Accounting for Business Combinations
Question Bank
Course Introduction
Accounting for Business Combinations explores the accounting principles and practices associated with the merger and acquisition of businesses. This course examines the requirements of relevant accounting standards such as IFRS 3 and ASC 805, focusing on the identification and measurement of acquired assets, liabilities, goodwill, and non-controlling interests. Students will learn techniques for preparing consolidated financial statements, accounting for step acquisitions, intercompany transactions, and evaluating the implications of business combinations on financial reporting and analysis. Real-world case studies and practical exercises will provide a thorough understanding of the complexities involved in business combination transactions from an accounting perspective.
Recommended Textbook
Advanced Financial Accounting 12th Edition by Theodore E. Christensen
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Page 2
Chapter 1: Intercorporate Acquisitions and Investments in
Other Entities
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Q1) A statutory consolidation is a type of business combination in which:
A)One of the combining companies survives and the other loses its separate identity.
B)One company acquires the voting shares of the other company and the two companies continue to operate as separate legal entities.
C)Two publicly traded companies agree to share a board of directors.
D)Each of the combining companies is dissolved and the net assets of both companies are transferred to a newly created corporation.
Answer: D
Q2) Based on the information provided,at the time of the transfer,Regan Company should record:
A)Building at $180,000 and no accumulated depreciation.
B)Building at $162,000 and no accumulated depreciation.
C)Building at $200,000 and accumulated depreciation of $24,000.
D)Building at $180,000 and accumulated depreciation of $18,000.
Answer: D
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Chapter 2: Reporting Intercorporate Investments and
Consolidation of Wholly Owned Subsidiaries With No Differential
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Q1) Based on the preceding information,what amount would Pony Company receive as dividends from Stallion for the year?
A)$23,000
B)$35,000
C)$37,500
D)$92,000
Answer: A
Q2) On January 1,20X9 Pathlon Company acquired 30 percent of the common stock of Sopteron Corporation,at underlying book value.For the same year,Sopteron reported net income of $55,000,which includes a gain from discontinued operations of $40,000.It did not pay any dividends during the year.By what amount would Pathlon's investment in Sopteron Corporation increase for the year,if Pathlon used the equity method?
A)$0
B)$16,500
C)$4,500
D)$12,000
Answer: B
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Chapter 3: The Reporting Entity and the Consolidation of
Less-Than-Wholly- Owned Subsidiaries With No Differential
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Q1) Peta Corporation and its subsidiary reported consolidated net income of $320,000 for the year ended December 31,20X8.Peta owns 80 percent of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $30,000 in the consolidated income statement for 20X8.What is the amount of separate operating income reported by Peta for the year?
A)$170,000
B)$150,000
C)$120,000
D)$200,000
Answer: A
Q2) Based on the preceding information,what amount would be reported as total assets in the consolidated balance sheet at December 31,20X9?
A)$805,000
B)$712,000
C)$742,000
D)$1,102,000
Answer: C
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Chapter 4: Consolidation of Wholly Owned Subsidiaries
Acquired at More Than Book Value
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Q1) Based on the information provided,what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition?
A)$60,000
B)$75,000
C)$15,000
D)$45,000
Q2) Based on the information given above,goodwill will be reported at what amount in a consolidated balance sheet?
A)$170,000
B)$150,000
C)$95,000
D)$75,000
Q3) Based on the information given above,what will be the amount of net assets reported in the consolidated balance sheet?
A)$1,420,000
B)$1,325,000
C)$1,250,000
D)$900,000
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Chapter 5: Consolidation of Less-Than-Wholly- Owned
Subsidiaries Acquired at More Than Book Value
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Q1) When a parent owns less than 100% of a subsidiary,the noncontrolling interest shareholders are allocated their ownership percentage of income or net assets in all of the following consolidating entries except for:
A)The basic investment account consolidation entry
B)The excess value (differential)reclassification entry
C)The accumulated depreciation consolidation entry
D)The amortized excess value reclassification entry
Q2) Pink Inc.sells half of its 70% interest in Salmon Co.on January 1,20X6.On that date,the fair value of Salmon as a whole is $940,000 and the carrying amount of Pink's 70% share of Salmon is $320,000.What,if any,is the gain on the sale of half of Pink's interest in Salmon?
A)$0
B)$9,000
C)$169,000
D)$338,000
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Chapter 6: Intercompany Inventory Transactions
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Q1) Based on the information given above,what will be the income to controlling interest for 20X8?
A)$615,375
B)$686,250
C)$690,000
D)$694,000
Q2) Based on the information given above,what will be the consolidated net income for 20X6?
A)$357,500
B)$375,000
C)$490,000
D)$317,750
Q3) Based on the information given above,what amount of sales will be reported in the 20X6 consolidated income statement?
A)$120,000
B)$135,000
C)$150,000
D)$160,000
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Chapter 7: Intercompany Transfers of Services and
Noncurrent Assets
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Q1) Based on the information provided,in the preparation of the 20X8 consolidated financial statements,building will be ________ in the consolidating entries.
A)debited for $33,000
B)debited for $36,000
C)credited for $36,000
D)debited for $3,000
Q2) Based on the preceding information,the gain on sale of the equipment recorded by Pat for 20X8 is:
A)$150,000
B)$65,000
C)$110,000
D)$40,000
Q3) Based on the preceding information,in the preparation of the 20X9 consolidated income statement,depreciation expense will be:
A)Debited for $40,000 in the consolidating entries.
B)Credited for $10,000 in the consolidating entries.
C)Debited for $10,000 in the consolidating entries.
D)Credited for $40,000 in the consolidating entries.
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Chapter 8: Intercompany Indebtedness
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Q1) Based on the information given above,what amount of investment in bonds will be eliminated in the preparation of the 20X3 consolidated financial statements?
A)$257,248
B)$300,000
C)$395,766
D)$400,784
Q2) Based on the information given above,what was the carrying amount of the bonds on Snoopy's books on the date of purchase?
A)$533,769
B)$516,875
C)$500,000
D)$550,644
Q3) Based on the information given above,what is the interest income that must be eliminated in preparing the 20X7 consolidated financial statements?
A)$11,902
B)$22,830
C)$24,000
D)$29,160
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Chapter 9: Consolidation Ownership Issues
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Q1) Begin with information provided,but assume instead that Saucy declared a stock dividend of 3,000 shares on its $5 par value common stock.The investment elimination entry required to prepare a consolidated balance sheet immediately after the stock dividend is issued will include a debit to Additional Paid-In Capital for:
A)$65,000.
B)$95,000.
C)$50,000.
D)$110,000.
Q2) Based on the information provided,what amount of consolidated net income will X Corporation report for 20X8?
A)$148,750
B)$175,000
C)$150,000
D)$158,750
Q3) Based on the preceding information,what is Pisa's new ownership interest?
A)84 percent
B)55 percent
C)70 percent
D)64 percent
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Chapter 10: Additional Consolidation Reporting Issues
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Q1) Based on the preceding information,what amount will be reported by the company as cash flows from operating activities for 20X8?
A)$175,000
B)$133,000
C)$167,000
D)$207,000
Q2) Based on the preceding information,what is the amount of earnings available to common shareholders reported in the consolidated financial statements for the year?
A)$101,800
B)$104,500
C)$112,300
D)$115,000
Q3) Based on the information provided,what amount was reported as dividends paid in the cash flow from financing activities section of the consolidated statement of cash flows?
A)$60,000
B)$48,000
C)$40,000
D)$20,000
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Chapter 11: Multinational Accounting: Foreign Currency
Transactions and Financial Instruments
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Q1) Based on the preceding information,the entries on January 30,20X9 related to the forward contract include a:
A)Debit to Dollars Payable to Exchange Broker,$184,000.
B)Credit to Foreign Currency Transaction Gain,$4,000.
C)Credit to Foreign Currency Receivable from Exchange Broker,$180,000.
D)Debit to Foreign Currency Units (SFr),$184,000.
Q2) Based on the preceding information,had Robert not used the forward exchange contract,what would have been the foreign currency transaction gain or loss for the year?
A)Gain of $200
B)Gain of $150
C)Loss of $350
D)Loss of $200
Q3) Based on the preceding information,the entries on June 30,20X2,include a
A)debit to Foreign Currency Transaction Loss,$4,000.
B)credit to Foreign Currency Units (Br.reals),$262,500.
C)credit to Cash,$262,500.
D)debit to Dollars Payable to Exchange Broker,$254,000.
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Chapter 12: Multinational Accounting: Issues in Financial
Reporting and Translation of Foreign Entity Statements
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Q1) Based on the preceding information,what amount should Leo record as "income from subsidiary" based on the British subsidiary's reported net income?
A)$72,930
B)$52,500
C)$72,600
D)$69,300
Q2) Refer to the above information.Assuming the U.S.dollar is the functional currency,what is Ski's net income for 20X8 in U.S.dollars (include the remeasurement gain or loss in Ski's net income)?
A)$238,000
B)$228,000
C)$219,500
D)$202,000
Q3) Based on the preceding information,at what amount is the inventory shown on the consolidated balance sheet for the year?
A)$2,700
B)$3,200
C)$3,500
D)$4,000
Page 14
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Chapter 13: Segment and Interim Reporting
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Q1) The income tax expense applicable to the second quarter's income statement is determined by:
A)dividing the estimated annual income tax expense by four and allocating the amount to the second quarter.
B)multiplying the effective income tax rate times the income before tax for the second quarter.
C)subtracting the income tax expense applicable to the first quarter from the income tax expense applicable to the first two quarters.
D)subtracting the income tax liability applicable to the first quarter from the income tax liability applicable to the first two quarters.
Q2) Estimated gross profit rates may be used to estimate a company's cost of goods sold and its ending inventory for:
A)quarterly but not for annual financial statements.
B)both quarterly and annual financial statements.
C)neither quarterly nor annual financial statements.
D)annual but not for quarterly financial statements.
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Chapter 14: Sec Reporting
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Q1) When deficiencies are found in a registration statement that must be corrected before the securities may be offered for sale,which of the following is issued by the SEC?
A)An audit opinion
B)A comment letter
C)A customary review
D)A comfort letter
Q2) The preparation of which of the following items is covered by Regulation S-K?
A)Descriptions of business
B)Pro forma disclosures
C)Schedules
D)Reports of accountants
Q3) Which regulation created the Securities and Exchange Commission?
A)Securities Act of 1933
B)Securities Exchange Act of 1934
C)Investment Company Act of 1940
D)Securities Investor Protection Act of 1970
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Chapter 15: Partnerships: Formation,operation,and
Changes in Membership
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Q1) Refer to the information provided above.David invests $40,000 for a one-fifth interest in the total capital of $220,000.The journal to record David's admission into the partnership will include:
A)a credit to Cash for $40,000.
B)a debit to Allen,Capital for $3,000.
C)a credit to David,Capital for $40,000.
D)a credit to Daniel,Capital for $1,000.
Q2) Refer to the information provided above.Allen and Daniel agree that some of the inventory is obsolete.The inventory account is decreased before David is admitted.David invests $40,000 for a one-fifth interest.What is the amount of inventory written down?
A)$4,000
B)$20,000
C)$15,000
D)$10,000
Q3) Transferable interest of a partner includes all of the following except:
A)the partner's share of the profits and losses of the partnership.
B)the right to receive distributions.
C)the right to receive any liquidating distribution.
D)the authority to transact any of the partnership's business operations.
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Chapter 16: Partnerships: Liquidation
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Q1) Refer to the information provided above.Using a safe payment schedule,how much cash will be distributed to David at the end of the first month?
A)$22,500
B)$42,500
C)$75,000
D)$117,500
Q2) Refer to the information provided above.How much cash will be distributed to Goliath at the end of the second month?
A)$11,250
B)$13,750
C)$20,000
D)$25,000
Q3) A partnership may be involved in "Dissociation" or "Dissolution." Required:
Describe "Dissociation" and "Dissolution."
Q4) Listen and Hear are thinking of dissolving their partnership.Listen has a friend who told him to complete a "lump-sum" liquidation.Hear wants to complete an "installment" liquidation.They have come to you for advice.What do you recommend and Why?
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Chapter 17: Governmental Entities: Introduction and General Fund Accounting
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Q1) All of the following funds have a financial resources measurement focus with the exception of which fund?
A)Debt service fund
B)Special revenue fund
C)Capital projects fund
D)Private-purpose trust fund
Q2) Revenues from parking meters and parking fines should be reported in the general fund when:
A)received.
B)measurable and available.
C)measurable and earned.
D)available.
Q3) Which of the following funds are classified as proprietary funds?
A)Agency and special revenue funds.
B)Enterprise and internal service funds.
C)Debt service and capital projects funds.
D)Agency and pension trust funds.
Q4) Briefly discuss the various types of governmental funds and proprietary funds.
Page 19
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Chapter 18: Governmental Entities: Special Funds and Governmentwide Financial Statements
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Q1) A city's museum is supported by a special tax levy and by user charges.The user charges constitute only 10 percent of the resources needed to support the operations of the museum.In which fund should the city account for its museum?
A)An enterprise fund
B)An agency fund
C)An expendable trust fund
D)A special revenue fund
Q2) Fixed assets and investments are reported in which of the following funds?
I.Fiduciary fund
II.Enterprise fund
III.Internal Service funds
IV.Capital Projects fund
V.Debt Service fund
A)I,II,III
B)II,IV,V
C)I,II,V
D)II,III,IV
Q3) GASB 34 requires a reconciliation schedule for the Statement of Net Assets.What does this schedule document?
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Chapter 19: Not-For-Profit Entities
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Q1) "Tangible fixed assets not depreciated by a private college or university" describes which term listed above?
A)Fair value
B)Net assets without donor restrictions
C)GASB
D)FASB
E)Statement of Revenues,Expenditures,and Changes in Fund Balance
F)Lower of cost or market
G)Accrual method
H)Statement of Activities
I)General fund,restricted fund,endowment fund
J)Modified accrual method
K)Net assets with donor restrictions
L)Endowment fund
M)Unrestricted,temporarily restricted,permanently restricted
N)Depreciation
O)Works of art and other historical treasures
P)General fund
Q)Cost
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Chapter 20: Corporations in Financial Difficulty
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Q1) A reorganization value in excess of amounts assignable to identifiable assets is:
A)not reported.
B)reported as an intangible asset called Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets.
C)reported as Goodwill Associated with Exit or Disposal Activities.
D)passed on to prior shareholders of the company.
Q2) Based on the preceding information,what is the estimated dividend percentage?
A)23 percent
B)93 percent
C)77 percent
D)68 percent
Q3) The Bankruptcy Reform Act contains chapters which deal with:
I.Individuals.
II.Corporations.
III.Municipal governments.
A)Only I and II
B)Only II and III
C)Only I and III
D)I,II,and III
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Chapter 21: Intercompany Indebtednessfully Adjusted
Equity Method Using Straight-Line Interest Amortization
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Q1) Based on the information given above,what amount of interest expense should be reported in the 20X8 consolidated income statement?
A)$6,000
B)$6,500
C)$5,000
D)$10,000
Q2) Based on the information given above,what gain or loss on the retirement of bonds should be reported in the 20X8 consolidated income statement?
A)$6,250 gain
B)$7,500 gain
C)$7,500 loss
D)$6,250 loss
Q3) Based on the information given above,what amount of gain or loss on bond retirement is included in the 20X7 consolidated income statement?
A)$6,600
B)$4,800
C)$6,000
D)$5,400
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