Pre Assessment C243 Adv Financial Accounting QUESTIONS WITH ANSWERS

Pre Assessment C243 Adv Financial
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Accounting QUESTIONS WITH |\ |\ |\




ANSWERS


Company A exchanges 10,000 shares of $1 par common stock (fair market
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value of $20 per share) for all of the stock of Company B. Which entry is
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posted to the books of Company A in accounting for the business combination
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on the acquisition date?
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1) Debit to Investment in B for $10,000 and Credit to Common Stock for
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$10,000

2) Debit to Investment in B for $190,000 and Credit to Additional Paid in
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Capital for $190,000 |\ |\




3) Debit to Investment in B for $200,000, Credit to Common Stock for $10,000,
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and Credit to Additional Paid in Capital for $190,000
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4) Debit to Equity in Earnings for $200,000, Credit to Common Stock for
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$10,000, and Credit to Additional Paid in Capital for $190,000 - CORRECT
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ANSWERS ✔✔3 |\




Chapter 1 page 20 item (10) |\ |\ |\ |\ |\




Cost to acquire Company B = 10,000 * $20/share = $200,000
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Value of stock exchanges = 10,000 *$1/share = $10,000 - credit because issuing
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shares
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Difference to APIC |\ |\

,What is a common reason for a business combination involving a merger
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between companies? |\




1) Decreases the operational complexity of the firm
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2) Increases the liabilities of the combined company
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3) Allows a company to gain entry into a new product area
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4)Enhances competition in the industry - CORRECT ANSWERS ✔✔3 |\ |\ |\ |\ |\ |\ |\ |\




Chapter 1 - A is not true as it will increase complexity, B is not true as that is
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not usually a company objective, and merging reduces competition so D is not
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correct - C is correct. |\ |\ |\ |\




Company A acquires buildings and equipment from Company B in a forced
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sale for a purchase price of $300,000 in a business combination. The assets
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have a fair market value of $500,000.What is the proper journal entry for
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Company A to record this bargain purchase transaction?|\ |\ |\ |\ |\ |\ |\




1) Debit Building & Equipment 500,000 Credit cash 300,000 & Gain on
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Bargain Purchase 200,000 |\ |\




2) Debit Cash 300,000 & Gain on Bargain Purchase 200,000 Credit Building &
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Equipment 500,000 |\




3) Debit Building & Equipment 300,000 Credit Cash 300,000
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4) Debit Cash 300,000 Credit Building & Equipment 300,000 - CORRECT
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ANSWERS ✔✔1 |\




Chapter 1 page 20 item (8) |\ |\ |\ |\ |\




Acquire assets worth 500,000 per problem - debit what you acquire
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Cash paid out is 300,000 per problem
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,Difference to Gain on Bargain Purchase |\ |\ |\ |\ |\




Company A has just acquired Company B at book value and wants to prepare
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a consolidated balance sheet dated as of the acquisition date. The pre-
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acquisition balance sheets for both firms are below: |\ |\ |\ |\ |\ |\ |\




Balance Sheet Totals Company A Company B
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Cash 50,000 10,000
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AR 60,000 50,000
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Inv 40,000 100,000
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Land 500,000 250,000
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Build & Equip 600,000 720,000
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Accum Dep (350,000) (180,000)
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Total Assets 900,000 1,050,000
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AP 50,000 50,000
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Debt Outstanding 200,000 300,000
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Common Stock 350,000 475,000 |\ |\ |\




Retained Earnings 300,000 225,000 |\ |\ |\




What will the optional accumulation elimination entry be in this case?
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1) Debit Accumulated Depreciation 180,000 Credit Building & Equipment
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180,000

, 2) Debit Building & Equipment 180,000 Credit Accumulated Depreciation
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180,000

3) Debit Accumulated Depreciation 720,000 Credit Building & Equipment
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720,000

4) Debit Building & Equipment 720,000 Credit Accumulated Depreciation
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720,000 - CORRECT ANSWERS ✔✔1 |\ |\ |\ |\




Chapter 2 Page 62-63 - accumulated depreciation entry - eliminate acquisition
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date subsidiary accumulated depreciation of 180,000
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Company A acquired 100% of Company B on January 1, 2013, at book value
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and wants to prepare a consolidated balance sheet for the combined entity as
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of December 31, 2013. The financial statements for each individual entity
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below are for the period ending December 31, 2013:
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Income Stmt Company A Company B |\ |\ |\ |\ |\




Sales 500,000 300,000 |\ |\




COGS (150,000) (105,000) |\ |\




Dep (50,000) (20,000)
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Inc from Comp B 175,000
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Net Inc 475,000 175,000
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Stmt of RE |\ |\




Cash 100,000 50,000 |\ |\




NI in 2013 250,000 175,000
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