ACC 113 ACCOUNTING FOR BUSINESS COMBINATIONS 3.

3. Which of the following statements is not true as it pertains to the economic unit concept of consolidation?
P2 QUIZ 1 A. Market value of subsidiary’s assets and liabilities is included in consolidated balance sheet
B. All of the subsidiary’s revenues and expenses are included in the consolidated net income
Name:____________________________________ Score:______________ C. The consolidated balance sheet only includes the parent’s ownership interest in the subsidiary’s assets
Section:___________________________________ Date:_______________ and liabilities
D. Noncontrolling interest in net income of subsidiary is subtracted from consolidated net income to
PART I. TRUE OR FALSE. Write TRUE if the statement is correct and FALSE if otherwise. Write your determine the parent’s portion of consolidated net income
answer before the number. Strictly NO ERASURES. (the rest are false) 4. Which of the following will occur as a result of applying push-down accounting?
A. The subsidiary’s assets and liabilities will retain their book value prior to acquisition
1. Worksheet eliminations are not posted to the financial records of the subsidiary or the parent. T B. The subsidiary’s retained earnings will be retained at its book value prior to acquisition
2. The subsidiary’s book values always become the book values to the consolidated entity as of the date of C. A revaluation capital account will be created as a result of changing the value of the subsidiary’s assets
acquisition. and liabilities from book value to market value
3. The purchase differential that exists at the date a subsidiary is acquired is allocated to all assets in D. The subsidiary’s common stock is closed to revaluation capital
equal amounts. 5. All of the statements are true regarding the existence of control even if there is less than 50% ownership,
4. At the date of acquisition, purchase differentials can only be assigned to tangible assets. EXCEPT:
5. The noncontrolling interest has a voice in management of the parent company because the parent A. The acquirer has the power to appoint or remove the majority of the board of directors of the acquiree.
company controls the subsidiary. B. The acquirer has the power to cast the majority of votes at board meetings or equivalent bodies within
6. When less than 100 percent of a subsidiary is acquired, the remaining stockholders are referred to as the acquirer.
the noncontrolling interest. T C. The acquirer has power with less than half of the voting rights of the acquiree because of an agreement
7. When less than 100 percent of a subsidiary’s stock is acquired, the peso amount of goodwill created on with other investors.
the consolidated balance sheet is the parent’s ownership percentage of the goodwill. D. The acquirer has power to control the financial and operating policies of the acquiree because of a law
8. The most common acquisition is one that occurs during the period at a price greater than book value. T or an agreement.
9. Individual accounts on the consolidated balance sheet at the date of acquisition always reflects the 6. This happens when the entity issues securities is identified as the acquiree for accounting purposes.
parent’s book value plus the subsidiary’s book value. A. Consolidation
10. Bargain purchase gain that exists as a result of acquiring a subsidiary is allocated to the stockholders’ B. Merger
equity section of the balance sheet. C. Joint venture
D. Reverse acquisition
PART II. MULTIPLE CHOICE THEORY. Write the CAPITAL LETTER of your answer before the 7. When an acquirer holds 30% equity interest in an acquiree and subsequently purchase another 25% equity
number. Strictly NO ERASURES. interest in order to gain control the transaction is known as
A. Business combination of entities under common control
1. Which of the following statements is correct with regard to the computation of the amount that appears on B. Business combination achieved in stages
the acquisition date consolidated balance sheet? C. Business combination by installment
A. Parent’s book value plus subsidiary’s book value D. Step by step acquisition
B. Parent’s market value plus subsidiary’s book value 8. The investment in a subsidiary should be recorded on the parent’s books at the
C. Parent’s book value plus subsidiary’s market value A. underlying book value of the subsidiary’s net assets.
D. Parent’s market value plus subsidiary’s market value B. fair value of the subsidiary's net identifiable sets
2. Which of the following statements is correct with regard to the recognition of goodwill at the acquisition date? C. fair value of the consideration given.
A. Goodwill is the positive purchase differential that remains after allocating each asset and liability the D. fair value of the consideration given plus an estimated value for goodwill
amount that market value and book value differ 9. P Company and S Company exchanged shares in a business combination. After the share exchange, each
B. Goodwill is the amount by which the purchase price exceeds the subsidiary’s book value company held the same number of voting shares. Which of the following statements is true?
C. Goodwill is assigned 25 percent of the total purchase differential A. The company with the highest net assets is considered the acquirer.
D. Goodwill is determined by computing the present value of the subsidiary’s free cash flows B. The companies must ask the courts to decide which company is the acquirer.
1
 C. A number of factors must be considered to determine which company is the acquirer. 3. How much is the stockholder’s equity in the consolidated statement of financial position on June 1, 2022?
D. There is no acquirer as this is not a proper business combination. A. 384,100
10. How does an acquirer account for a business combination that is achieved in stages? B. 494,800
C. 351,400
A. The acquirer substitutes the acquisition-date fair value of its interest in the acquiree for the
D. 472,600
acquisition-date fair value of the consideration transferred to measure goodwill.
B. The acquirer remeasures its previously held equity interest in the acquiree at acquisition-date fair value 4. P, a private limited company, has arranged for S, a public limited company, to acquire it as a means of
and includes that amount in computing for the goodwill. obtaining a stock exchange listing. S issues 15 million shares to acquire the whole of the share capital of P (7
C. The acquirer attributes to the non-controlling interest all of the acquiree’s net identifiable assets. million shares). The fair value of the net assets of S and P are P30 million and P18 million, respectively. The fair
D. The acquirer accounts for the business combination step by step, beginning with step one. value of each of the shares of P is P6 and the quoted market price of S’s shares is P2. The share capital of S is
25 million shares after the acquisition. Calculate the value of goodwill.
PART III. MULTIPLE CHOICE PROBLEMS. Write the CAPITAL LETTER of your answer before the A. P16 million
number. Strictly NO ERASURES. B. P12 million
C. P10 million
Use the following information for the next three questions: D. P6 million

On June 1, 2022, the separate statement of financial position of P Co. and S Co. are as follows: Use the following information for the next six questions:
On January 1, P Company acquired 90% of S Company in exchange for 5,400 shares of P10 par common stock
P S having a market value of P120,600. P and S condensed balance sheets on January 1, were as follows:
Cash P145,700 P15,500
Accounts receivable 120,500 35,800 Assets P Company S Company
Inventories 42,500 10,200 Cash P30,900 P37,400
PPE 185,800 78,000 Accounts receivable net 34,200 9,100
Total assets P494,500 P139,500 Inventories 22,900 16,100
Liabilities P110,400 P28,800 Equipment net 179,000 40,000
Capital stock, P100 par value 200,000 50,000 Patents - 10,000
Additional paid in capital 50,000 - Total Assets P267,000 P112,600
Retained earnings 134,100 60,700 Liabilities and Equities
Total liabilities and stockholders’ equity P494,500 P139,500 Accounts payable P4,000 P 6,600
Bonds payable 100,000 -
On June 1, 2022, P acquired 100% of S’s outstanding capital stock for P150,000. P incurred additional P32,700 Common stock, P10 par 100,000 50,000
in acquisition-related costs. All the assets of S are fairly valued except the PPE with a fair value of P90,000 on Additional paid-in capital 15,000 15,000
the acquisition date. Retained earnings 48,000 41,000
Total Liabilities and Equities P267,000 P112,600
1. How much is the goodwill?
A. 39,500 At the date of acquisition, all assets and liabilities of S Company have book value approximately equal to their
B. 27,500 respective market values except the following as determined by appraisal as follows:
C. 61,500 Inventories (FIFO method) P17,100
D. 0 Equipment (net-remaining life 4 years) 48,000
2. How much will be the total assets in the consolidated balance sheet on June 1, 2022? Patents (remaining life 10 years) 13,000
A. 646,000
B. 490,800
C. 523,300 NCI is measured at proportionate share.
D. 634,000
For the year ended December 31, the following results were given:
2
 Dividends Paid Net Income PART IV. Show your supporting computations. Double rule and encircle your final answer. Strictly
P Company P 15,000 P 30,200 NO ERASURES. (2pts each)
S Company 4,000 9,400
1. P Corporation purchases all of S Company’s stock on June 1 for P1,200,000. At that date, S had the following
5. The amount of goodwill on January 1: book and market values:
A. P2,600 Book Value Market Value
B. P14,400 Cash and Receivables P80,000 P80,000
C. P3,800 Inventory 230,000 270,000
D. P 25,200 Plant Assets (net) 900,000 1,230,000
6. The non-controlling interest on January 1: Cost of Goods Sold 750,000
A. P 10,600 Operating Expenses 170,000
B. P 11,800 Dividends 20,000
C. P 11,200 Liabilities 600,000 600,000
D. P 13,090 Common Stock 25,000
7. The dividend income for the year is Retained Earnings 525,000
A. P0 Sales 1,000,000
B. P 3,600
C. P 4,000 What amount of retained earnings is eliminated in the acquisition date worksheet elimination? 525,000
D. P 8,400
8. The non-controlling interest in net assets (NCINA) on December 31 is
A. P 10,600 Use the following information for the next five questions:
B. P 11,140 P Corporation acquired 80 percent of the stock of S Company by issuing shares of its common stock with a fair
C. P 12,010 value of P192,000. At that time, the fair value of non-controlling interest was estimated to be P48,000 and the
D. P 12,300 fair values of its identifiable assets and liabilities were P310,000 and P95,000, respectively. S’s assets and
9. The profit attributable to equity holders of parent for controlling interest in consolidated net income on liabilities had book values of P220,000 and P95,000, respectively. Compute the following amounts to be reported
December is immediately after the combination:
A. P 26,600
B. P 32,090 2. Investment in GG reported by RR. 192,000
C. P 36,000
D. P 44,100
10. The consolidated total equity on December 31 is 3. Increase in identifiable assets of the combined entity. 310,000
A. P 108,090
B. P 300,690
C. P 312,700 4. Increase in total liabilities of the combined entity 95,000
D. P 317,410

5. Full-goodwill for the combined entity 25,000

6. Non-controlling interest (full-goodwill) reported in the consolidated balance sheet. 48,000