C243-Advanced Financial Accounting |\ |\ |\
EXAM QUESTIONS WITH ANSWERS |\ |\ |\
Assuming no impairment in value prior to transfer, assets transferred by a
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
parent company to another |\ |\ |\
entity it has created should be recorded by the newly created entity at the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
assets':
a. cost to the parent company.
|\ |\ |\ |\ |\
b. book value on the parent company's books at the date of transfer.
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
c. fair value at the date of transfer.
|\ |\ |\ |\ |\ |\ |\
d. fair value of consideration exchanged by the newly created entity. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔book value on the parent company's books at the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
date of transfer.
|\ |\
Rivendell Corporation and Foster Company merged as of January 1, 20X9. To
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
effect the merger,
|\ |\
Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
to the stock issuance
|\ |\ |\
of $10,000, stock registration fees of $5,000, and stock listing application fees of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$4,000.
|\
Based on the preceding information, under the acquisition method, what
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount relating to the |\ |\ |\
business combination would be expensed? |\ |\ |\ |\
a. $72,000
|\
,b. $19,000
|\
c. $53,000
|\
d. $63,000 - CORRECT ANSWERS ✔✔$53,000
|\ |\ |\ |\ |\
Burrough Corporation paid $80,000 to acquire all of Helyar Company's net
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
assets. Helyar reported |\ |\
assets with a book value of $60,000 and fair value of $98,000 and liabilities
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
with a book value and fair
|\ |\ |\ |\ |\
value of $23,000 on the date of combination. Burrough also paid $3,000 to a
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
search firm for finder's |\ |\ |\
fees related to the acquisition. What amount will be recorded as goodwill by
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Burrough Corporation |\
while recording its investment in Helyar?
|\ |\ |\ |\ |\
a. $0
|\
b. $5,000
|\
c. $8,000
|\
d. $13,000 - CORRECT ANSWERS ✔✔$5,000
|\ |\ |\ |\ |\
Plummet Corporation reported the book value of its net assets at $400,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
when Zenith Corporation
|\ |\
acquired all Plummet's assets and assumed all Plummet's liabilities. The fair
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
value of Plummet's net
|\ |\ |\
assets was determined to be $510,000 on that date.
|\ |\ |\ |\ |\ |\ |\ |\
Based on the preceding information, what amount of goodwill will Zenith
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
record at the time of the |\ |\ |\ |\ |\
,business combination if Zenith paid $500,000 for the acquisition?
|\ |\ |\ |\ |\ |\ |\ |\
a. $0
|\
b. $50,000
|\
c. $150,000
|\
d. $40,000 - CORRECT ANSWERS ✔✔$0
|\ |\ |\ |\ |\
Note: This is based on a Kaplan CPA Review Question
|\ |\ |\ |\ |\ |\ |\ |\ |\
Company X acquired for cash all of the assets and assumed all the liabilities of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Company Y. At what |\ |\ |\
value, in general, should Company X record the inventories and long-term
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
debt acquired from
|\ |\
Company Y? |\
Inventories Long-term debt |\ |\
a. Fair value Fair value
|\ |\ |\ |\
b. Fair value Book value
|\ |\ |\ |\
c. Book value Fair value
|\ |\ |\ |\
d. Book value Book value - CORRECT ANSWERS ✔✔Fair value Fair value
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Plummet Corporation reported the book value of its net assets at $400,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
when Zenith Corporation
|\ |\
acquired 100 percent ownership. The fair value of Plummet's net assets was
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
determined to be |\ |\
$510,000 on that date. |\ |\ |\
, Based on the preceding information, what amount will be recorded by Zenith
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
as its investment in
|\ |\ |\
Plummet, if it paid $500,000 for the acquisition?
|\ |\ |\ |\ |\ |\ |\
a. $610,000
|\
b. $400,000
|\
c. $500,000
|\
d. $510,000 - CORRECT ANSWERS ✔✔$510,000
|\ |\ |\ |\ |\
The fair value of identifiable net assets of a reporting unit of X Company is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$300,000. On X |\ |\
Company's books, the carrying value of this reporting unit's net assets is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$350,000, including $60,000 |\ |\
goodwill. If the fair value of the reporting unit as a whole is $335,000, what
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount of goodwill |\ |\
impairment will be recognized for this unit? |\ |\ |\ |\ |\ |\
a. $0
|\
b. $10,000
|\
c. $25,000
|\
d. 425,000 - CORRECT ANSWERS ✔✔$25,000
|\ |\ |\ |\ |\
On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
shares of Spiel |\ |\
Corporation for $100,000 cash. Spiel Company reported net income of $75,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and paid dividends of
|\ |\ |\
EXAM QUESTIONS WITH ANSWERS |\ |\ |\
Assuming no impairment in value prior to transfer, assets transferred by a
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
parent company to another |\ |\ |\
entity it has created should be recorded by the newly created entity at the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
assets':
a. cost to the parent company.
|\ |\ |\ |\ |\
b. book value on the parent company's books at the date of transfer.
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
c. fair value at the date of transfer.
|\ |\ |\ |\ |\ |\ |\
d. fair value of consideration exchanged by the newly created entity. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔book value on the parent company's books at the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
date of transfer.
|\ |\
Rivendell Corporation and Foster Company merged as of January 1, 20X9. To
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
effect the merger,
|\ |\
Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
to the stock issuance
|\ |\ |\
of $10,000, stock registration fees of $5,000, and stock listing application fees of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$4,000.
|\
Based on the preceding information, under the acquisition method, what
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount relating to the |\ |\ |\
business combination would be expensed? |\ |\ |\ |\
a. $72,000
|\
,b. $19,000
|\
c. $53,000
|\
d. $63,000 - CORRECT ANSWERS ✔✔$53,000
|\ |\ |\ |\ |\
Burrough Corporation paid $80,000 to acquire all of Helyar Company's net
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
assets. Helyar reported |\ |\
assets with a book value of $60,000 and fair value of $98,000 and liabilities
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
with a book value and fair
|\ |\ |\ |\ |\
value of $23,000 on the date of combination. Burrough also paid $3,000 to a
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
search firm for finder's |\ |\ |\
fees related to the acquisition. What amount will be recorded as goodwill by
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Burrough Corporation |\
while recording its investment in Helyar?
|\ |\ |\ |\ |\
a. $0
|\
b. $5,000
|\
c. $8,000
|\
d. $13,000 - CORRECT ANSWERS ✔✔$5,000
|\ |\ |\ |\ |\
Plummet Corporation reported the book value of its net assets at $400,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
when Zenith Corporation
|\ |\
acquired all Plummet's assets and assumed all Plummet's liabilities. The fair
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
value of Plummet's net
|\ |\ |\
assets was determined to be $510,000 on that date.
|\ |\ |\ |\ |\ |\ |\ |\
Based on the preceding information, what amount of goodwill will Zenith
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
record at the time of the |\ |\ |\ |\ |\
,business combination if Zenith paid $500,000 for the acquisition?
|\ |\ |\ |\ |\ |\ |\ |\
a. $0
|\
b. $50,000
|\
c. $150,000
|\
d. $40,000 - CORRECT ANSWERS ✔✔$0
|\ |\ |\ |\ |\
Note: This is based on a Kaplan CPA Review Question
|\ |\ |\ |\ |\ |\ |\ |\ |\
Company X acquired for cash all of the assets and assumed all the liabilities of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Company Y. At what |\ |\ |\
value, in general, should Company X record the inventories and long-term
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
debt acquired from
|\ |\
Company Y? |\
Inventories Long-term debt |\ |\
a. Fair value Fair value
|\ |\ |\ |\
b. Fair value Book value
|\ |\ |\ |\
c. Book value Fair value
|\ |\ |\ |\
d. Book value Book value - CORRECT ANSWERS ✔✔Fair value Fair value
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
Plummet Corporation reported the book value of its net assets at $400,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
when Zenith Corporation
|\ |\
acquired 100 percent ownership. The fair value of Plummet's net assets was
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
determined to be |\ |\
$510,000 on that date. |\ |\ |\
, Based on the preceding information, what amount will be recorded by Zenith
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
as its investment in
|\ |\ |\
Plummet, if it paid $500,000 for the acquisition?
|\ |\ |\ |\ |\ |\ |\
a. $610,000
|\
b. $400,000
|\
c. $500,000
|\
d. $510,000 - CORRECT ANSWERS ✔✔$510,000
|\ |\ |\ |\ |\
The fair value of identifiable net assets of a reporting unit of X Company is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$300,000. On X |\ |\
Company's books, the carrying value of this reporting unit's net assets is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$350,000, including $60,000 |\ |\
goodwill. If the fair value of the reporting unit as a whole is $335,000, what
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount of goodwill |\ |\
impairment will be recognized for this unit? |\ |\ |\ |\ |\ |\
a. $0
|\
b. $10,000
|\
c. $25,000
|\
d. 425,000 - CORRECT ANSWERS ✔✔$25,000
|\ |\ |\ |\ |\
On January 1, 20X7, Yang Corporation acquired 25 percent of the outstanding
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
shares of Spiel |\ |\
Corporation for $100,000 cash. Spiel Company reported net income of $75,000
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and paid dividends of
|\ |\ |\
