Page |1

Chapter 1
Business Combinations (Part 1)

NAME: JHERALDINE MAE G. ROLDAN Date: 08/11/22

Professor: ALFONSO S. BESTOYONG Section: AC3-01 Score:

QUIZ 1:

1. In a business combination, how should long-term debt of the acquired company generally be
recognized on acquisition date?
a. Fair value
b. Amortized cost
c. Carrying amount
d. Fair value less costs to sell

2. In a business combination accounted for under the acquisition method, the fair value of the net
identifiable assets acquired exceeded the consideration transferred. How should the excess fair
value be reported?
a. As negative goodwill, recognized in profit or loss in the period the business combination
occurred.
b. As an extraordinary gain.
c. As a reduction of the values assigned to noncurrent assets and an extraordinary gain for any
unallocated portion.
d. As positive goodwill.

3. The costs of issuing equity securities in a business combination are

a. expensed
b. treated as direct reduction in equity
c. included in the initial measurement of the credit to share capital account
d. b and c

4. The costs of issuing debt securities in a business combination are

a. expensed
b. included in the initial measurement of the debt securities issued
c. accounted for like a “discount” on liability
d. b and c

5. A business combination is accounted for properly as an acquisition. Direct costs of combination,

other than registration and issuance costs of equity securities, should be:
a. Capitalized as a deferred charge and amortized.
b. Deducted directly from the retained earnings of the combined corporation.
c. Deducted in determining the net income of the combined corporation for the period in
which the costs were incurred.
d. Included in the acquisition cost to be allocated to identifiable assets according to their fair
values.
 Page |2

6. PDX Corp. acquired 100% of the outstanding common stock of Sea Corp. in an acquisition
transaction. The cost of the acquisition exceeded the fair value of the identifiable assets and
assumed liabilities. The general guidelines for assigning amounts to the inventories acquired
provide for:
a. Raw materials to be valued at original cost.
b. Work in process to be valued at the estimated selling prices of finished goods, less both costs
to complete and costs of disposal.
c. Finished goods to be valued at replacement cost.
d. Inventories to be valued at acquisition-date fair values.

7. A business combination is accounted for as an acquisition. Which of the following expenses

related to the business combination should be included, in total, in the determination of net
income of the combined corporation for the period in which the expenses are incurred?
Fees of finders and Registration fees
consultants for equity securities issued
a. Yes Yes
b. Yes No
c. No Yes
d. No No

8. Easton Company acquired Lofton Company in a business combination. Easton was able to
acquire Lofton at a bargain price. The fair value of the net identifiable assets acquired exceeded
the consideration transferred to Lofton. After revaluing noncurrent assets to zero, there was still
some "negative goodwill." Proper accounting treatment by Easton is to report the amount as
a. an extraordinary gain.
b. part of current income in the year of combination.
c. a deferred credit and amortize it.
d. paid-in capital.

9. Goodwill may be capitalized

a. only when it arises in a business combination.
b. only when it is created internally.
c. only when it is purchased
d. on any of these cases.

10. A contingent liability assumed in a business combination is recognized

a. if it is a present obligation that arises from past events and
b. if its fair value can be measured reliably.
c. even if it has an improbable outflow of resources embodying economic benefits.
d. All of these

- END -