bac 412- advacc2-reviewer for final departmental exam

7/24/2019 Bac 412- Advacc2-Reviewer for Final Departmental Exam

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BAC 412

ADVANCED FINANCIAL ACCOUNTING AND REPORTING, PART 2

REVIEWER FOR FINAL DEPARTMENTAL EXAMINATION

1st SEMESTER, S.Y 2015-2016

I. THEORIES

1. When Eagle Company has less than 50% of the voting stock of Fish Corporation which of the following

applies?

a. Only the fair value method may be used.

b. Only the equity method may be used.

c. Either the fair value method or the equity method may be used.

d. Neither the fair value method or the equity method may be used.

2. Griffon Incorporated holds a 30% ownership in Duck Corporation. Griffon should use the equity method

under which of the following circumstances?

a. Griffon has surrendered significant stockholder rights by agreement between Griffon and Duck.

b. Griffon has been unable to secure a position on the Duck Corporation Board of Directors.

c. Griffons ownership is temporary.

d. The ownership of Duck Corporation is diverse.

3. Swan Corporation uses the fair value method of accounting for its investment in Pond Company. Which

one of the following events would affect the Investment in Pond Co. account?

a. Investee losses

b. Investee dividend payments

c. An increase in the investees share price from last period.

d. all of the above would affect the Investment in Pond Co. account

4. The material sale of inventory items by a parent company to an affiliated company

a. enters the consolidated revenue computation only if the transfer was the result of arms length

bargaining.

b. affects consolidated net income under a periodic inventory system but not under a perpetual

inventory system.

c. does not result in consolidated income until the merchandise is sold to outside parties.

d. does not require a working paper adjustment if the merchandise was transferred at cost..


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5. Honeyeater Corporation owns a 40% interest in Nectar Company, acquired several years ago at a cost

equal to book value and fair value. Nectar sells merchandise to Honeyeater for the first time in 2005. In

computing income from the investee for 2005 under the equity method, Honeyeater uses which equation?

a. 40% of Nectars income less 100% of the unrealized profit in Honeyeater's ending inventory.

b. 40% of Nectars income plus 100% of the unrealized profit in Honeyeater's ending inventory.

c. 40% of Nectars income less 40% of the unrealized profit in Honeyeaters ending inventory.

d. 40% of Nectars income plus 40% of the unrealized profit in Honeyeaters ending inventory.

6. In situations where there are routine inventory sales between parent companies and subsidiaries, when

preparing the consolidation statements, which of the following line items is indifferent to the sales being

either upstream or downstream?

a. Consolidated retained earnings.

b. Consolidated gross profit.

c. Noncontrolling interest expense.

d. Consolidated net income.

7. The consolidation procedures for intercompany sales are similar for upstream and downstream sales

a. if the merchandise is transferred at cost.

b. under a periodic inventory system but not under a perpetual inventory system.

c. if the merchandise is immediately sold to outside parties.

d. when the subsidiary is 100% owned.

8. 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

9. The acquirer shall classify the obligation to pay the contingent consideration as

a. Financial liability

b. Equity

c. Either financial liability or equityd. Neither financial liability nor equity

10. In accounting for a business combination, which of the following intangible assets should not be

recognized as an asset apart from goodwill?

a. Trademark

b. Lease Agreement


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c. Employee quality

d. Patent

11. Which of the following is a reason why a company would expand through a combination, rather than

by building new facilities?

a. A combination might provide cost advantages.

b. A combination might provide fewer operating delays.

c. A combination might provide easier access to intangible assets.

d. All of the above are possible reasons that a company might choose a combination.

12. A business combination in which a new corporation is created and two or more existing corporations

are combined into the newly created corporation is called a

a. merger.

b. purchase transaction.

c. pooling-of-interests.

d. consolidation.

13. A business combination occurs when a company acquires an equity interest in another entity and has

a. at least 20% ownership in the entity.

b. more than 50% ownership in the entity.

c. 100% ownership in the entity.

d. control over the entity, irrespective of the percentage owned.

Use the following information for questions 1 and 2.

In 2004, Parrot Company sold land to its subsidiary, Tree Corporation, for $12,000. It had a book value of

$10,000. In the next year, Tree sold the land for $18,000 to an unaffiliated firm.

14.Which of the following is correct?

a. No consolidation working paper entry was necessary in 2004.

b. A consolidation working paper entry was required only if the subsidiary was less than 100%

owned in 2004.c. A consolidation working paper entry is required each year until the land is sold outside the related

parties.

d. A consolidated working paper entry was required only if the land was held for resale in 2004.

15. The 2004 unrealized gain


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a. was deferred until 2006.

b. was eliminated from consolidated net income by a working paper entry that credited land $2,000.

c. made consolidated net income $2,000 less than it would have been had the sale not occurred.

d. made consolidated net income $2,000 greater than it would have been had the sale not occurred

16. A group for consolidation purposes is

a. A parent and all of the subsidiaries

b. An entity that has one or more subsidiaries

c. An entity, including an unincorporated entity such as a partnership, that is controlled by another entity

d An entity that obtains control over entities or businesses

17. What is the initial measurement of an investment in subsidiary retained by the investor when control is

lost?

a. Fair value at the date when control is lost

b. Fair value at the beginning of the reporting period

c. Carrying amount at the date when control is lost

d. Carrying amount at the beginning of the reporting period

18. Control is presumed to exist when the parent owns directly or indirectly through subsidiaries

a. More than half of the equity of an entity

b. More than half of the ordinary shares of an entity

c. More than half of the preference and ordinary shares of an entity

d. More than half of the voting power of an entity

19. All of the following acquisition-related costs in a business combination are expensed immediately,

except

a. Professional and consulting fees

b. Finder fess

c. Costs of maintaining an internal acquisition department

d. Costs of issuing debt securities

20. What is the term for the business combination where all combining entities transfer their net assets toa newly formed entity?

a. True merger

b. Legal merger

c. Roll up transaction

d. Spin off

II. PROBLEMS


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1. Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then

dissolved. Paris had no liabilities. The fair values of Paris assets were $2,500,000. Pariss only non-

current assets were land and equipment with fair values of $160,000 and $640,000, respectively. At what

value will the equipment be recorded by Raphael?

a. $640,000

b. $240,000

c. $400,000

d. $0

2. Pare Company purchased 10% of Tot Companys 100,000 outstanding ordinary shares on January 1,

2013 for P500,000. On December 31, 2013, Pare purchased an additional 20,000 shares of Tot for

P1,500,000. Tot had not issued any additional shares during 2013. The investee reported earnings pf

P3,000,000 for 2013. The fair value of the 10% interest is P900,000 on December 31, 2013. What is the

carrying amount of the investment on December 31, 2013?

a. 2,300,000

b. 2,000,000

c. 2,400,000

d. 2,900,000

Use the following data to answer numbers 3-8:

On January 2, 2011 Narra Corporation acquired all of Yakal Corporations assets and liabilities by issuing

shares of its common stock. Partial statement of financial Position data for the companies prior to the

business combination and immediately after the combination are as follows:

NARRA CORP. YAKAL CORP. COMBINEDENTITY

BOOK VALUE BOOK VALUE

Cash P40,000 P10,000 P50,000

Account receivable 60,000 30,000 88,000

Inventory 50,000 35,000 96,000

Buildings and equipment(net)

300,000 110,000 430,000

Goodwill ?

Total Assets P450,000 P185,000 P?

Accounts payable P188,000 P84,000 P272,000

Common stock, P5 par 100,000 40,000 126,000

Additonal paid in capital 65,000 28,000 247,000

Retained earnings 97,000 33,000 ?

Total Liabilities and Equity P450,000 P185,000 P?


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3.Falcon Corporation sold equipment to its 80%-owned subsidiary, Rodent Corp., on January 1, 2005.

Falcon sold the equipment for $110,000 when its book value was $85,000 and it had a 5-year remaining

useful life with no expected salvage value. Separate balance sheets for Falcon and Rodent included the

following equipment and accumulated depreciation amounts on December 31, 2005:

Falco Rodent

Equipment $ 750,000 $ 300,000

Less: Accumulated depreciation ( 200,000) ( 50,000)

Equipment-net $ 550,000 $ 250,000

Consolidated amounts for equipment and accumulated depreciation at December 31, 2005 were

respectively

a. $1,025,000 and $245,000.

b. $1,025,000 and $250,000.

c. $1,025,000 and $245,000.

d. $1,050,000 and $250,000.

4. Peregrine Corporation acquired a 90% interest in Cliff Corporation in 2004 at a time when Cliffs book

values and fair values were equal to one another. On January 1, 2005, Cliff sold a truck with a $45,000

book value to Peregrine for $90,000. Peregrine is depreciating the truck over 10 years using the straight-

line method. Separate incomes for Peregrine and Cliff for 2005 were as follows:

Peregrine Cliff

Sales $ 1,800,000 $ 1,050,000

Gain on sale of truck 45,000

Cost of Goods Sold ( 750,000) ( 285,000)

Depreciation expense ( 450,000) ( 135,000)

Other expenses ( 180,000) ( 450,000)

Separate incomes $ 420,000 $ 225,000

Peregrines investment income from Cliff for 2005 was

a. $161,550.b. $162,000.

c. $166,050.

d. $202,500.

5. Kestrel Company acquired an 80% interest in Reptile Corporation on January 1, 2004. On January 1,

2005, Reptile sold a building with a book value of $50,000 to Kestrel for $80,000. The building had a

remaining useful life of


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ten years and no salvage value. The separate balance sheets of Kestrel and Reptile on December 31,

2005 included the following balances:

Kestrel Reptile

Buildings $ 400,000 $ 250,000

Accumulated Depreciation -

Buildings 120,000 75,000

The consolidated amounts for Buildings and Accumulated Depreciation - Buildings that appeared,

respectively, on the balance sheet at December 31, 2005, were

a. $620,000 and $192,000.

b. $620,000 and $195,000.

c. $650,000 and $192,000.

d. $650,000 and $195,000.

6. Pigeon Corporation purchased land from its 60%-owned subsidiary, Seed Inc., in 2003 at a cost

$30,000 greater than Seeds book value. In 2005, Pigeon sold the land to an outside entity for $40,000

more than Pigeons book value. The 2005 consolidated income statement reported a gain on the sale of

land of

a. $40,000.

b. $42,000.

c. $58,000.

d. $70,000

7. Pied Imperial-Pigeon Corporation acquired a 90% interest in Offshore Corporation in 2003 when

Offshore book values were equivalent to fair values. Offshore sold equipment with a book value of

$80,000 to Pied Imperial-Pigeon for $130,000 on January 1, 2005. Pied Imperial-Pigeon is fully

depreciating the equipment over a 4-year period by using the straight-line method. Offshore reported net

income for 2005 was $320,000. Pied Imperial-Pigeons 2005 net income from Offshore was

a. $249,250.

b. $250,500.

c. $254,250.d. $288,000.

8. Lorikeet Corporation acquired a 80% interest in Nectar Corporation on January 1, 2000 at a cost equal

to book value and fair value. In the same year Nectar sold land costing $30,000 to Lorikeet for $50,000

On July 1, 2005, Lorikeet sold the land to an unrelated party for $110,000. What was the gain on the

consolidated income statement?


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a. $48,000.

b. $60,000.

c. $64,000.

d. $80,000.


On January 1, 2011, Pure Co. acquired 80% interest in Sure Co. for P2,000,000 cash. The stockholders

equity of Sure at the time of acquisition is P1,875,000. On January 1, 2011, NCI is measured at its

implied fair value. The excess of cost over the book value of interest acquired is allocated to the following

assets:

Inventories P100,000 (sold in 2011)

Building P200,000 (5 yr. remaining life)

During 2011, Sure Co. reported total comprehensive income of P500,000 and paid dividends of

P100,000.

9. What is the fair value on NCI on January 1, 2011?

a. P500,000

b. P375,000

c. P525,000

d. P400,000

10. How much goodwill (gain on acquisition) is reported in the consolidated statement of financial position

on 1/1/2011?

a. P325,000

b. P200,000

c. P(325,000)

d. (375,000)

11. What is the consolidated total comprehensive income attributable to parent on December 31, 2011, If

Pures net income for 2011 is P600,000?

a. P860,000

b. P888,000

c. P808,000d. P948,000

12. What is the NCI in net assets of subsidiary on December 31, 2011?

a. P455,000

b. P552,000

c. P495,000

d. P495,900


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P Corporation purchased a 70% interest in S Company on January 1, 2010 for P140,000, when S

stockholders equity consisted of P30,000 common stock, P100,000 additonal paid in capital, and

P200,000 retained earnings. Imcome and dividend date for S are as follows:

Net Income P50,000

Dividends 5,000

NCI is measures at fair value

13. Duck Corporation acquired a 70% interest in Whistle Corporation on January 1, 2005,

when Whistles book values were equal to their fair values. During 2005, Duck sold merchandise that cost

$75,000 to Whistle for $110,000. On December 31, 2005, three-fourths of the merchandise acquired from

Duck remained in Whistles inventory. Separate incomes (investment income not included) of Duck and

Whistle are as follows:

Duck Whistle

Sales Revenue $ 150,000 $ 200,000

Cost of Goods Sold 90,000 70,000

Operating Expenses 12,000 15,000

Separate incomes $ 48,000 $ 115,000

13. The consolidated income statement for Duck Corporation and subsidiary for the year ended

December 31, 2005 will show consolidated cost of sales of?

a. $ 50,000.

b. $ 76,250.

c. $133,750.

d. $160,000.

Use the following information for questions 14 and 15:

Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp Corporation. In 2004,

Swamp sold merchandise that cost $80,000 to Grebe for $100,000. Half of this merchandise remained in

Grebes December 31, 2004 inventory. During 2005, Swamp sold merchandise that cost $160,000 toGrebe for $200,000. $62,500 of the 2005 merchandise inventory remained in Grebes December 31,

2005 inventory. Selected income statement information for the two affiliates for the year 2005 was as

follows:

Grebe Swamp

Sales Revenue $500,000 $400,000

Cost of Goods Sold 400,000 320,000


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Gross profit $100,000 $ 80,000

14. Consolidated cost of goods sold for Grebe and Subsidiary for 2005 were

a. $512,000.

b. $526,000.c. $522,500.

d. $528,000.

15. What amount of unrealized profit did Grebe Company have at the end of 2004?

a. $10,000.

b. $12,500.

c. $50,000.

d. $62,500.


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ANSWERS:

I. THEORIES

1. C

2. D

3. C

4. C

5. C

6. B

7. D

8. A

9. C

10. C

11. D

12. D

13. D

14. C

15. B

16. A

17. A

18. D

19. D

20. C

II. PROBLEMS

1. A

2. C

3. A

4. C

5. A

6. D

7. C

8. D

9. A

10. A

11. C

12. B

13. B

14. C

15. B

bac 412- advacc2-reviewer for final departmental exam

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