ACCT 526 Final Exam ACTUAL EXAM
2026/2027 | Complete Exam-Style Q&A |
Verified | Pass Guaranteed - A+ Graded
Section A: Business Combinations & Consolidations (Q1–25)
Q1: Parent Company acquires 80% of Sub Company for $500,000 cash. Sub's net assets have a book
value of $400,000 and fair value of $450,000. What is the amount of goodwill (if any) under the
acquisition method assuming no other fair value adjustments?
A. $0
B. $50,000
C. $100,000
D. $140,000 [CORRECT]
Correct Answer: D
Rationale: Goodwill = consideration transferred ($500,000) + fair value of NCI (20% of $450,000 fair
value = $90,000) – fair value of Sub's identifiable net assets ($450,000) = $500,000 + $90,000 – $450,000
= $140,000.
Q2: On January 1, 2026, P Corp acquires 100% of S Corp for $800,000. S Corp's identifiable net assets
have a book value of $600,000 and fair value of $720,000. S Corp has an unrecorded internally
developed patent with fair value of $80,000. The acquisition results in:
A. Goodwill of $80,000
B. Goodwill of $0; bargain purchase gain of $0 [CORRECT]
C. Bargain purchase gain of $80,000
D. Goodwill of $160,000
Correct Answer: B
Rationale: Fair value of identifiable net assets = $720,000 + $80,000 (unrecorded patent) = $800,000.
Consideration transferred = $800,000. Goodwill = $800,000 – $800,000 = $0. No bargain purchase gain
exists because the unrecorded intangible asset was properly identified and measured at fair value.
,Q3: Under ASC 805, acquisition-related costs such as investment banking fees, legal fees, and valuation
costs are:
A. Capitalized as part of goodwill
B. Expensed as incurred [CORRECT]
C. Added to the consideration transferred
D. Recorded as a reduction of NCI
Correct Answer: B
Rationale: ASC 805 requires that acquisition-related costs be expensed as incurred in the period the
services are received. These costs are not part of the fair value exchange between the acquirer and
acquiree and do not affect the measurement of goodwill.
Q4: P Company acquires 70% of S Company. S Company reports net income of $200,000 for 2026. The
fair value of S's net assets exceeded book value by $100,000 at acquisition, attributable to a building
with a 10-year remaining life. Noncontrolling interest is measured at fair value. NCI's share of
consolidated net income for 2026 is:
A. $60,000
B. $57,000 [CORRECT]
C. $63,000
D. $70,000
Correct Answer: B
Rationale: NCI share = 30% × ($200,000 – $10,000 excess depreciation on building) = 30% × $190,000 =
$57,000. The excess fair value amortization reduces subsidiary income before allocation to NCI.
Q5: In a business combination, the acquirer measures the noncontrolling interest at fair value (full
goodwill method). The fair value of the NCI is determined to be $150,000, but the book value of the
NCI's share of net assets is $120,000. The $30,000 difference:
A. Reduces goodwill
B. Is recognized as a gain in earnings
C. Is part of the measurement of goodwill [CORRECT]
D. Is recorded as additional paid-in capital
Correct Answer: C
Rationale: Under the full goodwill method, the fair value of NCI is added to consideration transferred to
determine total goodwill. The difference between NCI fair value and NCI share of identifiable net assets
is implicitly included in the total goodwill calculation: Total goodwill = (Consideration + FV of NCI) – FV of
identifiable net assets.
,Q6: P Corp acquires 90% of S Corp. At acquisition, S has equipment with book value $300,000 and fair
value $350,000 (5-year remaining life). In the first consolidated year, the consolidation eliminating entry
for the excess depreciation includes a debit to:
A. Retained Earnings
B. Equipment
C. Depreciation Expense [CORRECT]
D. Accumulated Depreciation
Correct Answer: C
Rationale: The excess fair value of $50,000 creates additional annual depreciation of $10,000 ($50,000 ÷
5 years). In the year of acquisition and subsequent years, the eliminating entry debits Depreciation
Expense (or retained earnings in later years for prior period adjustments) to reflect the correct
consolidated depreciation based on fair value.
Q7: A bargain purchase gain arises when:
A. The fair value of consideration transferred exceeds the fair value of identifiable net assets
B. The fair value of identifiable net assets acquired exceeds the fair value of consideration transferred
plus fair value of NCI [CORRECT]
C. Goodwill is negative
D. The acquisition method is not applied
Correct Answer: B
Rationale: A bargain purchase gain occurs when the fair value of identifiable net assets acquired
exceeds the sum of consideration transferred and the fair value of NCI. Before recognizing a gain, the
acquirer must reassess the identification and measurement of all assets, liabilities, and consideration.
Any remaining excess is recognized as a gain in earnings.
Q8: P Company acquires 75% of S Company for $450,000. S's identifiable net assets have fair value of
$500,000. The fair value of the 25% NCI is $160,000. Goodwill under the full goodwill method is:
A. $50,000
B. $110,000 [CORRECT]
C. $87,500
D. $0
, Correct Answer: B
Rationale: Full goodwill = consideration transferred ($450,000) + fair value of NCI ($160,000) – fair value
of identifiable net assets ($500,000) = $610,000 – $500,000 = $110,000.
Q9: Under the partial goodwill method (proportionate share), goodwill is calculated as:
A. Consideration transferred – fair value of 100% of identifiable net assets
B. Consideration transferred – acquirer's percentage of fair value of identifiable net assets [CORRECT]
C. Fair value of 100% of entity – fair value of 100% of identifiable net assets
D. Book value of consideration – book value of net assets acquired
Correct Answer: B
Rationale: The partial goodwill method measures goodwill as the excess of consideration transferred
over the acquirer's proportionate share of the fair value of identifiable net assets acquired. NCI is
measured at its proportionate share of identifiable net assets rather than fair value.
Q10: In preparing consolidated financial statements immediately after acquisition, the investment
account on the parent's books is:
A. Carried at cost on the consolidated balance sheet
B. Eliminated in its entirety against the subsidiary's equity accounts [CORRECT]
C. Reclassified as goodwill
D. Shown as a separate line item between liabilities and equity
Correct Answer: B
Rationale: The parent's investment account is eliminated in consolidation against the subsidiary's equity
accounts (common stock, additional paid-in capital, retained earnings) and any differential is allocated
to identifiable assets, liabilities, and goodwill. The investment account does not appear in consolidated
financial statements.
Q11: P Corp acquires 80% of S Corp when S has retained earnings of $200,000. In the first consolidation
worksheet, the eliminating entry for pre-acquisition retained earnings includes a:
A. Debit to Investment in S Corp
B. Debit to S Corp Retained Earnings [CORRECT]
C. Credit to S Corp Retained Earnings
D. Credit to Goodwill
Correct Answer: B
Rationale: Pre-acquisition retained earnings of the subsidiary are eliminated by debiting S Corp Retained
2026/2027 | Complete Exam-Style Q&A |
Verified | Pass Guaranteed - A+ Graded
Section A: Business Combinations & Consolidations (Q1–25)
Q1: Parent Company acquires 80% of Sub Company for $500,000 cash. Sub's net assets have a book
value of $400,000 and fair value of $450,000. What is the amount of goodwill (if any) under the
acquisition method assuming no other fair value adjustments?
A. $0
B. $50,000
C. $100,000
D. $140,000 [CORRECT]
Correct Answer: D
Rationale: Goodwill = consideration transferred ($500,000) + fair value of NCI (20% of $450,000 fair
value = $90,000) – fair value of Sub's identifiable net assets ($450,000) = $500,000 + $90,000 – $450,000
= $140,000.
Q2: On January 1, 2026, P Corp acquires 100% of S Corp for $800,000. S Corp's identifiable net assets
have a book value of $600,000 and fair value of $720,000. S Corp has an unrecorded internally
developed patent with fair value of $80,000. The acquisition results in:
A. Goodwill of $80,000
B. Goodwill of $0; bargain purchase gain of $0 [CORRECT]
C. Bargain purchase gain of $80,000
D. Goodwill of $160,000
Correct Answer: B
Rationale: Fair value of identifiable net assets = $720,000 + $80,000 (unrecorded patent) = $800,000.
Consideration transferred = $800,000. Goodwill = $800,000 – $800,000 = $0. No bargain purchase gain
exists because the unrecorded intangible asset was properly identified and measured at fair value.
,Q3: Under ASC 805, acquisition-related costs such as investment banking fees, legal fees, and valuation
costs are:
A. Capitalized as part of goodwill
B. Expensed as incurred [CORRECT]
C. Added to the consideration transferred
D. Recorded as a reduction of NCI
Correct Answer: B
Rationale: ASC 805 requires that acquisition-related costs be expensed as incurred in the period the
services are received. These costs are not part of the fair value exchange between the acquirer and
acquiree and do not affect the measurement of goodwill.
Q4: P Company acquires 70% of S Company. S Company reports net income of $200,000 for 2026. The
fair value of S's net assets exceeded book value by $100,000 at acquisition, attributable to a building
with a 10-year remaining life. Noncontrolling interest is measured at fair value. NCI's share of
consolidated net income for 2026 is:
A. $60,000
B. $57,000 [CORRECT]
C. $63,000
D. $70,000
Correct Answer: B
Rationale: NCI share = 30% × ($200,000 – $10,000 excess depreciation on building) = 30% × $190,000 =
$57,000. The excess fair value amortization reduces subsidiary income before allocation to NCI.
Q5: In a business combination, the acquirer measures the noncontrolling interest at fair value (full
goodwill method). The fair value of the NCI is determined to be $150,000, but the book value of the
NCI's share of net assets is $120,000. The $30,000 difference:
A. Reduces goodwill
B. Is recognized as a gain in earnings
C. Is part of the measurement of goodwill [CORRECT]
D. Is recorded as additional paid-in capital
Correct Answer: C
Rationale: Under the full goodwill method, the fair value of NCI is added to consideration transferred to
determine total goodwill. The difference between NCI fair value and NCI share of identifiable net assets
is implicitly included in the total goodwill calculation: Total goodwill = (Consideration + FV of NCI) – FV of
identifiable net assets.
,Q6: P Corp acquires 90% of S Corp. At acquisition, S has equipment with book value $300,000 and fair
value $350,000 (5-year remaining life). In the first consolidated year, the consolidation eliminating entry
for the excess depreciation includes a debit to:
A. Retained Earnings
B. Equipment
C. Depreciation Expense [CORRECT]
D. Accumulated Depreciation
Correct Answer: C
Rationale: The excess fair value of $50,000 creates additional annual depreciation of $10,000 ($50,000 ÷
5 years). In the year of acquisition and subsequent years, the eliminating entry debits Depreciation
Expense (or retained earnings in later years for prior period adjustments) to reflect the correct
consolidated depreciation based on fair value.
Q7: A bargain purchase gain arises when:
A. The fair value of consideration transferred exceeds the fair value of identifiable net assets
B. The fair value of identifiable net assets acquired exceeds the fair value of consideration transferred
plus fair value of NCI [CORRECT]
C. Goodwill is negative
D. The acquisition method is not applied
Correct Answer: B
Rationale: A bargain purchase gain occurs when the fair value of identifiable net assets acquired
exceeds the sum of consideration transferred and the fair value of NCI. Before recognizing a gain, the
acquirer must reassess the identification and measurement of all assets, liabilities, and consideration.
Any remaining excess is recognized as a gain in earnings.
Q8: P Company acquires 75% of S Company for $450,000. S's identifiable net assets have fair value of
$500,000. The fair value of the 25% NCI is $160,000. Goodwill under the full goodwill method is:
A. $50,000
B. $110,000 [CORRECT]
C. $87,500
D. $0
, Correct Answer: B
Rationale: Full goodwill = consideration transferred ($450,000) + fair value of NCI ($160,000) – fair value
of identifiable net assets ($500,000) = $610,000 – $500,000 = $110,000.
Q9: Under the partial goodwill method (proportionate share), goodwill is calculated as:
A. Consideration transferred – fair value of 100% of identifiable net assets
B. Consideration transferred – acquirer's percentage of fair value of identifiable net assets [CORRECT]
C. Fair value of 100% of entity – fair value of 100% of identifiable net assets
D. Book value of consideration – book value of net assets acquired
Correct Answer: B
Rationale: The partial goodwill method measures goodwill as the excess of consideration transferred
over the acquirer's proportionate share of the fair value of identifiable net assets acquired. NCI is
measured at its proportionate share of identifiable net assets rather than fair value.
Q10: In preparing consolidated financial statements immediately after acquisition, the investment
account on the parent's books is:
A. Carried at cost on the consolidated balance sheet
B. Eliminated in its entirety against the subsidiary's equity accounts [CORRECT]
C. Reclassified as goodwill
D. Shown as a separate line item between liabilities and equity
Correct Answer: B
Rationale: The parent's investment account is eliminated in consolidation against the subsidiary's equity
accounts (common stock, additional paid-in capital, retained earnings) and any differential is allocated
to identifiable assets, liabilities, and goodwill. The investment account does not appear in consolidated
financial statements.
Q11: P Corp acquires 80% of S Corp when S has retained earnings of $200,000. In the first consolidation
worksheet, the eliminating entry for pre-acquisition retained earnings includes a:
A. Debit to Investment in S Corp
B. Debit to S Corp Retained Earnings [CORRECT]
C. Credit to S Corp Retained Earnings
D. Credit to Goodwill
Correct Answer: B
Rationale: Pre-acquisition retained earnings of the subsidiary are eliminated by debiting S Corp Retained
