounts.” changing the consolidation worksheet procedure because no adjustment is necessary to eliminate the investment in subsidiary account. a 2. A majority-owned subsidiary that isin legal reorganization should normally be accounted for using ©. -contoldated financial statements. “the equity method. /_ the market value method. 4. the cost method. Sebieae. Bie oe vo LUM E_ Il | Advanced Financial Accounting - (A Comprehensive & Procedural Approach) ‘Scanned with CansSeanner , my 288 CHAPTER 30. Under ti Under the acquisiion method. Indirect costsrelating to ceauisiions cad 9. Inclidedtin ne investment cos 8. expensed osincures. deducted trom other contibuted copit 4. none of hese. aan ony transactions ond ore y Mae, 31, elimi an inating entries ore made to cance! the effects of intercompt 9. books he porent company books of the subsidiory company. ¢. workpaper only. d. books of both the parent company and the subsidiary. 32. One reoson a parent compony may pay an amount less thon tne book value of the subsiggy, hs, acquired is : ©. an undervaiuation of the subsidiary’ assets b. the existence of unrecorded goodwill. ¢. _ anovervaluation of the subsidiary’s Fobilties. G.__ the existence of unrecorded contingent labilties. 53, ne business combination accounted foros an acauston registration cost related to commen, issued by the parent company are 7 ©, expensed as incured. B. deducted from other contributed capital €._includedin the investment cost. deducted from the investment cost. 434. On the consofdated balance sheet. consolidated stockholders ea orn org ine sum of the porent and svbscion stockholders ec. B. greater han the porent's stockholders’ equity. ¢._ ess than the parent's stockholders’ eqully. &._ equalto the parent’ stockholders’ equity jated statements when 35. Majoity-owned subsidiaries should be excluded from the cons ©. control does not rest with the majority owner, C.F Nubsiiory operates under govemmentally imposed uncertainty Oe Mtoreign subsidiary is domiciled in a country with foreign exchange restrictions or controls, d. anyof these circumstances exist. 46. Under the economic entity concept, consolidated financial statements are intended piimary i" benefit of the ‘0. stockholders of the parent company. b. creditors of the parent company. . minority stockholders. 4. allof the above. . Reasons o parent company may pay'more than book valve for the subsidiary compor al of the folowing except G.. the fair valve of one of the subsidiary’s assets may exceed its recorded value bea ‘ppreciation. the existence of unrecorded goodwill. -_abilties may be overvaived. stockholders’ equily may be undervalued. corso" ts Peres of presentation required by PFRS 10 of "non-controling interest” on 2 ce shee! "As a deduction from goodwill rom consolidation. s 0 sepacae item within the long-term lables section. 0 part of stockholders’ equity. item between lbillies and stockholders’ equity. mys stock Financial Accounting - (A Comprehensive & Procedural rt j ‘Scanned with CanScanner er 289_ 4 of gnichiof the folowing isa Imitation of consolidated financial statements? 8 Consoldated sttemants provide no bene for io slocHholders ond ceditrs of the parent ° © 9 company. 4 Comolidated statements of highly diver stondords ¢ Consolidated statements are beneficial only when the consolidated componies oparate within J the some industry. a Consolidated statements are beneficial only when the consolidated companies operate in torent industies. led companies cannot be compared with Industry when a company Purchases another company thal has existing goodwill and the lranaction is counted for 8s a stock acquisiion, the goodwill should be treated in the following manner. och on the Books of an acquired company should be disregarded Gooduil is tecorded prior to recording fixed ossels Goodwil is nol recorded until all assets are stated at ful far value, Goodwill treated consistent with other tangible assets, “a Tews cf push-down accounting in some specific situations, Pushedown ‘eccounting resulls in: © 9 goodwill be recorded in the parent company separate accounts, elminating subsidiary retained eamings and paid-in capital in excess of por. reflecting fair values on the subsidiary’s separate accouris 3 chonging the consolidation worksheet procedure because no adjustment is necessary 10 eliminate the investment in subsidiary account. oc: ° > © 4 The ° b © -@ Wrot is push-down accounting? 2 Areauirement that a subsidiary must use the same accounting principles as @ parent company. Inventory transters made from a parent company to @ subsidiary ¢Asubsidiary’s recording of the fair-vaive allocations as well os subsequent amortization. @._The adjustments required for consolidation when a parent has applied the equity method of ‘occounting for intemal reporting purposes. _& Aporent buys 32 percent of a subsidiary in one year ond then buys an additional 40 percent in the "nest year. Ina step acquistion of this type, the original 32 percent ‘cquisition should be ©. maintained at is initio! valve. . adjusted to is equity method bolance at the dote of the second acauisition. & adjusted fo fair valve at the date of the second acquisition with a resulting gain of loss recorded. 9 adjusted to fair value at the date of the second acquisition with a resulling adjustment 16 ©dcitional paid in capital, 1 A newly acquied subsidiary has pre-existing goodwil on its books. The parent company's | Consolidated balance sheet wil: _ 2 tea! the goodwil the same as other intangible assets of the acquired company. wil always show the pre-existing goodwill of the subsidiary at its book value. _ & not show ony valve for the subsidiary's pre-existing goodwil e 4. do cn impairment test to see if any of it has been impaired. Wr} is push- down accounting? 2 Ateaurement that a subsidiary must use the same accounting principles os a parent company. © leventory transters made from a parent company to a subsidiary. 5 Asubtidiory’s recording of the fair-valve allocations as well as subsequent amortization. The adjustments required for consolidation when a parent.has applied the equity method of ‘2

    You might also like