Accounting for Mergers and Acquisitions Final Exam
Course Introduction
Accounting for Mergers and Acquisitions explores the financial reporting and regulatory implications associated with business combinations, consolidations, and related transactions. The course examines the application of key accounting standards such as IFRS 3 and ASC 805, focusing on topics including purchase price allocation, goodwill and intangible asset recognition, non-controlling interests, and the impact on consolidated financial statements. Students will analyze real-world cases and learn the practical procedures for evaluating the financial effects of mergers and acquisitions, equipping them with the skills required for accurate financial analysis and decision-making in the context of corporate restructuring.
Recommended Textbook
Advanced Accounting 13th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) A merger occurs when one corporation takes over all the operations of another business entity,and that entity is dissolved.
A)True
B)False
Answer: True
Q2) The GAAP defines the accounting concept of a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses.
A)True
B)False Answer: True
Q3) According to ASC 805-30,which one of the following items may not be accounted for as an intangible asset apart from goodwill?
A)A production backlog
B)A valuable employee workforce
C)Noncontractual customer relationships
D)Employment contracts
Answer: B
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Pinkerton Inc.owns 10% of Sable Company.In the most recent year,Sable had net earnings of $40,000 and paid dividends of $6,000.Pinkerton's accountant mistakenly assumed Pinkerton had considerable influence over Sable and used the equity method instead of the cost method.What is the impact on the investment account and net earnings,respectively?
A)By using the equity method,the accountant has understated the investment account and overstated the net earnings.
B)By using the equity method,the accountant has overstated the investment account and understated the net earnings.
C)By using the equity method,the accountant has understated the investment account and understated the net earnings.
D)By using the equity method,the accountant has overstated the investment account and overstated the net earnings.
Answer: D
Q2) The equity method is often called the dual-line consolidation.
A)True
B)False
Answer: False
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) A subsidiary can be excluded from consolidation if
A)control rests with the majority owner.
B)formation of joint ventures.
C)the acquisition of an asset or group of assets constitutes a business.
D)acquisition of a not-for-profit entity by a for-profit business.
Answer: B
Q2) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is
A)an affiliate.
B)a noncontrolling interest.
C)an equity investee.
D)a related party.
Answer: B
Q3) A corporation becomes a subsidiary when another corporation acquires a controlling interest in its issued voting stock.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Consolidated Techniques and Procedures
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Q1) Under the equity method of accounting parent-retained earnings and the consolidated-retained earnings are equal.
A)True
B)False
Q2) A parent corporation owns 55% of the outstanding voting common stock of one domestic subsidiary.The parent has control over the subsidiary.Which of the following statements is correct?
A)The parent corporation must prepare consolidated financial statements for the economic entity.
B)The parent corporation must use the fair value method.
C)The parent company may use the equity method but the subsidiary cannot be consolidated.
D)The parent company can use the equity method or the fair value/cost method.
Q3) What amount of total liabilities will be reported?
A)$206,000
B)$278,400
C)$319,600
D)$348,000
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) Plateau Incorporated bought 60% of the common stock of Sachet Company several years ago.At the time of purchase,the fair value and book value of Sachet's net assets were equal.The cost of the 60% investment was equal to 60% of the book value of Sachet's net assets.Plateau sells merchandise to Sachet at 125% above Plateau's cost.Intercompany sales from Plateau to Sachet for 2014 were $60,000.Unrealized profits in Sachet's December 31,2013 inventory and December 31,2014 inventory were $6,000 and $4,500,respectively.Sachet reported net income of $120,000 for 2014.
Required: In General Journal format,prepare consolidation working paper entries at December 31,2014 to eliminate the effects of the intercompany inventory sales.
Q2) A subsidiary's realized income is its reported net income adjusted for intercompany profits from upstream sales.
A)True
B)False
Q3) Consolidated cost of goods sold for Pelga and Subsidiary for 2015 were
A)$512,000.
B)$526,000.
C)$522,500.
D)$528,000.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) An intercompany gain or loss appears in the income statement of the selling affiliate in the year of the sale.
A)True
B)False
Q2) The 2014 unrealized gain from the intercompany sale
A)should be recognized in consolidation in 2014 by a working paper entry.
B)should be eliminated from consolidated net income by a working paper entry that credits land for $14,000.
C)should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.
D)should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000.
Q3) Unrealized inventory profits self-correct over any three accounting periods. A)True B)False
Q4) Gain on the sale of land between affiliates should not appear in the consolidated income statement.
A)True
B)False
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) When a company issues bonds,the bond liability will reflect the current market rate of interest.
A)True
B)False
Q2) The loss on the retirement of bonds only appears in the consolidated income statement in the year in which we constructively retire the bonds.
A)True
B)False
Q3) No constructive gain or loss arises from the purchase of an affiliate's bonds if the A)affiliate is a 100%-owned subsidiary.
B)bonds are purchased at book value.
C)bonds are purchased with arm's-length bargaining from outside entities.
D)gain or loss cannot be reasonably estimated.
Q4) Controlling interest share of consolidated net income for 2013 was
A)$443,600.
B)$444,000.
C)$444,400.
D)$448,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) At December 31,2013,the stockholders' equity of Godwin Corporation and its 80%-owned subsidiary,Goldberg Corporation,are as follows: \(\begin{array}{lll} &\text {Godwin}&\text {Goldberg}\\ \text { Common stock, } \$ 10 \text { par value } & \$ 20,000 & \$ 12,000 \\ \text { Retained earnings } & \underline{8,000} & \underline{6,000} \\ \text { Totals } & \$ 28,000 & \$ 18,000 \end{array}\)
Godwin's Investment in Goldberg is equal to 80 percent of Goldberg's book value.Goldberg Corporation issued 225 additional shares of common stock directly to Godwin on January 1,2014 at $28 per share.
Required:
1.Compute the balance in Godwin's Investment in Goldberg account on January 1,2014 after the new investment is recorded.
2.Determine the increase or decrease in goodwill from Godwin's new investment in the 225 Goldberg shares.Use four decimal places for the ownership percentage.Assume the fair value and book value of Goldberg's assets and liabilities are equal.
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Chapter 9: Indirect and Mutual Holdings
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Q1) Mutually held stock is subsidiaries holding the stock of each other.
A)True
B)False
Q2) Noncontrolling interest share for Badrack is
A)$9,000.
B)$10,000.
C)$20,000.
D)$40,000.
Q3) When mutually-held stock involves subsidiaries holding the stock of each other,the ________ method is not used.
A)equity
B)cost
C)conventional
D)treasury stock
Q4) Direct holdings result from direct investments in the voting stock of one or more investees.
A)True
B)False
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) The consolidated entity must file a consolidated income tax return.
A)True
B)False
Q2) Parker Corporation owns an 80% interest in Sample Corporation's common stock.Throughout 2014,Sample had 10,000 shares of common stock outstanding and Parker had 100,000 shares of common stock outstanding.Sample's only dilutive security consists of $50,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sample stock.Parker and Sample's separate incomes for the year are $100,000 and $75,000,respectively.Assume a 34% flat income tax rate.
Required:
Compute the amount of basic and diluted earnings per share for Parker (Consolidated)and Sample Corporations.
Q3) The investment in preferred stock of a subsidiary by the parent is accounted for under the equity method.
A)True
B)False
Q4) The calculation of parent EPS and consolidated basic EPS are identical.
A)True
B)False
Page 12
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Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Goodwill was reported in the December 31,2014 consolidated balance sheet at A)$170,000.
B)$180,000.
C)$200,000.
D)$210,000.
Q2) Under push-down accounting,the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.
A)book value; subsidiary
B)book value; parent
C)fair value; subsidiary
D)present value; parent
Q3) Entities other than the primary beneficiary account for their investment in a variable interest entity using the
A)cost method.
B)equity method.
C)cost or equity methods.
D)consolidated method.
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) Futures contracts are very standardized and more easy to trade in the markets than forward contracts.
A)True
B)False
Q2) Slade Corporation,a U.S.company,purchased materials on account from a manufacturer in Mexico on June 15.The invoice was denominated in the shipper's currency for 480,000 pesos.The goods were paid for on July 18.Slade closes their fiscal year on June 30,and used the following indirect quotes to measure the amounts related to the transactions.
June 15 $1.00 = 12.50 pesos
June 30 $1.00 = 12.80 pesos
July 18 $1.00 = 12.00 pesos
Required:
Show all related journal entries for Slade Company.
Q3) Floating exchange rates reflect fluctuating market prices for a currency based on supply and demand in the world currency markets.
A)True
B)False
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Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is
A)deferred using other comprehensive income.
B)recognized immediately at the time the agreement is made.
C)recognized over time,amortized over the period of the agreement.
D)recognized over time,offset by the fluctuation in the value of the hedged asset or liability.
Q2) When a company attempts to control the impact of price fluctuations on its future cash flows and its sales,it is entering into a cash-flow hedge.
A)True
B)False
Q3) Which of the following is not an approach appropriate for hedge accounting?
A)Cash Flow Hedge Accounting
B)Critical Term Hedge Accounting
C)Fair Value Hedge Accounting
D)Hedge of Net Investment in Foreign Subsidiary
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Chapter 14: Foreign Currency Financial Statements
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Q1) The GAAP permits two methods for converting the foreign subsidiary's financial statements into U.S.dollars: temporal method and the fixed rate method.
A)True
B)False
Q2) Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements,regardless of whether the statements are remeasured or translated?
A)Trademark
B)Deferred Income
C)Accounts Receivable
D)Goodwill
Q3) Which of the following statements about the Current Rate method is false?
A)Translation involves restating the functional currency amounts into the reporting currency.
B)All assets and liabilities are translated at the current rate.
C)If the subsidiary maintains their books in their functional currency,the current rate method is used.
D)The effect of exchange rate changes are reported on the income statement as a foreign exchange gain or loss.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) The Securities and Exchange Commission require that quarterly reports be prepared for the company's stockholders and for filing with the IRS.
A)True
B)False
Q2) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A)They have similar amounts of intersegment revenues or expenses.
B)They have a similar distribution method for products.
C)They have similar production processes.
D)They have similar products or services.
Q3) Interim financial reports provide more timely,extensive information than annual financial reports.
A)True B)False
Q4) Management-approach-based segments are called operating segments. A)True B)False
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Required:
1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $250,000.
2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).
Q2) In a limited partnership,a general partner
A)is excluded from management of the business.
B)is not entitled to a bonus at the end of the year.
C)has limited liability for partnership debt.
D)has unlimited liability for partnership debt.
Q3) What will the profit and loss sharing ratios be after Oran's investment?
A)1:2:4:2
B)2:3:5:2
C)3:4:6:2
D)4:6:10:5
Q4) In the absence of a partnership agreement,profit sharing is based on partner contribution.
A)True
B)False
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Chapter 17: Partnership Liquidation
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Q1) How much cash would Baker receive from the cash that is available for distribution on July 31? (Assume a safe payments schedule is used.)
A)$ 0
B)$800
C)$2,400
D)$4,000
Q2) In partnership liquidation,how are partner salary allocations treated?
A)Salary allocations take precedence over creditor payments.
B)Salary allocations take precedence over amounts due to partners with respect to their capital interests,but not profits.
C)Salary allocations take precedence over amounts due to partners with respect to their capital profits,but not capital interests.
D)Salary allocations are disregarded.
Q3) A partnership is solvent if enough resources exist to pay creditors and make a cash distribution to the partners.
A)True
B)False
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) U.S.Trustees are appointed by the Attorney General to handle the administrative duties of bankruptcy cases.
A)True
B)False
Q2) Moddle Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.20 on the dollar.National Corporation holds a $500,000 mortgage note receivable from Moddle that is secured by equipment with a $550,000 book value and a $430,000 fair value.
Required:
How much of the mortgage receivable will National recover?
Q3) In a Chapter 11 case,the debtor corporation filing the petition may continue in possession of the corporation's property,and is referred to as a(n)
A)examiner.
B)trustee.
C)liquidator.
D)debtor in possession.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The accounting equation for an agency fund is
A)Current assets - Current liabilities = Fund Balance.
B)Assets - Liabilities = Equity.
C)Assets = Equity + Liabilities.
D)Assets = Liabilities.
Q2) The governmental fund accounting equation is Current Assets - Current Liabilities = Fund Balance.
A)True
B)False
Q3) Capital projects funds and debt service funds are governmental fund types.
A)True
B)False
Q4) The key focus of government fund accounting concerns
A)capital expenditures.
B)intergovernmental transfers from the general fund.
C)income measurement.
D)the current ability to provide and fund services and goods.
Q5) Enterprise funds and Internal service funds are Fiduciary Fund types.
A)True
B)False
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Chapter 20:
Accounting for State and Local Governmental Units - Governmental Funds
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Q1) The General Fund transfers $50,000 cash to the Debt Service Fund to meet annual interest payments.What entry did the Debt Service Fund prepare?
A)Debit Cash $50,000,Credit Revenue $50,000
B)Debit Cash $50,000,Credit Other Financing Sources-Transfer from General Fund $50,000
C)Debit Encumbrance $50,000,Credit Due to General Fund $50,000
D)Debit Appropriation $50,000,Credit Reserve for Encumbrance $50,000
Q2) When the donation of bonds is received,what account should be debited?
A)Encumbrance
B)Other Financing Sources
C)Other Financing Uses
D)Investment
Q3) Permanent funds are normally for nonexpendable resources set aside for support of a government's programs or citizenry.
A)True
B)False
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Fiduciary funds are to account for assets held in a trustee or agency capacity on behalf of others internal to the governmental entity.
A)True
B)False
Q2) On January 1,2014,the General Fund contributes $200,000 cash to the Internal Service Fund.On January 1,2014,the General Fund also loans $100,000 cash to the Internal Service Fund.On January 1,2014,what journal entry does the Internal Service Fund prepare?
A)debit Cash $300,000,credit Other Financing Sources $300,000
B)debit Cash $300,000,credit Other Financing Sources $200,000,credit Advance from General Fund $100,000
C)debit Cash $300,000,credit Advance from General Fund $300,000
D)debit Cash $300,000,credit Contributed Capital $200,000,credit Advance from General Fund $100,000
Q3) GASB Statement No.9 separates financing activities on the cash flow statement into two components: noncapital and capital related.
A)True
B)False
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) In a nonprofit,nongovernmental hospital,courtesy allowances are
A)charity care services.
B)revenue deductions.
C)expenses.
D)revenues earned even if the standard charge is above or below the allowance.
Q2) A donor gives a Voluntary Health and Welfare Organization (VHWO)$1,000 cash that is restricted for a research project.What account does the VHWO credit when the VHWO receives the money?
A)Nonoperating Revenue
B)Permanently Restricted Revenue
C)Unrestricted Support
D)Temporarily Restricted Support
Q3) In a nongovernmental,nonprofit hospital,contractual adjustments are
A)the discounted rate given to hospital employees.
B)discounts arranged with third-party payors.
C)recorded as a deduction from revenue or as an expense.
D)additional amounts paid by select group participants.
Q4) Nongovernmental not-for-profit entities follow FASB standards.
A)True
B)False
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Chapter 23: Estates and Trusts
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Q1) The executor or administrator of a will is required to prepare and file an inventory of property owned by the deceased within what time period?
A)One month of appointment
B)Two months of appointment
C)Three months of appointment
D)45 days of appointment
Q2) The charge-discharge statement shows the accountability of estate property received and maintained or disbursed in accordance with the will.
A)True
B)False
Q3) Which type of trust is created pursuant to a will?
A)A testamentary trust
B)A Crummey trust
C)A generation-skipping trust
D)A life estate trust
Q4) An estate is subject to federal tax on income earned from the date of death until final settlement of the estate.
A)True
B)False
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