St.

Mary’s University
College of Open and Distance Learning
Advanced Accounting
Comprehensive Exercise I

Point: 60%
Name: ___________________________
ID. No:___________________________
Department: ______________________
Term: ___________________________
Center: __________________________
Program: Degree
Instructions:
 Make Sure that this Comprehensive Exercise I Paper has 6 Pages
 This comprehensive exercise–I is to be completed and submitted to the
office of your center.
 If you have any question please write on a separate sheet and attach to
this comprehensive exercise-I.
 Due Date: this comprehensive exercise-I must be done independently,
and submitted to the office of your center within 15 days.

Part I: True/ False

Write ‘True’ if the statement is correct and ‘False’ if it is incorrect on the space provided.
(1 pt. each)
_____________1. The concept of business entity states that a business organization continues
to exist for an indefinite period of time.
_____________2. The objective of joint venture is to carry out a single project or limited
number of project.
_____________3. Internal expansion occurs when two or more businesses join to gather and
operate as one entity.
_____________4. Lease is a free-for-usage contract between an owner of property and a renter.
_____________5. Free rate exchange is an exchange determined by supply and demand in the
market place.

St. Mary’s University 1 Advanced Accounting (Degree)

 _____________6. Executor costs are included in the lessee’s computation of the present value
of the minimum lease payments.
_____________7. The minimum lease payments plus the unguaranteed residual value accruing
to the lessor at the end of the lease term is called unearned interest revenue.
_____________8. Defensive measure is a step taken by a potential acquiree to avoid an
undesired acquisition.
_____________9. When the resources to be transferred in an acquisition are subject to change
based on future events, it is called contingent consideration.
_____________10. Capital lease is a lease contract that transfers all the risks and rewards of
ownership in the leased asset from the lessor to the lessee.

Part II: Multiple Choices

Choose the correct answer among the given alternatives and write the letter of your choice
in the space provided. (1 pt. each)
_____________1. All of the following are the main features of incorporated joint venture, except
____________.
A. separate legal entities
B. limited legal liabilities
C. no separate legal entities
D. separate accounting records and reports
_____________2. One of the following is not the main purpose of a corporate joint venture.
A. It share risk
B. It combine complementary technological knowledge
C. It pools resources in developing production
D. It does not rewards in developing a new market
_____________3. The equity method of accounting is appropriate for __________.
A. corporate joint ventures only
B. unincorporated joint ventures only
C. both corporate joint ventures and unincorporated joint ventures
D. neither corporate joint ventures nor unincorporated joint ventures
_____________4. One of the following is not the advantage of joint venture.
A. The cost to establish is low
B. Dissolution of a joint venture is simple

St. Mary’s University 2 Advanced Accounting (Degree)

 C. The potential for disagreements and the practice good communication
techniques
D. Share ratios to be changed easily between years
_____________5. Which one of the following is the major problem that are facing in the leasing
industry?
A. Lack of finance
B. Lack of capital investment
C. Lack of appropriate legislation protecting
D. All are the correct answers
_____________6. All are the advantage of leasing, except _______________.
A. 100% financing at constant rates. C. high cost financing
B. protection against obsolescence D. flexibility
_____________7. What are the important benefits of leasing to the lessor?
A. Interest revenue
B. Residual values can produce very large profit
C. Tax incentives
D. Low residual values
_____________8. When one company acquires a company in the same industry, which type of
business combination has occurred?
A. Horizontal combination C. Conglomerate combination
B. Vertical combination D. All are the correct answers
_____________9. The price at which a foreign currency is purchased or sold today is called
____________.
A. forward rate C. spot rate
B. future rate D. foreign currency
_____________10. The periodic interest expense equal to a constant percentage of the carrying
value of the lease obligation is said to be ___________.
A. direct financing C. pooling method
B. effective interest method D. equity method
_____________11. The best known and most widely used protection against foreign exchange risk
is called ____________.
A. hedging C. speculative risk
B. provision D. none of the above

St. Mary’s University 3 Advanced Accounting (Degree)

_____________12. All of the following are the accounting problems related to lease, except
_____.
A. disclosure C. bargain purchase option
B. initial direct cost D. none of the above
_____________13. Which one of the following is not the characteristic of purchase method?
A. Assets and liabilities acquired are recorded at their fair values
B. The acquired company retained earnings are not recognized
C. Equity securities issued as a consideration are recorded at their fair market
value
D. No excess of cost over book value exists
_____________14. Which method of accounting for business combination reports the greater
future earnings?
A. Pooling of interest C. Equity method
B. Purchase accounting D. All of the above
_____________15. Which type of acquisition occurs when the combination is opposed by the
acquiree’s management?
A. Friendly takeover C. Defensive measure
B. Tender offer D. Offensive measure
Part III: Short Answer (5pts. each)
Give short and precise answer to the following questions in the space provided.
1. Write down the features of lease arrangements that result in unique accounting
problems.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

2. What are the four criteria of capitalization that are applied to lessees?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

St. Mary’s University 4 Advanced Accounting (Degree)

3. Explain the main features of joint venture.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Part IV: Work out (5pts. each)
Workout the following question and show the necessary steps in the given
space provided.
1. On December 31, 2004 ABC Corporation issued 20,000 shares of its $ 5 par (current fair
value of $ 10 per share) common stock for all the outstanding common stock of XYZ
Company in a statutory merger. Out-of- pocket costs of the business combination paid by
ABC on December 31, 2004 as follows:-
Direct costs of the business combination------------------------------24,000
Cost of registering and issuing common stock-----------------------16,000
Total out-of-pocket costs of business combination----------------- 40,000

XYZ Company
Balance sheet statement
For the year ended December 31, 2004

Asset Book value Fair value

Inventories-----------------------------$ 96,000 $ 110,000
Other current assets---------------------52,000 50,000
Plant asset-------------------------------172,000 195,000
Liabilities and stock holders’ equity:-
Liabilities--------------------------------$ 175,000 $ 175,000
Common stock $ 5 par-------------------20,000
Additional paid-in capital----------------50,000
Retained earnings--------------------------75,000
Total liability and stock holders equity 320,000
Based on the above information, compute the following items:-

St. Mary’s University 5 Advanced Accounting (Degree)

A. Prepare journal entries to record the combination of the book of ABC corporation assuming
the purchase method must be applied

B. Record the combinations expense (out of pocket cost)

C. Compute good will

D. Is this positive or negative good will? Describe it

St. Mary’s University 6 Advanced Accounting (Degree)