Exam3 Buscom T F MC Problems Final
Exam3 Buscom T F MC Problems Final
1. Merger happens when two or more entities consolidate into a single entity. True
2. The acquirer is usually the investor who acquires an investment or a subsidiary. True
3. The place in which the acquirer obtains control of the acquiree. False
4. All asset and liabilities are measured at acquisition date fair value. True
5. The consolidation happens when two or more entities consolidate and establish a
new customer. False
7. The first step in applying the acquisition method is to determine the acquisition
date.False
9. Once the investor acquires a subsidiary, it has to account for each business
combination by applying the acquisition method. True
11. The method required under PFRS 3 to be used in accounting for business
combinations is combination method. False
12. The aggregate cash flows arising from acquisitions and from disposals of
subsidiaries or other business units resulting to loss or obtaining of control are
presented separately and classified as Investing activities. True
15. The non-controlling interest in net asset of subsidiary shall be presented in the
consolidated financial statement within equity, separately from the equity of the owners
of the parent. True
16. The dividends must be included when the consolidated financial statement are
prepared. False
17. Intercompany gains and losses resulting from intercompany sales of PPE are to be
eliminated in preparing consolidated financial statement. True
19. Downstream sale is intercompany sales are those made from subsidiary company
to it's parent. False
20. Upstream sale is the intercompany sales which those made from parent company to
it's subsidiaries. False
21. Which of the following is not a reason for a company to expand through a
combination, rather than by building new facilities?
a. a merger dissolves all but one of the prior entities, but a consolidation dissolves all of
the prior entities.
b. a consolidation dissolves all but one of the prior entities, but a merger dissolves all of
the prior entities.
c. a merger is created when two entities join, but a consolidation is created when more
than two entities join.
d. a consolidation is created when two entities join, but a merger is created when more
than two entities join.
23. Following the accounting concept of a business combination, a business
combination occurs when a company acquires an equity interest in another entity and
has
a. purchase
b. pooling of interests
c. equity
d. Acquisition
25. It is a transaction or other event in which an acquirer obtains control of one or more
businesses.
a. Business Combination
b. Merger
c. Consolidation
d. Controlling Interest
26. This is define as an integrated set of activities and assets capable of being
conducted and managed for the purpose of providing a return directly to investors or
other owners, members or participants.
a. Business
b. Transaction
c. Isolated event
d. Undertaking
27. An acquirer might obtain control of an acquiree in all of the following, except
a. By transferring cash, cash equivalents and other assets
c. A group of former owners of one of the combining entities obtain control of the
combined entity
b. True merger
c. Merger of equals
d.Consolidation
30. What is the term for the business combination where all combining entities transfer
their net assets to a newly formed entity?
a. True merger
b. Legal merger
c. Roll up transaction
d. Spin off
b. The power to participate in the financial and operating policy decisions of an entity
a. Acquirer
b. Investor
c. Shareholder
d. Owner
a. Shareholders
b. Investors
c. Owners
d. Participants
a. Acquisition method
b. Pooling method
c. Proportional consideration
d. Equity method
35. The acquisition method of accounting for a business combination requires all of the
following, except
c. Recognizing and measuring the identifiable assets acquired, the liabilities assumed
and the non-controlling interest in the acquiree at carrying amount
c. The acquirer is usually the combing entity whose relative size is significantly greater
than that of the other combining entity or entities
d. If a new entity is formed to issue entity interests to effect a business combination, the
new entity formed is necessarily the acquirer
a. The acquisition date is the date on which an acquirer obtains control over the
acquiree
b. The acquisition date is normally the closing date or the date on which the acquirer
legally transfers the consideration, acquires the assets and assumes the liabilities of the
acquiree
c. Where several dates are key to a business combination, the date on which control
passes is the acquisition date.
38. What is the initial measurement of the identifiable assets and liabilities assumed in a
business combination?
b. The total of the consideration transferred and the amount of any noncontrolling
interest in the acquiree over the identifiable net assets acquired
c. The total of the consideration received and the fair value of the previously held
interest in the acquiree over the identifiable net assets acquired
d. The total of the consideration transferred, the amount of any noncontrolling interest in
the acquiree and the fair value of previously held interest in the acquire over the
identifiable net assets acquired
a. The acquirer shall recognize the acquisition-date fair value of any contingent
consideration as part of the consideration transferred in a business combination
b. The acquirer shall recognize the acquiree's contingent liabilities if certain conditions
are met
c. The acquirer shall recognize acquiree's contingent assets if certain conditions are
met
41. Cabrera Corporation paid 80,000 to acquire all of Hidalgo Company's net assets.
Hidalgo reported assets with a book value of 60,000 and fair value of 98,000 and
liabilities with a book value and fair value of 23,000 on the date of combination. Cabrera
also paid 3,000 to a search firm for finder's fees related to the acquisition. What amount
will be recorded as goodwill by Cabrera Corporation while recording its investment in
Hidalgo?
a. 0
b. 5,000
c. 8,000
d. 13,000
42. On November 30, 2021, Parlor, Inc. purchased for cash at 15 per share all 250,000
shares of the outstanding common stock of Shaw Co. On November 30, 2021, Shaw's
balance sheet showed a carrying amount of net assets of 3,000,000. On that date, the
fair value of Shaw's property, plant, and equipment exceeded its carrying amount by
400,000. In its November 30, 2021, consolidated balance sheet, what amount should
Parlor report as goodwill?
a. 750,000
b. 400,000
c. 350,000
d. 0
43. Jel Corp. paid 300,000 for the outstanding common stock of Star Co. At that time
Star had the following condensed balance sheet:
Carrying Amount
Current Asset 40,000
Liabilities 200,000
The fair value of the plant and equipment was 60,000 more than its recorded carrying
amount. The fair values and carrying amounts were equal for all other assets and
liabilities. What amount of goodwill, related to Star's acquisition, should Penn report in
its consolidated balance sheet?
a. 20,000
b. 40,000
c. 60,000
d. 80,000
For numbers 44-50. Phoenix Company acquired a business unit of Falcon Company on
July 1, 2021. At that date, the net assets of Falcon Company comprised:
Additional information:
1. Falcon Company was being sued by an ex-employee for workplace injury. The
expected compensation was P50,000. Phoenix Company agreed to bear the cost
in relation to this court case. Phoenix Company lawyer estimated that the
probability of losing the court case was 40%.
2. Directly attributable acquisition costs of P100,000 were paid by Phoenix
Company on July 1, 2021.
To purchase the above business unit, Phoenix Company agreed to provide the following
consideration to Falcon Company in exchange for the net assets:
Question:
44. How much is the total cost of the business combination (purchase
consideration)?
a. 732,600
b. 723,400
c. 723,200
d. 723,500
a. 44,500
b. 43,500
c. 44,400
d. 43,400
46. How much is the Phoenix ordinary shares?
a. 400,000
b. 450,000
c. 500,000
d. 550,000
a. 3,500
b. 3,600
c. 4,890
d. 3,550
a. 25,000
b. 20,000
c. 15,000
d. 10,000
49. If the share price is P4.8, at what amount is the adjustment to Goodwill?
a. 17,600
b. 15,600
c. 16,500
d. 14,300
50. If the share price is P4.5, at what amount is the adjustment to Goodwill?
a. 46,500
b. 46,800
c. 56,500
d. 46,800
51-60. Erico acquires assets and liabilities of Mariel Company on January 1, 20x5. To
obtain these shares, Erico pays P800 (in thousands) and issues 20,000 shares of P20
par value common stock on this date. Erico stock had a fair value of P36 per share on
that date. Erico also paysP30 (in thousands) to a local investment firm for arranging the
transaction. An additional P20 (in thousands) was paid by Erico in stock issuance costs.
The book values for both Erico and Mariel as of January 1, 20x5 follow. The fair value of
each of Erico and Mariel accounts is also included. In addition, Mariel holds a fully
amortized trademark that still retains an P80 (in thousands) value. The figures below
are in thousands. Any related question also is in thousands.
B. P670 D. P720
56. Using the same information above, what amount will be reported for long-term
liabilities?
A. P2,960 C. P2,360
B. P2,880 D. P2,200
57. Using the same information above, what amount will be reported for common
stock?
A. P2,400 C. P2,800
B. P2,560 D. P2,960
58. Using the same information above, what amount will be reported for retained
earnings?
A. P2,130 C. P3,050
B. P2,160 D. P3,120
59. Using the same information above, what amount will be reported for additional
paid in capital?
A. P330 C. P320
B. P300 D. P350
60. Using the same information above, what amount will be reported for cash after
the purchase transaction?
A. P1,960 C. P1,750
B. P1,800 D. P1,110
61-62. The Delta Company purchased an 80% interest in the Midwest Company for
$550,000 on January 1, 19X1, when Midwest had the following balance sheet: Assets
Inventory.................................................... 120,000
Land......................................................... 80,000
Building..................................................... 270,000
Equipment.................................................... 80,000
Total. $600,000
========
Total. $600,000
The inventory is understated by $20,000 and is sold during 19X1. The building has a
market value of $300,000 and a 10-year remaining life. The equipment has a market
value of $120,000 and a remaining life of 5 years. Any remaining excess is attributed to
goodwill with a 20-year life.
On December 31, 19X4, Midwest has the following stockholders' equity: Common stock,
$5 par. $ 50,000
Assume that Delta uses the sophisticated equity method to record its investment in
Midwest.
63. In 20x5, Punco sold inventory costing P60,000 to its 100%-owned subsidiary,
Sunco, for P100,000. At 12/31/x5, P20,000 of this inventory was reported in
Sunco's balance sheet. In 20x60 Sunco resold this inventory for P30,000. What
is the unrealized intercompany profit at 12/31/x5?
a. P8,000 c. P20,000 e. None of the above
b. P10,000 d. P30,000
64. In 20x5, Pimco sold inventory costing P45,000 to its 100%-owned subsidiary,
Simco, for P75,000. At 12/31/X5, P15,000 of this inventory was reported in
Simco's balance sheet. In 20x6, Simco resold this inventory for P25,000. What is
the unrealized intercompany profit at 12/31/x5?
a. P6,000 c. P16,000 e. None of the above
b. P10,000 d. P20,000
65. ln 20x6, Semco resold for P40,000 inventory that it had acquired in 20x5 from its
parent company, Pemco, for P32,000. Pemco's cost was P25,000. In
consolidation at the end of 20x6, which of the following accounts is credited in
consolidation?
a. Intercompany Cost of Soles for P32,000.
b. P8,000 d. P40,000
b. P7,000 d. P30,000
68. In 20x6, Semco resold for P55,000 inventory that it had acquired in 20x5 from its
parent, Pemco, for P30,000. Pemco’s cost was P40,000. Which account is
credited in consolidation at 12/31/x6?
a. Intercompany Cost of Sales for P40,000
69. On December 1, 20x4. Darlene Ltd. acquired all assets and liabilities of
Shyndelle Ltd with Darlene Ltd. issuing 100,000 shares to acquire these net
assets. The fair value of Shyndelles Ltd’s. assets and liabilities at this date were:
Cash P 50,000Furniture and fittings 20,000Accounts receivable 5,000Plant
125,000Accounts payable 15,000Current tax liability 8,000Provision for annual
leave 2,000The financial year for Darlene Ltd.is January-December. The fair
value of each Darlene Ltd. Share at acquisition date is P1.90. At acquisition date,
the acquirer could only determine a provisional fair value for the plant. On March
1, 20x5, Darlene Ltd. received the final value from the independent appraisal, the
fair value at acquisition date being P131,000. Assuming the plant had a further
five-year life from the acquisition date. The amount of goodwill arising from the
business combination at December 1, 20x4:
A. P15,000
B. P5,000
C. P13,000
D. P 0
70. John Corporation concluded that the fair value of Carlo Company was
P80,000and paid that amount to acquire all of its net assets. Carlo reported
assets with a book value of P60,000 and fair value of P98,000 and liabilities with
a book value and fair value of P23,000 on the date of combination. John also
paid P3,000 to a search firm for finder’s fees related to the acquisition. What
amount will be recorded as goodwill by John Corp.?
A. P 0
B. P 8,000
C. P5,000
D. P13,000
71. The Marc Company had these accounts at the time it was acquired by Francis
Co.: Cash P 72,000; Accounts receivable 914,000; Inventories 240,000;Plant,
property and equipment 1,392,800Accounts payable 701,600Francis Co. paid
P2,800,000 for net assets of Marc Company. It was determined that fair market
values of inventories and plant, property, and equipment were P266,000 and
P1,800,000, respectively. An assumed contingent liability arising from past
events with a fair value amounting to P20,000and as such amount is considered
reliable measurement. In the books of Francis Co., this transaction resulted in:
72. On June 30, 2013 White Corporation issued 100,000 shares of its P20 par value
common stock for the net assets of Black Company. The market value of White's
common stock on June 30 was P36 per share. White paid a fee of P100,000 to the
broker who arranged this acquisition.
Costs of SEC registration and issuance of the equity securites amounted to, P50,000.
Contingent consideration determined to be paid after acquisition amounts to P 120,000.
What amount should White capitalize as the cost of acquiring Black's net assets.
a. P3,700,000 c. P3,720,000
b. P3,65 0,000 d. P3,750,000
Under IFRS-3 (2008), the expenditures that should be debited to Additional Paidin Capital
(APIC) account is:
a. P57,000 c. P-0-
b. P137,000 d. P46,000 Guerrero 2013
Shares Issued
74. Sicat Co. will issue share of P10-par common stock for the net assets of Max
Co. Sicat's common stock has a current market value of P40 per share. Max balance sheet
accounts follow:
Max current assets and property and equipment, respectively, are appraised at P400,000
and P1,600,000; its liabilities are fairly valued. Accordingly, Sicat Co. issued shares of its
common stock with total market value equal to that of Max net assets. To recognize
goodwill of P200,000, how many shares were issued?
a. 40,000 c. 50,000
b. 45,000 d. 55,000 Dayag 2013
75. Ruben, Inc. is to acquire James Corp. by absorbing all the assets and assuming all the
liabilities for the latter in exchange for shares of the former's stock. Below are the
balance sheets of the two companies, with the corresponding appraised value increment
for James.
Ruben James
The parties agree to use the appraised values, against which the fair market value of the
shares will be matched. Ruben, Inc.'s common stock is currently selling at P100 per share.
The number of shares to be issued by Ruben, Inc. is:
a. 10,000 c. 17,000
b. 13,000 d 20,000 Dayag 2013
76. Red Corporation will issue common shares with a par value P10 for the net assets of
Blue Company Red's common stock has a current market value of P40 per share. Blue's
statement of financial position on the date of acquisition follow:
Blue's current assets are appraised at P400,000 and the property and equipment was also
appraised at P1,600,000. Its liabilities are fairly valued. Accordingly, Red Corporation
issued shares of its common stock with a total market value equal to that of Blue's net
assets including goodwill.
To recognize goodwill of P200,000, how many shares were to be issued by Red'.
a. 45,000 c. 50,000
b. 40,000 d. 55,000 Guerrero 2013
The parties collectively agreed that the new corporation, AA Co. will issue a single class of
stock based on the earnings ratio. What is the stock distribution ratio to companies X, Y,
and Z, respectively?
a. 20:30:50 c. 30:40:30
b. 30:30:40 d. 40:40:20 Dayag 2013
80. On 1 December 2011, Casio Ltd. acquired all the assets and liabilities of Aurora Ltd.
with Casio Ltd. issuing 100,000 shares to acquire these net assets. The fair value of
Aurora Ltd.'s assets and liabilities at this date were:
Cash P50,000
Furniture and fittings 20,000
Plant 125,000
81. The VV Company had these accounts at the time it was acquired by Bush Co.:
Cash P36,000
Accounts receivable 457,000
Inventories 120,000
Plant, property, and equipment 696,400
Accounts payable 350,800
Bush Co. paid P1,400,000 for net assets of VV Company. It was determined that fair
market values of inventories and plant, property, and equipment were P133,000 and
P900,000, respectively.
An assumed contingent liability arising from past events with a fair value amounting to
P10,000 and such amount is considered a reliable measurement.
In the books of Bush Co., this transaction resulted in:
a. Goodwill recorded at P441,400
b. Goodwill recorded at P224,800
c. Goodwill recorded at P234,800
d. Current assets increased by P234,800 Dayag 2013
SOLUTIONS
84. (b)
Fair value of net identifiable assets acquired:
Current assets P 400,000
Property and equipment 1,600,000
Liabilities ( 400,000)
FMV of net assets P1 ,600,000
Add: Goodwill 200,000
Consideration transferred P1 ,800,000
Divided by: Current market value per share ^P 40
Number of shares issued 45,000
85.
(d)
Assets at appraised value (P2,500,000 + P300,000) P2,800,000
Less: Liabilities 800,000
Net assets at appraised values Z':. P2,000,000
Divided by: Current selling price per share ............................. P 100
Number of shares issued 20,000
.
90. Consideration transferred (100,000 shares P 190,000
xP 1.90) Less: Fair value of net
identifiable assets acquired:
Cash P 50,000
Furniture and fittings 20,000
Accounts receivable 5,000
Plant 125,000
Accounts payable (15,000)
Current tax liability (8,000)
Goodwill P15,000
One of the problems that may arise in measuring the assets and liabilities of the acquiree
is that the initial accounting for the business combination may be incomplete by the end
of the reporting period. For example, the acquisition date may be August 18 and the end
of the reporting period may be August 31. In this situation, in accordance with par. 45, the
acquirer must report provisional amounts in its financial statements. The provisional
amounts will be best estimates and will need to be adjusted to fair values when those
amounts can be determined after the end of the reporting period. The measurement
period in which the adjustments can be made cannot exceed one year after the
acquisition date.
The carrying amount of the plant must be calculated as if its fair value at the acquisition
date had been recognized from that date, with an adjustment to goodwill.
If the plant had a 5-year life from acquisition date, Casio Ltd would have charged
depreciation for 1 month in 2011. Extra depreciation of PJ00, being 1/5 x1/12 x P6 000 is
required in 2012.
91. (C)