Accounting for Business Combinations
Exam Solutions
Course Introduction
Accounting for Business Combinations explores the accounting principles and procedures related to mergers, acquisitions, and other forms of business combinations. The course covers the methods for identifying and measuring assets, liabilities, and equity in combined entities, with a particular focus on the application of relevant accounting standards such as IFRS 3 and ASC 805. Students will learn about concepts such as goodwill, purchase consideration allocation, non-controlling interests, and the preparation of consolidated financial statements. Practical case studies and examples emphasize the complexities and implications of business combinations on financial reporting and decision-making in a corporate environment.
Recommended Textbook
Modern Advanced Accounting in Canada 6th Edition by Murray Hilton
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12 Chapters
691 Verified Questions
691 Flashcards
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Chapter 1: A Survey of International Accounting
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Sample Questions
Q1) IMVAR INC is US-based Company with Subsidiaries in both the United States and in Canada.The Company's Consolidated Financial Statements show a significantly higher net-income amount when prepared under Canadian GAAP than under U.S.GAAP.This difference can be largely explained by
A)different corporate tax rates in each country.
B)timing differences which will reverse out in the future.
C)differing reporting requirements in each country.
D)currency fluctuations.
Answer: B
Q2) What approach did Canada decide to take with respect to convergence with IFRSs: A)harmonization with IFRS .
B)Substituting IFRSs for Canadian GAAP when approved by the IASB..
C)Adopting some but not necessarily all IFRSs by reviewing them on a case by case basis.
D)Reviewing them with all publically accountable entities to see which ones would be acceptable.
Answer: A
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Chapter 2: Investments in Equity Securities
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Sample Questions
Q1) What would be the amount of the Acquisition Differential amortization for 2001?
A)$28,000
B)$26,000
C)$130,000
D)$23,200
Answer: D
Q2) What would be the carrying value of X's Investment in Y at the end of 2002?
A)$100,000
B)$98,800
C)$90,000
D)$91,200
Answer: A
Q3) Assuming that X's Investment in Y qualifies as a significant influence investment,what journal entry should be made at the end of the year?
Answer: 11ea8eda_c611_5277_9698_7735b13a1843_TB4094_00_TB4094_00
Q4) Assuming that X's Investment in Y qualifies as a portfolio investment,what journal entry should be made at the end of the year?
Answer: No journal entry is required
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Chapter 3: Business Combinations
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Sample Questions
Q1) Goodwill can best be described as:
A)The difference between the acquisition price and the fair value of the net assets acquired)
B)The difference between the acquisition price and the fair value of the net assets acquired,when the Purchase Price exceeds the fair value of the net assets acquired)
C)The difference between the acquisition price and the acquirer's pro rata share of the fair value of the net assets acquired)
D)Any unallocated portion of the difference between the acquisition price and the fair value of the net assets acquired)
Answer: A
Q2) Assuming this Business Combination was to be accounted for under the Pooling of Interests Method,the Shareholder's Equity section of the Consolidated Balance Sheet would show what amount?
A)$121,000
B)$90,000
C)$19,000
D)$98,000
Answer: A
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Chapter 4: Consolidated Statements on Date of Acquisition
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Sample Questions
Q1) Any negative goodwill arising on the date of acquisition
A)is recognized as a gain on the date of acquisition.
B)is prorated among the parent company's identifiable net assets.
C)should be amortized over a predetermined period)
D)is recognized as a loss on the date of acquisition.
Q2) One weakness associated with the Entity Theory is that
A)it is inconsistent with the Historical Cost Principle.
B)Non-Controlling Interest is computed using the fair market values of the subsidiary's net assets.
C)Non-Controlling interest is computed using the book values of the subsidiary's net assets.
D)the presumed acquisition cost may be unrealistic when the parent purchases significantly less than 100% of the subsidiary's voting shares,or voting control is achieved incrementally.
Q3) Prepare Jean Inc's consolidated Balance Sheet on the date of acquisition using the Proprietary Theory.
Q4) Discuss the disclosure requirements for long term investments including accounting policies and NCI.
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Chapter 5: Consolidation Subsequent to Acquisition Date
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Q1) The amount of non-controlling interest appearing on Big Guy's Consolidated Balance Sheet as at July 1,2004 would be:
A)$83,600.
B)$90,000.
C)$79,760.
D)$226,400.
Q2) Big Guy's Consolidated Retained Earnings for the year ended July 1,2004 would be:
A)$1,500,000.
B)$1,486,400.
C)$1,169,040.
D)$1,508,000.
Q3) The amount of goodwill appearing on Big Guy's Consolidated Balance Sheet as at July 1,2004 would be:
A)Nil.
B)$40,000.
C)$50,000.
D)$30,000
Q4) Prepare a Consolidated Balance Sheet for Remburn Inc.as at December 31,2002.
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Chapter 6: Intercompany Inventory and Land Profits
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Sample Questions
Q1) Assuming that X Inc.used the equity method,what adjustment would have to be made to the investment in Y account to adjust for any unrealized profits on Y's sales to X?
A)No adjustment would be required.
B)The account would have to be reduced by $400.
C)The account would have to be reduced by $160.
D)The account would have to be reduced by $200.
Q2) What would be the balance in the investment in MARS account at December 31,2009?
A)$348,000.
B)$330,000.
C)$375,850.
D)$400,000.
Q3) What is the after-tax dollar value of X's unrealized profits during the year on its sales to Y?
A)$2,000.
B)$400.
C)$200.
D)$500.
Q4) Compute YIN's Goodwill at the date of acquisition.
Q5) Compute MAX's Goodwill at the Date of Acquisition.
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Chapter 7: Aintercompany Profits in Depreciable Assets
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Q1) What would be the carrying value of the bonds payable appearing on Ting's December 31,2010 Consolidated Statement of Financial Position?
A)$130,000
B)$65,000
C)$64,500
D)$65,500
Q2) What is the amount of acquisition differential to be amortized during 2010?
A)$80,000
B)$8,800
C)$10,000
D)$7,200
Q3) What would be the amount appearing on the December 31,2009 Consolidated Statement of Financial Position for cost of goods sold?
A)$640,000
B)$645,000
C)$635,000
D)$240,000
Q4) Compute the amount of income tax that would be deferred as at December 31,2010.
Q5) Compute the Balance in Hot's Investment in Cold account as at December 31,2010
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Chapter 8: Consolidated Cash Flows and Ownership Issues
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Sample Questions
Q1) What is ABC's ownership interest in 123 after its sale?
A)21%
B)36%
C)56%
D)42%
Q2) Approximately what percentage of the non-controlling interest was due to Y's own earnings?
A)19%
B)45%
C)30%
D)5%
Q3) What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?
A)It should be treated as an adjustment to goodwill.
B)It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C)It should be expensed in the current year.
D)It should be adjusted to a contributed surplus or retained earnings account.
Q4) Prepare a statement of non-controlling interest as at December 31,2011.
Q5) Compute consolidated trademarks for Ash as at December 31,2009.
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Chapter 9: Other Consolidated Reporting Issues
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Q1) What is the total amount of deferred taxes that would appear on Seek's Consolidated Balance Sheet as at December 31,2010?
A)$12,000
B)$8,000
C)$10,000
D)$800
Q2) Prepare A Corp.'s equity method journal entries for 2010,assuming that the assets donated by B Corp.included cash in the amount of $400,000.
Q3) What is the amount of Consolidated Retained Earnings for 2010?
A)$340,000
B)$368,000
C)$376,000
D)$558,000
Q4) At what amount would John record its initial investment in Jinxtor?
A)$740,000
B)$240,000
C)$800,000
D)$500,000
Q5) Compute the Consolidated Net Income for 2010.Do not prepare an Income Statement.
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Chapter 10: Foreign Currency Transactions
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Sample Questions
Q1) What is the amount of interest paid (in Canadian Dollars)during 2010?
A)$250,000
B)$372,500
C)$287,330
D)$287,250
Q2) What is the amount of the forward contract in Canadian dollars?
A)$72,000
B)$70,500
C)$70,950
D)$71,850
Q3) By what amount (in Canadian Dollars)would ABC have to adjust its Loan Liability on December 31,2010 as a result of the year's foreign exchange rate fluctuations?
A)Nil.
B)A $5,000 increase.
C)A $2,500 decrease.
D)A $3,500 decrease.
Q4) Compute the carrying value of the investment at the end of each year:
Q5) Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.
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Chapter 11: Translation and Consolidation of the Financial
Statements of Foreign Operations
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Sample Questions
Q1) Translate Martin's December 31,2011 Balance Sheet into Canadian dollars.
Q2) For the sake of simplicity,assume once again that US1's cost of sales was calculated to be $4,000,000 CDN.What is the amount (in Canadian dollars)of US1's net income?
A)$414,000
B)$422,500
C)$421,000
D)$440,250
Q3) The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign currency,of the discounted future cash flows generated from foreign investments or operations due to real changes in exchange rates is referred to as:
A)Translation (accounting)exposure.
B)Transaction exposure.
C)Economic exposure.
D)Business risk.
Q4) Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial Statements.
Q5) Translate Wilsen's 2014 Income Statement.
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Q6) Translate Wilsen's December 31,2014 Balance Sheet.
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Chapter 12:
Accounting for Not-For-Profit Organizations and Governments
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Sample Questions
Q1) Prepare the necessary journal entries to record these transactions assuming that the restricted fund method of accounting for contributions is used.
Q2) Which of the following statements is correct?
A)Unrestricted resources can be used for any purposes by a Not-for-Profit Organization.
B)Unrestricted resources can be used for any purposes that are consistent with the goals and objectives of the Not-for-Profit Organization.
C)Restricted resources can only be used in the case of a serious financial deficit situation.
D)Both restricted and unrestricted funds must be used in accordance with the wishes of the contributor.
Q3) What would be the balance in the Capital Fund on December 31,2012?
A)$8,000
B)$6,400
C)$6,000
D)($1,600)
Q4) Describe what fund accounting is and why is it used for not-for-profit organizations.
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