During its inception, Devon Company purchased land for P100,000 and a building for P180,000.

After exactly 3 years, it transferred these assets and cash of P50,000 to a newly created subsidiary,
Regan Company, in exchange for 15,000 shares of Regan’s P10 par value ordinary share. Devon uses
straight-line depreciation. Useful life for the building is 30 years, with zero residual value. At the
time of the transfer, Regan Company should record:

Group of answer choices

Building at P162,000 and no accumulated depreciation.

Building at P180,000 and accumulated depreciation of P18,000.

Building at P180,000 and no accumulated depreciation.

Building at P200,000 and accumulated depreciation of P24,000.

On September 18, 2019, JR Co. acquired all of JM Inc.’s P2, 000,000 identifiable assets and P500,
000 liabilities. Book values of the JM’s assets and liabilities equal to their fair values except for the
overvalued plant & equipment. As a consideration, JR issued its own shares of stock with a market
value of P1, 600,000. The merger resulted into P700, 000 goodwill. Assuming JR had P5,000,000
total assets prior to the combination. How much is the combined total assets?

Group of answer choices

P7,000,000

P6,600,000

P7,100,000

P6,400,000

Company Y is purchased by Company X, and the purchase price is P2,500,000 greater than the fair
values of the identifiable net assets acquired. One of the assets acquired is a building, originally
valued at P 1,000,000 at the date of the purchase. Six months after the acquisition, it is discovered
that the building was really only worth P200,000 at the date of acquisition. What entry is made to
reflect this new information?

Group of answer choices

Dr. other contributed capital, Cr. Building for P800,000

Dr. retained earnings, Cr. Building for P800,000

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Dr. loss on building, Cr. Building for P800,000

Dr. goodwill, Cr. Building for P800,000

The management of an entity is unsure how to treat a restructuring provision that they wish to set up
on the acquisition of another entity. Under PFRS 3, the treatment of this provision will be

Group of answer choices

To provide for the amount and, if the provision is overstated, to release the excess to the income
statement in the post-acquisition period.

To include the provision in the allocated cost of acquisition if the acquired entity commits itself to a
restructuring within a year of acquisition.

To include the provision in the allocated cost of acquisition.

A charge in the income statement in the post-acquisition period.

17) If the value implied by the purchase price of an acquired company exceeds the fair values of

identifiable net assets, the excess should be:

a) allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary

gain.

b) recognized as ordinary gain or loss.

c) allocated to reduce long-lived assets.

d) accounted for as goodwill.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 17

Difficulty: Easy

Learning Objective: 6 Describe the valuation of assets, including goodwill, and liabilities acquired

in a business combination accounted for by the acquisition method.

Section Reference: 2.3

18) P Co. issued 5,000 shares of its common stock, valued at $200,000, to the former shareholders

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of S Company two years after S Company was acquired in an all-stock transaction. The additional

shares were issued because P Company agreed to issue additional shares of common stock if the

average post combination earnings over the next two years exceeded $500,000. P Company will

treat the issuance of the additional shares as a (decrease in):

a) consolidated retained earnings.

b) consolidated goodwill.

c) consolidated paid-in capital.

d) non-current liabilities of S Company assumed by P Company.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 18

Difficulty: Medium

Learning Objective: 7 Explain how contingent consideration affects the valuation of assets acquired

in a business combination accounted for by the acquisition method.

Section Reference: 2.5

19) The fair value of assets and liabilities of the acquired entity is to be reflected in the financial

statements of the combined entity. When the acquisition takes place over a period of time rather

than all at once, at what time is the fair value of the assets and liabilities of the acquired entity

determined under SFAS 141R?

a) the date the interest in the acquiree was acquired.

b) the date the acquirer obtains control of the acquiree

c) the date of acquisition of the largest portion of the interest in the acquiree.

d) the date of the financial statements.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 19

Difficulty: Medium

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Learning Objective: 1 Describe the major changes in the accounting for business combinations

passed by the FASB in December 2007, and the reasons for those changes.

Section Reference: 2.1

20) The first step in determining goodwill impairment involves comparing the:

a) implied value of a reporting unit to its carrying amount (goodwill excluded).

b) fair value of a reporting unit to its carrying amount (goodwill excluded).

c) implied value of a reporting unit to its carrying amount (goodwill included).

d) fair value of a reporting unit to its carrying amount (goodwill included).

Answer: d

Question Title: Test Bank (Multiple Choice) Question 20

Difficulty: Medium

Learning Objective: 3 Discuss the goodwill impairment test, including its frequency, the steps laid

out in the new standard, and some of the implementation problems.

Section Reference: 2.1