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Quiz 2 ABC Theory PDF
Quiz 2 ABC Theory PDF
Instructions: Refer to this pdf file for the questionnaire and use the Microsoft Forms as your answer
sheet. Always observe HONESTY during the examination. God Bless you all!
1. Because of complex nature of business combination, extensive disclosure is required for the periods
in which they occur. Are the following items required disclosure requirements for business
combination established in PFRS 3? (Choose the required disclosures)
i. The names and descriptions of combining entities
ii. The name of shareholders of acquired entity
iii. The percentage of voting shares acquired
iv. The effective date of combination for accounting purposes
v. The method of accounting for business combination
a. i , iii and v b. i , ii , iii and v c. i , iii , iv and v d. i , ii , iii , iv and v
4. In which of the following situations should the consolidated financial statements need not be
presented?
a. HJK Bank has a holding of 90% in the equity of XYZ Pharmaceuticals, Ltd.
b. JKJ Company owns 40% of MJS Trading; the former is directing all the relevant activities
of the latter.
c. PRU Love, an Investment Entity, holds a controlling interest of Moon Life Company.
d. Skyway Corp. holding, 30% interest of Underground Enterprise. Skyway has the option to
purchase additional 30% interest of Underground, which is deemed in the money.
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d. Consolidated financial statements shall be prepared using uniform accounting policies for
like transactions and other events in similar circumstances.
6. When an investor uses the cost method to account for investments in subsidiary, cash dividends
received by the investor from the investee should normally be recorded as:
a. Dividend income.
b. An addition to the investor’s share of the investee’s profit.
c. A deduction from the investor’s share of the investee’s profit.
d. A deduction from the investment account
e. Ignored.
7. On October 1, X Company acquired for cash all the outstanding ordinary shares of Y Company.
Both companies have a December 31 year-end and have been in business for many years.
Consolidated net income for the year ended December 31 should include net income of
a. X Company for 3 months and Y Company for 3 months
b. X Company for 12 months and Y Company for 3 months
c. X Company for 12 months and Y Company for 12 months
d. X Company for 12 months but no income from Y Company.
8. A 65%-owned subsidiary company declares and pays a cash dividend. What effect does the
dividend have on the retained earnings and non-controlling interest in the consolidated balance
sheet?
a. No effect on either retained earnings or non-controlling interest.
b. No effect on retained earnings and a decrease in non-controlling interest.
c. Decrease in both retained earnings and non-controlling interest.
d. Decrease in retained earnings and no effect on non-controlling interest.
9. Sun Co. is a wholly owned subsidiary of Star Co. Both companies have separate general ledgers
and prepare separate financial statements. Which of the following statements is CORRECT?
a. Consolidated financial statements should be prepared by both Star and Sun.
b. Consolidated financial statements should only be prepared by Star and not by Sun.
c. Consolidated financial statements should only be prepared by Sun and not by Star.
d. After consolidation, the accounts of both Star and Sun should incorporate the adjustments
in the working paper for future ease in reporting.
10. The elimination entry for dividends declared by a wholly subsidiary includes a debit entry to
a. Dividends
b. Dividend Income
c. Non-Controlling Interest
d. Both b and c
11. In the preparation of consolidated financial statements, dividend revenue recognized by the parent
for dividend distributed by investee, which is not a subsidiary is
a. Included with parent company income from other sources to constitute consolidated net
income.
b. Assigned as a component of non-controlling interest.
c. Allocated proportionately to consolidated net income and non-controlling interest.
d. Eliminated.
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12. A wholly owned subsidiary declared dividend and half remains unpaid by the end of the year, which
of the following is TRUE?
a. The elimination entry will include a debit to non-controlling interest for the amount of
dividend received by the non-controlling shareholders.
b. The transaction will have an impact in the computation of the balance of NCI at the end.
c. Only half of the amount of the dividend will be used to reduce the profit of the parent for
consolidation purposes.
d. The total amount of the dividend will be eliminated in the working paper elimination entry
by debiting “dividend revenue” account.
15. Faithful Corp. acquires 75% of the outstanding shares of Hopeful Company for amount that does
not result to any goodwill or gain. Immediately after the combination:
a. Consolidated retained earnings will be equal to the combined retained earnings of the two
companies.
b. Consolidated retained earnings will be equal to the sum of Faithful’s retained earnings and
75% of Hopeful’s retained earnings.
c. Consolidated retained earnings will be equal to 75% of the combined retained earnings of
the two companies.
d. Consolidated retained earnings and Faithful Corp’s retained earnings will be the same.
16. A subsidiary, acquired for cash in a business combination, has an equipment with a market value
higher than its book value as of date of combination. In the working paper elimination entries
prepared immediately after the acquisition, the difference of the market value and book value is:
a. Ignored
b. Treated as an adjustment to the goodwill or gain
c. Treated as an adjustment to the value of equipment
d. Treated as an adjustment to the retained earnings
e. Recognized as a deferred credit
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17. When a company purchased another entity in a business combination accounted as an acquisition,
the existing goodwill of the acquired entity should be treated in the following manner:
a. Goodwill is treated consistent with other tangible assets
b. Goodwill is recorded and written off as worthless after 5 years from the date of acquisition.
c. Goodwill existing in the books of the acquiree is not recognized and considered worthless
as of the date of acquisition.
d. Existing goodwill is combined with resulting goodwill or netted from gain arising from
combination.
18. In the consolidated statement of financial position prepared immediately after the acquisition of a
partially owned subsidiary, the consolidated shareholders’ equity is:
a. Equal to the parent shareholders’ equity.
b. Less than the parent shareholders’ equity.
c. More than the parent shareholders’ equity.
d. Equal to the sum of parent and subsidiary’s shareholders’ equity.
20. When a parent entity first obtains control over another entity, it recognizes any non-controlling
interest in the new subsidiary’s net assets. In subsequent periods the parent allocates to the non-
controlling interest its proportion of:
a. Profit or Loss
b. Each component of other comprehensive income
c. Both profit or loss and component of OCI
d. Profit or loss, component of OCI, or both depending on company’s policy
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