Multiple choices Problem

1. On June 30 20x4, SS Company reported the following account balance.

Receivables. . . . . . . . . . P80, 000 Current Liabilities. . . . . . . . . . . P (10,000)

Inventory. . . . . . . . . . . . . 70,000 Long term Liabilities. . . . . . . . . . . (50,000)
Building (net) . . . . . . . . . 75,000 Common Stock. . . . . . . . . . . . . . . (90,000)
Equipment (net). . . . . . . . 25, 000 Retained Earnings. . . . . . . . . . . . . (100,000)
Total Asset . . . . . . . . . P250, 000 Total Liabilities and equities. . . . P (250,000)

On June 30 20x4, PP paid P300,00C cash for all the outstanding stock of SS, which will continue to exist
as a separate entity. In connection with the acquisition, PP paid indirect combination costs and agreed to
pay P50,000 to the former owners Of SS Contingent on meeting certain revenue goals during 20x4. PP
estimated the present value of its probability adjusted expected payment for the contingency at P 15000.
In determining its offer, PP noted the following pertaining to SS:

 It holds a building with a fair value P40, 000 more than its book value,

 it has developed a customer list appraised at P22 000, although it is not recorded in its financial
record

 It has research and development activity in process with an appraised fair value of P3Ci0CC.
However the project has not yet reached technological, feasibility and the assets used in the
activity have no alternative future use,
 Book values for the receivables, inventory, equipment, and liabilities approximate fair value.

Calculate the amount of goodwill:

A. P 3,000
B. P 18,000
C. P 33,000
D. NONE OF THE ABOVE

Use the following information for question 2 and 3:

Platek Enterprises purchases 100 percent of Smith Company for At that date, Smith Company had the
following book values and market values:

Book Value Market Value

Cash and Receivables P 25,000 P25, 000
Inventory 125, 000 180,000
Plant Assets (net) 300,000 475,000
Current Liabilities (60,000) (60,000)
Long-term Debt (120,000) (120,000)
Common Stock (15,000)
Retained Earnings (255,000)

2. What is total Purchase differential?

A. P150,000
B. P100,000
C. P420,000
D. P330,00

3. What is amount of the work sheet elimination to plant assets on the acquisition date?
 A. P 475,000 debit
B. P 300,000 credit
C. P 175,000 debit
D. P 175,000 credit

Use the following information for question 4 and 5:

Enya Corporation acquired 100 percent of Celtics Corporation’s common stock on January 1, 20x4.
Summarized balance sheet information for the two companies immediately after the combination is
provided.
Enya Celtics
Book Value Book Value Fair Value
Cash and Receivable. . . . . . . . . . . . . . . . . . . . . . . P 60,000 P 15,000 P 15,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 32,000 38,000
Building and Equipment (net). . . . . . . . . . . . . . . 160,000 90,000 120,000
Investment in Celtic Stock . . . . . . . . . . . . . . . . . . . 150,000
Total Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000 P137, 000 P 173,000

Account payable . . . . . . . .. . . .. .. .. .. . . .. .. . . . .P 40,000 P 5,000 P 5,000

Bonds Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 40,000 40,000
Common Stocks (P1 Par). . . . . . . . . .. . . .. . . . . . . .. 100,000 40,000
Retain earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 52,000
Total Liabilities and equity. . . . . . . . . . . . . . . . . . . . 480,000 137,000 45,000

4. The amount of differential associated with the acquisition:

A. P 0
B. P22,000
C. P36,000
D. P58,000

5. The consolidated balance sheet of Enya and Celtic will Reflect goodwill in the amount of:
A. P0
B. P22,000
C. P36,000
D. P58,000

Use the following information for question 6 and 8:

On January 1, 20x4, Wilton Company acquired all of Sirius Company’s common shares for P365, 000
cash. On that date, Sirius balance sheet appeared as follows:

Cash and Receivable. . . . . . . . . . . . . . . . . . . . . . . P 50,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Building and Equipment (net). . . . . . . . . . . . . . . 200,000
Total Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380,000

Current Liabilities . . . . . . . . . .. . . . . . . . . . . . . . . P 30,000

Notes Payable . . . . . . . . . .. . . . . . . . . . . . . . . . . . 50,000
Common Stocks (P1 Par). . . . . . . . . .. . . .. . . . . .. .. 100,000
Paid- in Capital in excess. . . . . . . . . . . . . . . . . . . . . 150,000
Retain earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Total Liabilities and equity. . . . . . . . . . . . . . . . . . . .380, 000
 The fair value of all of Sirius’s asset and liabilities were equal to their book value except for inventory that
had a fair value of

85,000. Land that had fair value of P60,000, and building and equipment’s that had a fair value of
P250,000. Buildings and equipment have a remaining useful life of 10years with zero salvage value.
Wilton Company decided to employ push-down accounting for acquisition. Subsequent to the
combination, Sirius continued to operate as a separate company.

6. What the amount will be present in the revolution capital account, when eliminating entries are
prepared?
A. P 0
B. P 15,000
C. P 60,000
D. 65, 000

7. What amount of differential will arise in the consolidation process?

A. P 0
B. P 5,000
C. P 15,000
D. P 65,000

8. The Write up of buildings and the equipment will:

A. Increase Sirius’s reported net income for 20x4 by, P5,000
B. Decrease Sirius’s reported net income for 20x4 by, P5,000
C. Increase Sirius’s reported net income for 20x4 by, P50,000
D. Have no effect on Sirius’s reported net income for 20x4

Use the following information for question 9 and 10:

Pinehollow acquired all of the outstanding stock by Stonebriar by issuing P100, 000 shares of its P 1 par
value stock. The share have a fair value of P 15 per share. Pinehollow also paid P 25, 000 in direct
acquisition cost. Prior to the transaction, the companies have the following balance sheets:

Asset Pine hollow Stone briar

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . P 150,000 P 50,000

Account Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 500,000 350,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000 600,000
Property plant and equipment (net) . . . . . . . . . . . . . . . . . . . . . . 1,850,000 900,000
Total asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3,400,000 P1, 900,000

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 300,000 P 100,000

Bonds payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 600,000
Common stocks (P! par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 100,000
Paid - in capital in excess of par. . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 900,000
Retain Earning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 200,000
Total liability and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 3, 400,000 P 1,900,000

The fair value; of Stonebriar’s inventory and plant, property and equipment are P700,00 and P I,000,000
respectively.

9. The journal entry to record the purchase of Stonebriar would include a

 A. Credit to common stock for PI, 500,000.
B. Credit to additional paid-in capital for P1, 100,000.

C. Debit to investment for P 1, 500.000.

D. debit to investment for P 1,525,000

10. Goodwill associated with the purchase of Stone briar is____

A. P 100,000
B. P125,000
C. P300,000
D. P325,000

Use the following information for questions 11 to 14:

On December 31 20x4, Add-On Company acquired 100 percent of Venus Corporation Common stock for
P300.000. Balance sheet information Venus just prior to the acquisition is given here:

Cash and Receivable. . . . . . . . . . . . . . . . . . . . . . . P 35,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Building and Equipment (net). . . . . . . . . . . . . . . 220,000
Total Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 430,000

Notes Payable . . . . . . . . . .. . . . . . . . . . . . . . . P 65,000

Bonds Payable . . . . . . . . . .. . . . . . . . . . . . . . . . . . 150,000
Common Stocks (P1 Par). . . . . . . . . .. . . .. . . . . .. .. 100,000
Retain earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,000
Total Liabilities and equity. . . . . . . . . . . . . . . . . . . .P 430,000

At the date of the business combination, Venus's net assets and liabilities approximated for value except
for inventory, which had a fair value of P60,000, land which had a fair value of P125,000 and building,
and equipment (net), which had a fair value of P250.000,

11. What amount of inventory will be included in the consolidated balance sheet immediately following
the acquisition?
A. P15,000
B. P45,000
C. P60,000
D. P75,000

12. What amount of goodwill will be included in the consolidated balance sheet immediately following the
acquisition?
A. P15,000
B. P30,000
C. P45,000
D. P85,000

13. What amount of differential will be reflected in a consolidation work paper to prepare consolidated
balance sheet immediately after the business combination?
A. P 0
B. P15,000
 C. P45,000
D. P85,000

14. What amount will be included as investment in Venus Corporation in the consolidated balance sheet
immediately following the acquisition?
A. P 0
B. P 255,000
C. P300,000
D. P395,000

Use the following information for questions 15 to 19:

On June 30, 20x4, PC Company purchased all of the common stock of Silicon Company by issuing
100,000 shares of its PI par value common stock, with a market value of P25/share. PC Company
incurred P400, 000 in registration and issuing costs, and P250.000 in consulting and legal fees, paid in
cash. The book value of Silicon Company at the date of acquisition was PI consisting of capital stock of
P560,000, retained earnings of P280,000 (credit balance), treasury stock of P35,000, and accumulated
other comprehensive income of P19500 (credit balance). The cawing values of Silicon's reported assets
and liabilities approximate fair value, but it has P700, 000 in customer lists, not reported on its balance
sheet.

15. PCs journal entry to record this acquisition includes a credit to additional paid-in capital for.
A. P1,750,000
B. P2,000,000
C. P2,150,000
D. P2,400,000

16. PCs journal entry to record this acquisition includes a debit to Investment in Silicon for:
A. P1,950,000
B. 2,500,000
C. P2,150,000
D. P3,150,000

17. Eliminating entry includes:

A. A debit to accumulated other comprehensive income for P195,000
B. A debit to treasury stock for P35,000
C. A credit to cash for P650,000
D. A credit to investment for P840,000

18. Eliminating entry includes a debit to goodwill for:

A. P800,000
B. P1,050,000
C. P1,200,000
D. P1,500,000

19. Eliminating entry includes:

A. A credit to capital stock for P100,000
B. A debit to customer lists for P700,000.
C. A credit to accumulated other comprehensive income for PI 95,000
D. A credit to investment for P1,900,000

20. Pagach Company purchased 100% of the voting common stock of Rage Company for P1,180,000
The following book and fair values are available:

BOOK VALUE Fair Value

Current Assets . . . . .. . . .. . . . . . . . . .. .. . .. P 150,000 P 300,000

Land and Building . . . . . . . . . . . . . . . . . . . .. 280,000 280,000
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 700,000
Bonds Payable . . . . . . . . . . . . . . . . . . . . . . . . (300,000) (250,000)
Goodwill. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 150,000 ?
 The bonds payable will appear on the consolidated balance sheet
A. at P300,000 (with no premium or discount shown).
B. at P300,000 less a discount of P50,000
C. at P0; assets are recorded net of liabilities.
D. at an amount less than P250 000 since it is a bargain purchase.

21. Om June 30, 20x1, Naeder Corporation purchased for cash at P10 per share all 100,000 shares of
the outstanding common Stock of the Tedd Company. The total fair value of identifiable net assets of
Tedd was P1,400,000.The only noncurrent asset is property With fair value of P350.000 The
consolidated balance sheet of Naeder and its wholly owned subsidiary on June 30, 20x1, should
report.
A. A retained earnings balance that is inclusive of a gain of P400,000
B. Goodwill of P400,000
C. A retained earnings balance that is inclusive of a gain of P350,000
D. A gain of P400,000

Use the following information for question 22 and 23:

NN Company’s balance sheet on December 31, 20x4, was as follow:

Asset Liabilities and Stockholder’s Equity

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 100,000 Current Liabilities. . . . . . . . . . . P 300,000

Accounts Receivable. . . . . . . . . . . . . . . . . 200,000 Long term Debt. . . . . . . . . . . . . 500,000
Common Stock (par P1
Per share) . . . . . . . . . . . . . . . . . 100,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Properly, Plant, and Equipment (Net). . . . 900,000 Additional Paid- in Capital
Retained Earnings. . . . . . . . . . . 200,000.
Total Assets. . . . . . . . . . . . . . . P 1,700,000 Total Liabilities and
Stockholder Equity. . . . . . . . P 1,700,000

On December 31, 20x4, GG Company acquired all of NN’s outstanding common stock for P1,500,000
cash. On that date, the fair (market) value of NN’s inventories was P450,000, and the fair value of NN’s
property, plant, and equipment was P1,000,000. The fair values of all other assets and liabilities of NN
were equal to their book values.

22. As a result of GG’s acquisition of NN, the consolidated balance sheet of GG and NN should reflect
goodwill amount of:
A. P500,000
B. P550,000
C. P600,000
D. P650,000
 23. Assuming that the balance sheet of GG (unconsolidated) on December 31, 20x4, reflected retained
earnings of P2,000,000, what amount of retained earnings should be shown in the December 31,
20x4, consolidated balance sheet of GG and it’s new subsidiary, NN?
A. P2,000,000
B. P2,600,000
C. P2,800,000
D. 3,250,000
24. BB Corporation acquired 100 percent of CC Corporation’s outstanding capital stock for P430,000
cash. Immediately before the purchase, the balance sheets both corporations reported the following:

BB CC

Asset P2, 000,000 P750, 000

Liabilities P750, 000 P400, 000
Common Stocks 1,000,000 310,000
Retain Earnings 250,000 40,000
Liabilities and Stockholders’ Equity P 2,000,000 P750, 000
At the date of purchase, the fair value of CC’s assets was P50,000 more than the aggregate carrying
amounts. In the consolidated balance sheet prepared immediately after the purchase, the
consolidated stockholder’s equity should amount to:

A. P1,680,000
B. P1,650,000
C. 1,600,000
D. P1,250,000

Use the following information for question 25 to 29:

BB Corporation acquired 100 percent of SS Enterprises’ common stock on December 31, 20x4. At that
date, the book Values and fair values of SS’s identifiable assets and liabilities were identical. Balance
sheet data for the individual companies and the consolidated entity on January 1, 20x5, are as follows:

BB SS Consolidated
Corporation Enterprise Entity
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . P 60,000 P 35,000 P 95,000
Account Receivable. . . . . . . . . . . . . . . . . . . . . . . . 90,000 50,000 130,000
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 50,000 ?
25. Assuming there were no inventory transactions between the companies, what balance for inventory
should be reported in the consolidated balance sheet?
A. P 0
B. P90,000
C. P120,000
D. P210,000
26. What amount did BB pay to acquire SS? Was this amount equal to, greater than, or less than
underlying book value? How do you know?
A. P110,000;P30,000 greater than
B. P110,000;P30,000 less than
C. Zero; P30,000 less than
D. Zero; P30,000 greater than
27. BB sold land it had purchased 12 years earlier for P10,000 to SS immediately after it acquired SS. At
what price did BB sell the land to SS? How do you know
A. P10,000
B. P15,000
C. P25,000
D. P40,000
28. What balance will be reported as accounts payable in the consolidated balance sheet
A. P10,000
B. P55,000
C. P75,000
D. P120,000
29. What is the par value of BB common stock outstanding at January 1, 20x5?
A. No-par
B. P30,000
C. P100,000
 D. P130,000

(With control Premium):

Use the following information for question 30 to 32:

The statement of financial position of Son Corporation on June 30, 20x5 is presented below:

Assets Liabilities and Shareholder’s Equity

Current Asset. . . . . . . . . . . . . . . . . P 39,000 Liabilities. . . . . . . . . . .. .. . . . . . . P 105,000
Land. . . . . . . . . . . . . . . . . . . . . . . . 264,000 Ordinary share capital. . . . . . . . 180,000
Building. . . . . . . . . . . . . . . . . . . . . 132,000 Share Premium. . .. . . . . . . . . . . . 165,000
Equipment . . . . . . . . . . . . . . . . . . 105,000 Accumulated Profits. . . . . . . . . . . 90,000
Total Assets. . . . . . . . . . . . . . . . . . P 540,000 Total liab & Sheequity. . . . .. . . . P 540,000

All of the asset and liabilities of Son assumed to approximate their Fair Value except for land and
buildings. It is estimated that the land have a fair market value of P420, 000 and their fair value of the
buildings increase by P96, 000. Parent Corporation acquired 80% of Sons ordinary shares for P600, 000.

30. Assuming the consideration paid includes control premium of P170,400. How much is the goodwill
using proportionate approach?
A. P50,400
B. P63,000
C. P220,000
D. None of the above

31. Assuming the consideration paid excludes control premium of P27,600 and the fair value of the non-
controlling interest is P14,300, how much is the goodwill using fair value basis?
A. P60,300
B. P87,900
C. P187,750
D. None of the above

32. Assuming the consideration paid includes control premium of P44,400. How much is the goodwill
(gain) on acquisition using full/fair value basis?
A. (P87,000)
B. P7,500
C. P51,900
D. None of the above

(With Subsidiary’s Existing Goodwill):

33. P Company purchased all of the shares of S Company for $13 million in cash on January 1, 20x4. At
the date of acquisition, the fair values of S’s reported net assets equal their carrying values. The
balance sheets of P and S just prior to acquisition appear below.

(in million) P Co. S Co.

  Dr (Cr)
Current assets P 15 P 6
Plant & equipment 460 200
Accumulated
depreciation (120) (50)
Goodwill - 40
Liabilities (200) (140)
Capital stock (100) (20)
Retained earnings (55) (36)

The gain on acquisition amounted to:

A. None
B. P3,000,000
C. P43,000,000
D. None of the above

Fair Value of Non-controlling Interest in Subsidiary Given with Control Premium.

Use the following information for questions 34 to 37.

Smart Company has 40% of its share publicly traded on an exchange. PLDT Company purchases the
60% non-publicly traded shares in one transaction, paying P7,560,000. Based on the trading price of the
shares of Smart Company at the date of gaining control a value of P4,800,000 assigned to the 40% non-
controlling interest (or fair value of non-controlling interest), including that Smart Company has paid a
control premium of P360,000. The fair value of Smart Company’s identifiable net assets is P8,400,000
and a carrying value of P6,000,000.

34. Compute the amount of goodwill, using partial goodwill or proportionate basis approach:
A. None
B. B. P2,520,000
C. P3,960,000
D. None of the above

35. Compute the amount of goodwill, using full-goodwill or fair value basis approach:

36. Compute the non-controlling interest on acquisition Non-controlling interest on acquisition using
partial goodwill or proportionate basis approach:
A. None
B. P3,360,000
C. P4,800,000
D. None of the above

37. Compute the Non-controlling interest on acquisition, full-goodwill or fair value basis approach:
A. None
B. P3, 360,000
C. P4, 800,000
D. None of the above

Fair Value of Subsidiary Given.

Use the following information for questions 38-41.

On September 1, 2x04, Pencil Company acquires 75% (900,000 ordinary shares) of Sharp Company for
P9,000,000 (P10 per share). In the period around the acquisition date, Sharp Company’s shares are
trading at about P8 per share. Pencil Company pays a premium over market because of the synergies it
believes it will get. It its therefore reasonable to conclude that the fair value of Sharp’s as a whole may not
be P12, 000,000. In fact, an independent valuation shows that the value of Sharp Company is P11,
640,000 (fair value of Sharp Company). Assuming that the fair value of the net assets acquired is P9,
600,000 (carrying value is P7, 200,000).

38. Compute the amount of goodwill, using partial goodwill or proportionate basis approach:
A. None
B. P1, 080,000
C. P2, 040,000
D. None of the above

39. Compute the amount of goodwill, using full-goodwill or fair value basis approach:
A. None
B. P1, 080,000
C. P2, 040,000
D. None of the above

40. Compute the non-controlling interest on acquisition Non-controlling interest on acquisition using
partial goodwill or proportionate basis approach:
A. None
B. P2, 400,000
C. P2, 640,000
D. None of the above

41. Compute the Non-controlling interest on acquisition, full-goodwill or fair value basis approach:
A. None
B. P2, 400,000
C. P2, 640,000
D. None of the above

(Step Acquisition: Fair value of Non-controlling Interest of the acquire/subsidiary) and Fair
value of any previously held equity interest in the acquire/subsidiary)
Use the following information for questions 42-45:

Press Company acquires 15 percent of Secretary Company’s common stock for P600,000 cash and
carries the investment using the cost model. A few months later, Press purchases another 60 percent of
Secretary Company’s stock for P2, 592,000, At that date, Secretary Company reports identifiable assets
with a book value of P4, 680,000 and a fair value with a book value of P4,680,000 and a fair value of
P6,120,000, and it has liabilities with a book value and fair value of P2,280,000. The fair value of the 25%
non-controlling interest in Secretary Company is P1, 080,000.

42. Compute the amount of goodwill, using partial goodwill or proportionate basis approach:
A. None
B. P360,000
C. P480,000
D. None of the above

43. Compute the amount of goodwill, using full-goodwill or fair value basis approach:
A. None
B. P360,000
C. P480,000
D. None of the above

44. Compute the non-controlling interest on acquisition Non-controlling interest on acquisition using
partial goodwill or proportionate basis approach:
 A. None
B. P 960,000
C. P1,080,000
D. None of the above

45. Compute the Non-controlling interest on acquisition, full-goodwill or fair value basis approach:
A. A. None
B. P960,000
C. P1,080,000
D. None of the above

Use the following information for questions 46-51:

Bristle Corporation acquired 75 percent of Silver Corporation’s common stock on December 31, 20x8, for
P300,000. The fair value of the non-controlling interest at that date was determined to be P100, 000.
Silver’s balance sheet immediately before the combination reflected the following balances:

Cash and receivables…............................................ P 40,000

Inventory…............................................................ 70,000
Land…................................................................... 90,000
Buildings and equipment (net)…............................... 250,000
Total assets…........................................................ P 450,000
Accounts payable…................................................ P 30,000
Income Taxes Payable…......................................... 40,000
Bonds Payable….................................................... 100,000
Common stock….................................................... 100,000
Retained earnings …............................................... 180,000
Total liabilities and equity…..................................... P 450,000

A careful review of the fair value of Silver’s assets and liabilities indicated that inventory, land and
buildings and equipment (net) had fair values of P65,000, P100,000, and P300,000 respectively. Goodwill
is assigned proportionately to Bristle and the non-controlling shareholders.

46. What amount of inventory will be included in the consolidated balance sheet immediately following
the acquisition?
A. P 0
B. P65,000
C. P70,000
D. P60,000

47. What amount of land will be included in the consolidated balance sheet immediately following the
acquisition?
A. P 0
B. P10,000
C. P90,000
D. P100,000
48. What amount of buildings and equipment (net) will be included in the consolidated balance sheet
immediately following the acquisition?
A. P 0
B. P50,000
C. P250,000
D. P300,000
49. What amount of goodwill will be reported in the consolidated balance sheet immediately following
the acquisition?
A. P 0
B. P120,000
C. P65,000
D. P20,000

50. What amount will be reported as investment in Silver Corporation stock in the consolidated balance
sheet immediately following the acquisition?
A. P 0
B. P210,000
C. P300,000
D. P400,000

51. What amount will be reported as non-controlling interest in the consolidated balance sheet
immediately following the acquisition?
A. P 0
B. P70,000
C. P83,750
D. P100,000

Use the following information for questions 52 to 58:

On January 1, 20x9, Jonathan Corporation acquired 80 percent of Sea-Gull Company’s common stock for
P160,000 cash. The fair value of the non-controlling interest at the date was determined to be P40,000.
Data from the balance sheets of the two companies included the following amounts as the date of
acquisition:
At the date of the business combination, the book values of Sea-gull’s net assets and liabilities
approximated fair value except for inventory, which had a fair value of P45,000, and land, which had a
fair value of P60,000 (using the full-goodwill approach).

52. What amount of total inventory will be reported in the consolidated balance sheet prepared
immediately after the business combination?
A. P130,000
B. P135,000
C. P90,000
D. P45,000
 Jonathan Sea-Gull
Corporation Corporation
Cash…................................................................... P 60,000 P 20,000
Account Receivable…............................................. 80,000 30,000
Inventory…............................................................ 90,000 40,000
Land….................................................................. 100,000 40,000
Buildings and Equipment (net)…............................. 200,000 150,000
Less: Accumulated Depreciation…........................... (80,000) (50,000)
Investment in Sea-Gull Corporation Stock….............. 160,000 -
Total assets…........................................................ P 610,000 P 230,000
Accounts payable…............................................... P 110,000 30,000
Bonds Payable…................................................... 95,000 40,000
Common stock….................................................... 200,000 40,000
Retained earnings …............................................. 205,000 120,000
Total Liabilities and Stockholder's Equity.................. P 610,000 P 230,000

53. What amount of goodwill will be reported in the consolidated balance sheet prepared immediately
after the business combination?
A. P 0
B. P40,000
C. P20,000
D. P15,000

54. What amount of total assets will be reported in the consolidated balance sheet prepared immediately
after the business combination?
A. P720,000
B. P840,000
C. P825,000
D. P865,000

55. What amount of total liabilities will be reported in the consolidated balance sheet prepared
immediately after the business combination?
A. P395,000
B. P280,000
C. P275,000
D. P195,000

56. What amount will be reported as non-controlling interest in the consolidated balance sheet prepared
immediately after the business combination?
A. P 0
B. P15,000
C. P40,000
D. P46,000

57. What amount of consolidated retained earnings will be reported?

A. P205,000
B. P120,000
C. P325,000
D. P310,000
58. What amount will be reported as total stockholder’s equity in the consolidated balance sheet prepared
immediately after the business combination?
A. P445,000
B. P205,000
C. P565,000
D. P550,000

Use the following information for questions 59 and 60:

On January 1, 20x4, Poole Company purchased 75% of the common stock of Swimmer Company.
Separate balance sheet data for the companies at the combination date are given below:
Swimmer Swimmer
          Co.   Co.
Book
      Poole Co.   Values   Fair Values
Cash P 24,000   P 206,000   P 206,000
Account Receivable   144,000   26,000   26,000
Inventory   132,000   38,000   60,000
Land 78,000   32,000   60,000
Plant assets 700,000   300,000   350,000
Acc. depreciation   (240,000)   (60,000)    
Investment in Swimmer Co. 440,000        
P
  Total assets   1,278,000   P 542,000   P 702,000
P
Accounts payable 206,000   P 142,000   P 142,000
Capital stock 800,000   300,000    
Retained earnings 272,000   100,000    
P
  Total liabilities and equity 1,278,000   P 542,000  

Determine below what the consolidated balance would be for each of the requested accounts on January
2, 20x4.

59. What amount of inventory will be reported?

A. P170,000
B. P177,000
C. P186,500
D. P192,000

60. What is the amount of total assets?

A. P1,626,667
B. P1,566,667
C. P1,980,000
D. P2,006,668
Use the following information to for questions 61 to 69:
PP corporation acquired 70 percent of SS Corporation’s common stock on December 31, 20x4.
Balance sheet data for the two companies immediately following the acquisition follow:

PP SS
Corporation Corporation
Item
Cash ₱ 44,000 ₱ 30,000
Accounts Receivable 110,000 45,000
Inventory 130,000 70,000
Land 80,000 25,000
Buildings and equipment 500,000 400,000
Less: Accumulated Depreciation (223,000) (165,000)
Investment in Corporation Stock 150,500  
Total Assets ₱ 791,500 ₱ 405,000
Accounts Payable ₱ 61,500 ₱ 28,000
Taxes Payable ₱ 95,000 ₱ 37,000
Bonds Payable ₱ 280,000 ₱ 200,000
Common Stock ₱ 150,000 ₱ 50,000
Retained earnings ₱ 205,000 ₱ 90,000
₱ ₱
Total Liabilities and stockholders' Equity 791,500 405,000

At the date of the business combination, the book values of SS’s net assets and liabilities approximated
fair value except for inventory, which had fair value of P85,000, and land, which had a fair value of
P45,000. The fair value of the non-controlling interest was P64,500 on December 31, 20x4. Indicate the
appropriate total that should appear in the consolidated balance sheet prepared immediately after the
business combination.

61. What amount of inventory will be reported?

A. P179,000
B. P200,000
C. P210,500
D. P215,000

62. What amount of goodwill (partial) will be reported?

A. P28,000
B. P40,000
C. P52,000
D. None of the above

63. What amount of goodwill (full) will be reported?

A. P 0
B. P28, 000
C. P40, 000
D. P52, 000

64. What amount of total assets will be reported?

 A. P1, 081,000
B. P1, 121,000
C. P1, 196,500
D. P1, 231,500

65. What amount of total liabilities will be reported?

A. P265, 000
B. P436, 500
C. P622, 000
D. P701, 500

66. What amount will be reported as non-controlling interest (partial)?

A. P52, 500
B. P60, 900
C. P64, 500
D. None of the above

67. What amount will be reported as non-controlling interest (full goodwill)?

A. P42, 000
B. P52, 500
C. P60, 900
D. P64, 500

68. What amount of consolidated retained earnings will be reported?

A. P295, 000
B. P268, 000
C. P232, 000
D. P205, 000

69. What amount of the total stockholders’ equity will be reported?

A. P355, 000
B. P397, 000
C. P419, 500
D. P495, 000

Use the following information for questions 70 to 78:

On January 1, 20x4, Park Corporation and Strand Corporation and their condensed balance sheet are as
follows:
  Park Corp. Strand Corp.
Current Assets ₱ 70,000 ₱ 20,000
Non-current Assets 90,000 40,000
Total Assets ₱ 160,000 ₱ 60,000
Current Liabilities ₱ 30,000 ₱ 10,000
Long-term Debt 50,000 -
Stockholders' Equity 80,000 50,000
Total Liabilities and Equities ₱ 160,000 ₱ 60,000
On January 2, 20x4, Park Corporation borrowed P60,000 and used the proceeds to obtain 80% of the
outstanding common shares of Strand Corporation. The P60,000 debt is payable in 10 equal annual
principal payments, plus interest, beginning December 31, 20x4. The excess fair value of the investment
over the underlying book value of the acquired net assets is allocated to inventory (60%) and to goodwill
(40%).
On a consolidated balance sheet as of January 2, 20x4, what should be the amount for each of the
following?

70. The amount of goodwill using proportionate basis (partial):

A. P 0
B. P8, 000
C. P10, 000
D. P20, 000

71. The amount of goodwill using full fair value (full/gross-up) basis:
A. P 0
B. P8, 000
C. P10, 000
D. P20, 000

72. Current assets should be:

A. P105, 000
B. P102, 000
C. P100, 000
D. P90, 000

73. Non-current asset using proportionate basis (partial) in computing goodwill should be:
A. P130, 000
B. P134, 000
C. P138, 000
D. P140, 000

74. Non-current assets using full fair value basis (full/gross-up) in computing goodwill should be:
A. P130, 000
B. P134, 000
C. P138, 000
D. P140, 000

75. Current liabilities should be:

A. P50, 000
B. P46, 000
C. P40, 000
D. P30, 000

76. Non- current liabilities should be:

A. P110, 000
B. P104, 000
C. P90, 000
D. P50, 000

77. Stockholders’ equity using proportionate partial goodwill) basis of determine non-controlling interest
should be:
 A. P80, 000
B. P93, 000
C. P95, 000
D. P130, 000

78. Stockholders’ equity using full fair value (full/gross-up goodwill) proportionate basis of determine
non-controlling interest should be:
A. P80, 000
B. P90, 000
C. P95, 000
D. P130, 000

Use the following information for question 79 to 82:

On January 1, 20x4, Pamela Company purchased 75% of the common stock of Snicker Company.
Separate balance sheet data for the companies at the combination date are given below:

Snicker Co. Snicker Co.

  Pamela Co. Book Values Fair Values
Cash ₱ 18,000 ₱ 155,000 ₱ 155,000
Accounts receivable 108,000 20,000 20,000
Inventory 99,000 26,000 45,000
Land 60,000 24,000 45,000
Plant assets 525,000 225,000 300,000
Accumulated depreciation (180,000) (45,000)  
Investment in Snicker Co. 330,000    
Total assets ₱ 960,000 ₱ 405,000 ₱ 565,000
Accounts payable ₱ 156,000 ₱ 105,000 ₱ 105,000
Capital stock 600,000 225,000  
Retained earnings 204,000 75,000  
Total liabilities & equities ₱ 960,000 ₱ 405,000  
Determine below what the consolidated balance would be for each of the requested accounts on
January 2, 20x4.

79. What amount of inventory will be reported?

A. P125, 000
B. P132, 750
C. P139, 250
D. P144, 000

80. What amount of goodwill or (gain) be reported based on fair value basis will be reported?
A. (P20, 000)
B. (P25, 000)
C. P25, 000
D. Zero

81. What is the amount of consolidated retained earnings?

A. P204, 000
B. P209, 250
C. P260, 250
 D. P279, 000

82. What is the amount of total assets?

A. P921, 000
B. P1, 185,000
C. P1, 525,000
D. P1, 195,000

Use the following information for question 83 to 89:

BB Corporation acquired controlling ownership of SS Corporation on December 31, 20x4, and a
consolidated balance sheet was prepared immediately. A partial balance sheet data for the two
companies and the consolidated entity on December 31, 20x4:

BB Corporation and SS Corporation

Balance Sheet Data
BB SS Consolidated
Item Corporation Corporation Entity
Cash ₱ 63,650 ₱ 35,000 ₱ 98,650
Accounts Receivable ₱ 98,000 ? ₱ 148,000
Inventory ₱ 105,000 ₱ 80,000 ₱ 195,000
Buildings and Equipment ₱ 400,000 ₱ 340,000 ₱ 780,000
Less: Accumulated Depreciation ₱ 215,000 ₱ 140,000 ₱ 355,000
Investment in SS Corporation
Stock ?  
Goodwill     ₱ 9,000
₱ ₱ ₱
Total Assets 620,000 380,000 875,650
₱ ₱ ₱
Accounts Payable 115,000 46,000 146,000
₱
Wages Payable ? ? 94,000
₱ ₱ ₱
Notes Payable 200,000 110,000 310,000
₱ ₱
Common Stock 120,000 75,000 ?
₱ ₱
Retained Earnings 115,000 125,000 ?
₱
Non-controlling Interest     90,650
₱ ₱
Total Liabilities and Equities ? 380,000 875,650

During 20x4, BB provided engineering services to SS and has not yet been paid for them. There were no
other receivables or payables between BB and SS at December 31, 20x4.

83. What is the amount of unpaid engineering services at December 31, 20x4, on work done by BB for
SS?
A. P15, 000
B. P46, 000
C. P115, 000
D. P146, 000

84. What balance in accounts receivable did SS report at December 31, 20x4?
 A. P15, 000
B. P65, 000
C. P98, 000
D. P148, 000

85. What amounts of wages payable did BB and SS report at December at December 31, 20x4?
A. BB, P70, 000; SS, P24, 000
B. BB, P380, 000; SS, P94, 000
C. BB, P70, 000; SS, P94, 0000
D. Cannot be determined

86. What was the fair value of SS as a whole at the date of acquisition?
A. P200,000
B. P210,000
C. P250,000
D. P259,000

87. What percent of Ss’s shares were purchased by BB?

A. None
B. 35%
C. 65%
D. 100%

88. What amounts of capital stock and retained earnings, respectively must be reported in the
consolidated balance sheet?
A. P120, 000; P115, 000
B. P195, 000; P115, 000
C. P120, 000; P240, 000
D. P195, 000; P240, 000

89. On January 1, 20x4, Lester Company purchased 70% of Stork Corporation’s P5 par common stock
for P600,000. The book value of Stork net assets was P640,000 at that time. The fair value of Stork’s
identifiable net assets were the same as their book value except for equipment that was P40,000 in
excess of the book value. In the January 1, 20x4, consolidated balance sheet, full-goodwill would be
reported at
A. P152, 000
B. P177, 143
C. P80, 000
D. P-0-

90. Price Company acquired 75 percent of the common stock of Shandie Corporation on December 31,
20x5. On the date of acquisition, Price held land with a book value of P150,000 and a fair value of
P300,000; Shandie held land with a book value of P100,000 and fair value of P500,000. What amount
would land be reported in the consolidated balance sheet prepared immediately after the
combination?
A. P650, 000
B. P500, 000
C. P550, 000
D. P375, 000

91. On January 1, 20x5, Prima Corporation acquired 80 percent of Sunder Corporation’s voting common
stocks. Sunder’s buildings and equipment had a book value of P300,000 and a fair value of P350,000 at
the time of acquisition. At what amount will Sunder’s buildings and equipment will be reported in the
consolidated statements?

A. P350,000
 B. P340,000
C. P280,000
D. P300,000

92. When it purchased Sutton, Inc. on January 1,20x1, Pavin Corporation issued P500,000 shares of its
P5 par voting common stock. On that date the fair value of those shares totaled P4,200,000. Related to
the acquisition. Pavin had payments to the attorneys and accountants of P200,000, and stock issuance
fees of P100,000. Immediately prior to the purchase, the equity sections of the two firms appeared as
follows:

Pavin Sutton
Common stock. . . . . . . . . . . . . . . . . . . P 4,000,000 P 700,000
Paid-in capital excess of par . . . . . . . . 7,500,000 900,000
Retained earnings . . . . . . . . . . . . . . . . 5,500,000 500,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . P17,000,000 P2,100,000

Immediately after the purchase, the consolidated balance sheet should report paid-in capital in excess of
par of

A. P8,900,000
B. P9,100,000
C. P9,200,000
D. P9,300,000

93. Paro Company purchased 80% of the voting common stock of Sabon Company for P900,000. There
are no liabilities. The following book and fair values are available for Sabon:

Book Value Fair Value

Current asset. . . . . . . . . . . . . . . . . . . P 100,000 P 200,000
Land and building . . . . . . . . . . . . . . . 200,000 200,000
Machinery . . . . . . . . . . . . . . . . . . . . . 300,000 600,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 100,000 ?

The machinery will appear on the consolidated balance sheet at:

A. P600,000
B. P540,000
C. P480,000
D. P300,000

94. Judd Company issued nonvoting preferred stock with a fair value of P1,500,000 in exchange for all
the outstanding common stock of the Bath Corporation. On the date of the exchange, Bath had tangible
net assets with a book value of P900,000 and a fair value of P1,400,000. In addition, Judd issued
preferred stock valued at P100,000 to an individual as a finder’s fee for arranging the transaction. As a
result of these transaction, Judd should report an increase in net asset of:

A. P900,000
B. P1,400,000
C. P1,500,000
D. P1,600,000

95. Pina Corp. owns 60% of Simon Corp.’s outstanding common stock. On May 1, 20x5, Pina advanced
Simon P90,000 in cash, which was still outstanding at December 31, 20x5. What portion of this advance
should be eliminated in the preparation of the December 31, 20x5 consolidated balance sheet?
 A. P90,000
B. P54,000
C. P36,000
D. P-0-.

96. At December 31, 20x4, GG Inc. owned 90 percent of WW Corporation, a consolidated subsidiary, and
20 percent of CC Corporation, and investee in which GG cannot exercise significant influence. On the
same date, GG had receivables of P300,000 from WW and P200,000 from CC. In its December 31, 20x4
consolidated balance sheet. GG should report accounts receivable from its affiliates of:

A. P500,000
B. P340,000
C. P230,000
D. P200,000

97. JJ Inc. holds 75 percent of the outstanding stock of PP Corporation. PP currently owns JJ P400,000
for inventory acquired over the past few months. In preparing consolidated financial statements, what
amount of this debt should be eliminated?

A. P0
B. P100,000
C. P300,000
D. P400,000

98. Mr. C owns four corporations. Combined financial statements are being prepared for these
corporations, which have intercompany loans of P200,000 and intercompany profits of P500,000. What
amount of these intercompany loans and profits should be included in the combined financial statements?

Intercompany
Loans Profits

A. P200,000 P0
B. P200,000 P500,000
C. P0 P0
D. P0 P500,000

99. PP Corporation owns 60 percent of Sub Corporation’s outstanding capital stock. On May 1, 20x4, PP
advanced Sub P70,000 in cash, which was still outstanding at December 31, 20x4. What portion of this
advance should be eliminated in the preparation of December 31, 20x4, consolidated balance sheet?

A. P70,000
B. P42,000
C. P28,000
D. P0

100. WW Corporation includes several subsidiaries in its consolidated financial statements. In this
December 31, 20x4, trial balance. WW had the following intercompany balance before eliminations:
Debit Credit
Current receivable due from Main Company . . . P 32,000
Noncurrent receivable form Main Company . . . . 114,000
Cash Advance to CC Corporation . . . . . . . . . . . . . . 6,000
Cash Advance from KK Company . . . . . . . . . . . . . . P 15,000
Intercompany payable to KK Company . . . . . . . . . 101,000
In its December 31, 20x4, consolidated balance sheet, what amount should WW report as intercompany
receivables?

A. P152,000
B. P146,000
C. P36,000
D. P0

101. BB Inc., buys 60 percent of the outstanding stock of LL Inc., in an acquisition that resulted in the
recognition of goodwill. LL owns a piece of land that cost P200,000 but was worth P500,000 at the
acquisition date. What value should be attribute to this land in a consolidated balance sheet at the date of
takeover?

A. P120,000
B. P300,000
C. P380,000
D. P500,000

102. On January 1, 20x4. BB, Inc., reports net assets of P760,000 although equipment (with a 4-year life)
having a book value of P440,000 is worth P500,000 and an unrecorded patent is valued at P45,000. HH
Corporations pays P692,000 on that date for art 80 percent ownership in BB. If the patent is to be written
off over a 10-year period, at what amount should it be reported on consolidated statement at December
31, 20x5?

A. P28,800
B. P32,400
C. P36,000
D. P40,500

103. On January 1, 20x4, TT Inc., reports net assets of P480,000 although a building (with a 4-year life)
having a book value of P260,000 is now worth P300,000. PP Corporations pays P540,000 on that date for
a 90 percent ownership in TT. On December 31, 20x6, TT reports a building account of P182,000 and PP
reports a building account of P510,000. What is the consolidated balance of the building account?

A. P720,000
B. P724,000
C. P780,000
D. P810,000

104. Value Inc. is acquiring High Priced Industries in a stock swap. Each of High Priced’s 100,000 shares
is to be exchanged for 75 shares of Value. The current estimated market value of the two stocks is P10
for Value, an actively traded stock, and P8 for High Priced, which is family-owned and not actively traded.
The managers of High Priced have negotiated an increased exchange ratio from .75 to .8 shares if return
on equity is more than a targeted value. Determine the investment amount that could be recognized by
Value based on High Priced (1) not meeting the return on equity target, and (2) meeting the return on
equity target.

A. P750,000;P640,000
B. P750,000;P800,000
C. P600,000;P640,000
 D. P600,000;P800,000

105. Potters Petroleum is acquiring Deep Well Drilling in a stock swap. Each Deep Well’s 250,000 shares
is to be exchange for 1.50 shares of Potters. The current market values of the two stocks are P30 and
P45 for Potters Petroleum and Deep Well, respectively. The managers of Deep Well have negotiated an
increase exchange ratio from 1.50 to 1.80 shares if return on assets is more than a targeted value.
Assume that the market value of Potters Petroleum is more objectively determinable in valuing the
transaction. Determine the investment amount that could be recognized by Potters based on Deep Well
(1) not meeting the return on assets target, and (2) meeting the return on assets target.

A. P5,000,000; P13,500,000
B. P5,000,000; P22,500,000
C. P11,250,000; P13,500,500
D. P11,250,000; P20,250,000

106. Three Kings Games is in the process of combining with Jacks-or-Better Playing Card Company. The
business combination has been negotiated where each of Jack’s 500,000 shares of stock (market value
P42.50) will be exchanged for 1.7 shares of Three Kings Games (market value 25). This exchange ratio
will change if the per share market value of Three Kings changes by more than 20 percent before the
combination is completed. For example, if the market price of Three Kings decreases 25 percent (from 25
to P18.75), then the exchange ratio will increase 25 percent from 1.7 shares of Three Kings per share of
Jack’s to 2.125 shares (1.7 x 1.25). Determine the investment amount recognized by Jack’s-or Better if
Three King’s stock price decreases from P25 to P15.

A. P12,750,000
B. P16,612,500
C. P21,250,000
D. P35,416,667

Reverse Acquisition

107. The balance sheet of Pedro Ltd and Santi Ltd on June 30, 20x4 were as follow:

Book Value Fair Value

Current Assets. . . . . . . . . . . . . . . . . . P 500 P 700
Non-current Assets . . . . . . . . . . . . . . 1,300 3,000
Total Assets . . . . . . . . . . . . . . . . . . . P1,800 P3,700
Current Liabilities . . . . . . . . . . . . . . . P 300 P 600
Non-current Liabilities . . . . . . . . . . . . 400 100
Common stock, 100 shares . . . . . . . . 300 600
Retained earnings . . . . . . . . . . . . . . . 800 1,400
Total Liabilities and Equities . . . . . . . P 1,800 P 3,700

On July 1, 20x4, Pedro Ltd acquired all the issued shares of Santi Ltd giving in exchange 2 ½ Pedro Ltd
shares for each ordinary share of Santi Ltd. Pedro Ltd thus issued 150 shares to acquire the 60 shares
issued by Santi Ltd.

The fair value of each ordinary share of Santi Ltd on July 1, 20x4 is P40, while the quoted market price of
Pedro Ltd’s ordinary shares is P16. The fair values of Pedro Ltd’s identifiable assets and liabilities at
acquisition date are the same as their carrying amounts except for the non-current assets whose fair
value was P1,500. The tax rate is 30%.

The amount of goodwill acquired on July 1, 20x4:

A. P1,160
B. P856
 C. P400
D. P360

Push-down Accounting
Use the following information for question 108 and 109:

Prince Company acquires Duchess, Inc. on January 1, 20x4. The consideration transferred exceeds the
fair value of Duchess’ net assets. On that date, Prince has a building with a book value of P1,200,000 and
a fair value of P1,500,000. Duchess has a building with a book value of P400,000 and a fair value of
P500,000.

108. If push-down accounting is used, what amounts in the building account appear on Duchess’
separate balance sheet and on the consolidated balance sheet immediately after acquisition?

A. P400,000 and P1,600,000

B. P500,000 and P1,700,000
C. P500,000 and P2,000,000
D. P500,000 and P1,600,000
E. P400,000 and P1,700,000

109. If push-down accounting is not used, what amounts in the building account appear on Duchess’
separate balance sheet and on the consolidated balance sheet immediately after acquisition?

A. P400,000 and P1,600,000

B. P500,000 and P1,700,000
C. P500,000 and P2,000,000
D. P500,000 and P1,600,000
E. P400,000 and P1,700,000

110. Velwey Corp. acquired Joker Inc. on January 1, 20x4. The parent paid more than the fair value of the
subsidiary’s net assets. On that date, Velway had equipment with a book value of P500,000 and a fair
value of P640,000. Joker had equipment with a book value of P400,000 and a fair value of P470,000.
Joker decided to use push-down accounting. Immediately after the acquisition, what equipment amount
would appear on Joker’s separate balance sheet and on Velwey’s consolidated balance sheet,
respectively?

A. P400,000 and P900,000

B. P400,000 and P970,000
C. P470,000 and P900,000
D. P470,000 and P970,000
E. P470,000 and P1,040,000

111. Treadway Corporation acquires Hooker, Inc. The parent pays more for it than the fair value of the
subsidiary’s net assets. On the acquisition date, Treadway has equipment with a book value of P420,000
and a fair value of P530,000. Hooker had equipment with a book value of P330,000 and a fair value of
P390,000. Hooker is going to use push-down accounting. Immediately after the acquisition, what amounts
in the equipment account appear on Hooker’s separate balance sheet and on the consolidated balance
sheet?

A. P330,000 and P750,000

B. P330,000 and P860,000
C. P390,000 and P810,000
D. P390,000 and P920,000
 THEORIES

MULTIPLE CHOICE

1. At the date of an acquisition which is not a bargain purchase, the acquisition method
A. Consolidates the subsidiary’s assets at fair value and the liabilities at book value.
B. Consolidates all subsidiary assets and liabilities at book value.
C. Consolidates all subsidiary assets and liabilities at fair value.
D. Consolidates all subsidiary assets and liabilities at fair value.
E. Consolidates current assets and liabilities at book value, long-term assets and liabilities at fair
value.
2. Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to
exist as a separate corporation. Entries for consolidation of Lisa and Victoria would be recorded
in
A. A worksheet
B. Lisa’s general journal
C. Victoria’s general journal
D. Victoria’s secret consolidation journal
E. The general journals of both companies
3. What is the primary accounting difference between accounting for when the subsidiary is
dissolved and when the subsidiary retains its incorporation?
A. If the subsidiary is dissolved, it will not be operated as a separate division.
B. If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.
C. If the subsidiary retains its incorporation, there will be no goodwill associated with acquisition.
D. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book
values.
E. If the subsidiary retains its incorporation, the consolidation is not formally recorded in the
accounting records of the acquiring company.
4. A company is not required to consolidate a subsidiary in which it holds more than 50% of the
voting stock when
A. The subsidiary is located in a foreign country
B. The subsidiary in question is a finance subsidiary
C. The company holds more than 50% but less than 60% of the subsidiary’s voting stock
D. The company holds less than 75% of the subsidiary’s voting stock
E. The subsidiary is in bankruptcy
5. Which one of the following is a characteristic of a business combination that should be accounted
for as an acquisition?
A. The combination must involve the exchange of equity securities only
B. The transaction establishes an acquisition fair value basis for the company being acquired
C. The two companies may be about the same size and it is difficult to determine the acquired
company and the acquiring company
D. The transaction may be considered to be the uniting of the ownership interest of the
companies involved
E. The acquired subsidiary must be smaller in size than the acquiring parent
6. Which of the following is the best theoretical justification for consolidated financial statements?
A. In form the companies are one entity: in substance they are separate
B. In form the companies are separate: in substance they are one entity
C. In form and substance, the companies are one entity
D. In form and substance, the companies are separate
7. What is the appropriate accounting treatment for the value assigned to in-process research and
development acquired in a business combination?
A. Expense upon acquisition.
B. Capitalized as an asset.
C. Expense if there is no alternative use for the assets used in research and development and
technological feasibility has yet to be reached.
D. Expense until future economic benefits become certain and then capitalized as an asset.
8. An acquired entity has a long-term operating lease for an office building used for central
management. The terms of the lease are very favorable relative to current market rates.
However, the lease prohibits subleasing or any other transfer of rights. In its financial statements,
the acquiring firm should report the value assigned to the lease contract as
A. An intangible asset under the contractual-legal criterion.
B. A part of goodwill.
C. An intangible asset under the separability criterion.
D. A building.
9. WW Company obtains all of the outstanding stock of JJ, Inc. In a consolidation prepared
immediately after the takeover, at what value JJ’s inventory be consolidated?
A. At JJ’s historical cost.
B. A percentage of the acquisition cost paid by WW.
C. The inventory will be omitted in the consolidation.
D. At the acquisition-date fair value.
10. Under PFRS 3, when is a gain recognized in consolidating financial information?
A. When any bargain purchase is created.
B. In a combination created in the middle of a fiscal year.
C. In an acquisition when the value of all assets and liabilities cannot be determined.
D. When the amount of a bargain purchased exceeds the value of the applicable liability held by
the acquired company.
11. What is push-down accounting?
A. A requirement that a subsidiary must use the same accounting principles as a parent
company.
B. Inventory transfers made from a parent company to a subsidiary.
C. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.
D. The adjustments required for consolidation when a parent has applied the equity method of
accounting for internal reporting purposes.
12. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in
the next year. In a step acquisition of this type, the original 32 percent acquisition should be
A. A maintained at its initial value.
B. Adjusted to its equity method balance at the date of the second acquisition.
C. Adjusted to fair value at the date of the second acquisition with a resulting gain or loss
recorded.
D. Adjusted to fair value at the date of the second acquisition with a resulting adjustment to
additional paid-in capital.
13. If AA Company acquires 80 percent of the stock of BB Company on January 1, 20x2, immediately
after the acquisition:
A. Consolidated retained earnings will be equal to the combined retained earnings of the two
companies.
B. Goodwill will be reported in the consolidated balance sheet.
 C. AA Company’s additional paid-in capital may be reduce to permit the carry forward of BB
Company retained earnings.
D. Consolidated retained earnings and AA Company retained earnings will be the same.
14. Which of the following statements is correct?
A. The non-controlling shareholders’ claim of the subsidiary’s net assets is based on the book
value of the subsidiary’s net assets.
B. Only the parent’s portion of the difference between book value and fair value of the
subsidiary’s assets is assigned to those assets.
C. Goodwill represents the differences between the book value of the subsidiary’s net assets
and the amount paid by the parent to buy ownership
D. Total assets reported by the parent generally will be less than total assets reported on the
consolidated balance sheet.
15. Which of the following statements is correct?
A. Foreign subsidiaries do not need to be consolidated if they are reported as a separate
operating group under segment reporting.
B. Consolidated retained earnings do not include the non-controlling interest’s claim on the
subsidiary’s retained earnings.
C. The non-controlling shareholders’ claim should be adjusted for changes in the fair value of
the subsidiary assets but should not include goodwill.
D. Consolidation is expected any time the investor holds significant influence over the investee.
16. What is the theoretical preferred method of presenting a non-controlling interest in a consolidated
balance sheet?
A. As a separate item within the liability section
B. As a deduction from (contra to) goodwill from consolidation, if any.
C. By means of notes or footnotes to the balance sheet.
D. As a separate item within the stockholder’s equity section.
17. Presenting consolidated financial statements this year when statements of individual companies
were presented last year is:
A. The correction of an error.
B. An accounting change that should be reported prospectively.
C. An accounting change that should be reported by restating the financial statements of all prior
periods presented.
D. Not an accounting change.
18. A subsidiary, acquired for cash in a business combination, owned equipment with a market value
in excess of book value as of the date of combination. A consolidated balance sheet prepared
immediately after the acquisition would treat this excess as:
A. Goodwill
B. Plant and equipment
C. Retained Earnings
D. Deferred Credit
19. Goodwill is:
A. Seldom reported because it is too difficult to measure.
B. Reported when more than book value is paid in purchasing another company.
C. Reported when the fair value of the acquire is greater than the fair value of the net identifiable
assets acquired.
D. Generally smaller for small companies and increases in amount as the companies acquired
increase in size.
20. Consolidated financial statements are designed to provide:
A. Informative information to all shareholders.
B. The results of operations, cash flow, and the balance sheet is an understandable and
informative manner for creditors.
 C. The results of operations, cash flow, and the balance sheet as if the parent and subsidiary
were a single entity.
D. Subsidiary information for the subsidiary shareholders.
21. Consolidated financial statements are appropriate even without a majority ownership if which of
the following exists:
A. The subsidiary has the right to appoint members of the parent company’s board of directors.
B. The parent company has the right to appoint a majority of the members of the subsidiary’s
board of directors through a large minority voting interest.
C. The subsidiary owns a large minority voting interest in the parent company.
D. The parent company has an ability to assume the role of general partner in a limited
partnership with the approval of the subsidiary’s board of directors.
22. The IASB has recommended that a parent corporation should consolidate the financial
statements of the subsidiary into its financial statements when it exercises control over the
subsidiary, even without majority ownership. In which of the following situations would control
NOT be evident?
A. Access to subsidiary assets is available to all shareholders.
B. Dividend policy is set by the parent.
C. The subsidiary does not determine compensation for its main employees.
D. Substantially all cash flows of the subsidiary flow to the controlling shareholders.
23. The goal of the consolidation process is for:
A. Asset acquisitions and 100% stock acquisitions to result in the same balance sheet.
B. Goodwill to appear on the balance sheet of the consolidated entity.
C. The assets of the non-controlling interest to be predominately displayed on the balance
sheet.
D. The investment in the subsidiary to be properly valued on the consolidated balance sheet.
24. A subsidiary was acquired for cash in a business combination on December 31, 20x4. The
purchase price exceeded the fair value of identifiable net assets. The acquired company owned
equipment with a fair value in excess of the book value as of the date of the combination. A
consolidated balance sheet prepared on December 31, 20x1, would
A. Report the excess of the fair value over the book value of the equipment as part of goodwill.
B. Report the access of the fair value over the book value of the equipment as part of plant and
equipment account.
C. Reduce retained earnings for the excess of the fair value of the equipment over its book
value.
D. Make no adjustment for the excess of the fair value of the equipment over book value.
Instead, it is an adjustment to expense over the life of the equipment.
25. The investment in a subsidiary should be recorded on the parent’s book at the
A. Underlying book value of the subsidiary’s net assets.
B. Fair value of the subsidiary’s net identifiable assets.
C. Fair value of the consideration given.
D. Fair value of the consideration given plus an estimated value for goodwill.
26. Which of the following costs of a business combination can be included in the value charged to
paid-in-capital in excess of par?
A. Direct and indirect acquisition costs
B. Direct acquisition costs
C. Direct acquisition costs and stock issue costs if stock is issued as consideration
D. Stock issue costs if stock is issued as consideration
27. When a company purchases another company that has existing goodwill and the transaction is
accounted for as a stock acquisition, the goodwill should be treated in the following manner.
A. Goodwill on the books of an acquired company should be disregarded.
B. Goodwill is recorded prior to recording fixed assets.
C. Goodwill is not recorded until all assets are stated at full fair value.
 D. Goodwill is treated consistent with other tangible assets.
28. The SEC requires the use of push-down accounting in some specific situations. Push-down
accounting results in:
A. Goodwill be recorded in the parent company separate accounts.
B. Eliminating subsidiary retained earnings and paid-in capital in excess of par.
C. Reflecting fair values on the subsidiary’s separate accounts.
D. Changing the consolidation worksheet procedure because no adjustment is necessary to
eliminate the investment in subsidiary account.
29. A majority-owned subsidiary that is in legal reorganization should normally be accounted for using
A. Consolidated financial statements.
B. The equity method.
C. The market value method.
D. The cost method.
30. Under the acquisition method, indirect costs relating to acquisitions should be
A. included in the investment cost.
B. expensed as incurred.
C. deducted from other contributed capital.
D. none of these.
31. Eliminating entries are made to cancel the effects of intercompany transactions and are made on
the
A. books of the parent company.
B. books of the subsidiary company.
C. workpaper only.
D. books of both the parent company and the subsidiary.
32. One reason a parent company may pay an amount less than the book value of the subsidiary’s
stock acquired is
A. an undervaluation of the subsidiary’s assets.
B. the existence of unrecorded goodwill.
C. an overvaluation of the subsidiary’s liabilities.
D. the existence of unrecorded contingent liabilities.
33. In a business combination accounted for as an acquisition, registration costs related to common
stock issued by the parent company are
A. expensed as incurred.
B. deducted from other contributed capital.
C. included in the investment cost.
D. deducted from the investment cost.
34. On the consolidated balance sheet, consolidated stockholders’ equity is
A. equal to the sum of the parent and subsidiary stockholders’ equity.
B. greater than the parent’s stockholders’ equity.
C. less than the parent’s stockholders’ equity.
D. equal to the parent’s stockholders’ equity.
35. Majority-owned subsidiaries should be excluded from the consolidated statements when
A. control does not rest with the majority owner.
B. the subsidiary operates under governmentally imposed uncertainty.
C. a foreign subsidiary is domiciled in a country with foreign exchange restrictions or controls.
D. any of these circumstances exist.
36. Under the economic entity concept, consolidated financial statements are intended primarily for
the benefit of the
A. stockholders of the parent company.
B. creditors of the parent company.
C. minority stockholders.
D. all of the above.
37. Reasons of parent company may pay more than book value for the subsidiary company’s stock
include all of the following except
A. the fair value of one of the subsidiary’s assets may exceed its recorded value because of
appreciation.
B. the existence of unrecorded goodwill.
C. liabilities may be overvalued.
D. stockholders’ equity may be undervalued.
38. What is the method of presentation required by PRFS 10 of “non-controlling interest” on a
consolidated balance sheet?
A. As a deduction from goodwill from consolidation.
B. As a separate item within the long-term liabilities section.
C. As a part of stockholders’ equity.
D. As a separate item between liabilities and stockholders’ equity.
39. Which of the following is a limitation of consolidated financial statements?
A. Consolidated statements provide no benefit, for the stockholders and creditors of the parent
company.
B. Consolidated statements of highly diversified companies cannot be compared with industry
standards.
C. Consolidated statements are beneficial only when the consolidated companies operate within
the same industry.
D. Consolidated statements are beneficial only when the consolidated companies operate in
different industries.
40. When a company purchases another company that has existing goodwill and the transaction is
accounted for as a stock acquisition, the goodwill should be treated in the following manner.
A. Goodwill on the books of an acquired company should be disregarded.
B. Goodwill is recorded prior to recording fixed assets.
C. Goodwill is not recorded until all assets are stated at full fair value.
D. Goodwill is treated consistent with other tangible assets.
41. The use of push-down accounting in some specific situations. Push-down accounting results in:
A. goodwill be recorded in the parent company separate accounts.
B. eliminating subsidiary retained earnings and paid-in capital in excess of par.
C. reflecting fair values on the subsidiary’s separate accounts.
D. changing the consolidation worksheet procedure because no adjustment is necessary to
eliminate the investment in subsidiary account.
42. What is push-down accounting?
A. A requirement that a subsidiary must use the same accounting principles as a parent
company.
B. Inventory transfers made from a parent company to a subsidiary.
C. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.
D. The adjustments required for consolidation when a parent has applied the equity method of
accounting for internal reporting purposes.
43. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in
the next year. In a step acquisition of this type, the original 32 percent acquisition should be
A. maintained at its initial value.
B. adjusted to its equity method balance at the date of the second acquisition.
C. adjusted to fair value at the date of the second acquisition with a resulting gain or loss
recorded.
D. adjusted to fair value at the date of the second acquisition with a resulting adjustment to
additional paid-in capital.
44. A newly acquired subsidiary has pre-existing goodwill on its books. The parent company’s
consolidated balance sheet will:
A. treat the goodwill the same as their intangible assets of the acquired company.
 B. will always show the pre-existing goodwill of the subsidiary of its book value.
C. not show any value for the subsidiary’s pre-existing goodwill.
D. do an impairment test to see if any of it has been impaired.
45. What is push-down accounting?
A. A requirement that a subsidiary must use the same accounting principles as a parent
company.
B. Inventory transfers made from a parent company to a subsidiary.
C. A subsidiary’s recording of the fair-value allocations as well as subsequent amortization.
D. The adjustments required for consolidation when a parent has applied the equity method of
accounting for internal reporting purposes.
46. The main evidence of control for purposes of consolidated financial statements involves
A. possessing majority ownership.
B. having decision-making ability that is not shared with others.
C. being the sole shareholder.
D. having the parent company and the subsidiary participating in the same industry.
47. In which of the following cases would consolidation be inappropriate?
A. The subsidiary is in bankruptcy.
B. Subsidiary’s operations are dissimilar from those of the parent.
C. The parent owns 90 percent of the subsidiary’s common stock, but all of the subsidiary’s
nonvoting preferred stock is held by a single investor.
D. Subsidiary is foreign.
48. The primary beneficiary of a variable interest entity (VIE) must consolidate the VIE into its
financial statements whenever
A. Substantially all of the entity’s activities are conducted on behalf of an investor who has
disproportionally few voting rights.
B. The voting rights are not proportional to the obligations to absorb the expected losses or
receive expected residual returns.
C. The total equity at risk is not sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties.
D. The holders of the equity investment at risk have the right to receive the residual returns of
the legal entity.
49. If an entity is not considered a VIE, the determination of consolidation is based on whether:
A. The voting rights are proportional to the obligations to absorb expected losses or receive
expected residual returns.
B. The total equity at risk is sufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties.
C. The equity investments or investments in subordinated debt are at risk.
D. One of the entities in the consolidated group directly or indirectly has a controlling financial
interest (usually ownership of a majority voting interest) in the other entities.
50. PRFS defines control as
A. The direct or indirect ability to determine the direction of management and policies through
ownership, contract, or otherwise.
B. The power to govern the entity’s financial and operating policies as to obtain benefits from its
activities.
C. The power to direct the activities that impact economic performance, the obligation to absorb
expected losses, and the right to receive expected residual returns.
D. Having a majority of the ownership interests entitled to elect management controlling financial
interest (usually ownership of a majority voting interest) in the other entities.
51. Consolidated financial statements are designed to provide:
A. Informative information to all shareholders.
B. The results of operations, cash flow, and the balance sheet in an understandable and
informative manner for creditors.
 C. The results of operations, cash flow, and the balance sheet as if the parent and subsidiary
were a single entity.
D. Subsidiary information for the subsidiary shareholders.
52. Consolidated financial statements are appropriate even without a majority ownership if which of
the following exists:
A. The subsidiary has the right to appoint members of the parent company’s board of directors.
B. The parent company has the right to appoint a majority of the members of the subsidiary’s
board of directors through a large minority voting interest.
C. The subsidiary owns a large minority voting interest in the parent company.
D. The parent company has an ability to assume the role of general partner in a limited
partnership with the approval of the subsidiary’s board of directors.
53. IASB has recommended that a parent corporation should consolidate the financial statements of
the subsidiary into its financial statements when it exercises control over the subsidiary, even
without majority ownership. In which of the following situations would control NOT be evident?
A. Access to subsidiary assets is available to all shareholders.
B. Dividend policies is set by the parent.
C. The subsidiary does not determine compensation for its main employees.
D. Substantially all cash flows of the subsidiary flow to the controlling shareholders.
54. The goal of the consolidation process is for:
A. Asset acquisitions and 100% stock acquisitions to result in the same balance sheet.
B. Goodwill to appear on the balance sheet of the consolidated entity.
C. The assets of the non-controlling interest to be predominately displayed on the balance
sheet.
D. The investment in the subsidiary to be properly valued on the consolidated balance sheet.
55. A subsidiary was acquired for cash in a business combination on December 31, 20X1. The
purchase price exceeded the fair value of identifiable net assets. The acquired company owned
equipment with a fair value in excess of the book value as of the date of the combination. A
consolidated balance sheet prepared on December 31, 20X1, would
A. Report the excess of the fair value over the book value of the equipment as part of goodwill.
B. Report the excess of the fair value over the book value of the equipment as part of the plant
and equipment account.
C. Reduce retained earnings for the excess of the fair value of the equipment over its book
value.
D. Make no adjustment for the excess of the fair value of the equipment over book value.
Instead, it is an adjustment expense over the life of the equipment.
56. The investment in a subsidiary should be recorded on the parent’s books at the
A. Underlying book value of the subsidiary’s net assets.
B. Fair value of the subsidiary’s net identifiable assets.
C. Fair value of the consideration given.
D. Fair value of the consideration given plus an estimated value for goodwill.
57. Which of the following costs of a business combination can be included in the value charged to
paid-in-capital in excess of par?
A. Direct and indirect acquisition costs.
B. Direct acquisition costs.
C. Direct acquisition costs and stock issue costs if stock is issued as consideration.
D. Stock issue costs if stock is issued as consideration.