1.
Neither Branch A nor the Home Office had any intracompany transactions for
the month of October. However, the balance of the Home Office Current
account in the books of Branch A was greater than the Investment in Branch
account in the books of the Home Office. What is the most likely reason for the
discrepancy?
A. The branch reported a net income for the month of October
B. The home office reported a net loss for the month of October
C. The branch returned merchandise to the home office
D. The branch reported a net loss for the month of October
Ans: A
2. Which is incorrect regarding the acquisition method of accounting for a
business combination requires all, except
A. Identifying the acquirer.
B. Determining the acquisition date.
C. Recognizing and measuring the identifiable assets acquired, the liabilities
assumed and the noncontrolling interest in the acquiree at carrying amount.
D. Recognizing goodwill or gain from bargain purchase
Ans: C
3. Which of the following is not one of the steps in accounting for an acquisition?
A. Prepare proforma financial statements prior to acquisition.
B. Determine the acquisition date.
C. Identify the acquirer
D. Expense the costs and general expenses of the acquisition in the period of
acquisition.
Ans: A
4. What is meant by “full goodwill” method?
A. The recognition of goodwill which relates to the parent company interest.
B. The recognition of goodwill which relates to the noncontrolling interest and
the controlling interest
C. The recognition of goodwill which relates to the noncontrolling interest
D. A bargain purchase
Ans: B
5. Which statement is true in relation to business combination achieved in
stages?
A. The pre-existing equity interest shall be remeasured at fair value with any
resulting gain or loss included in profit or loss.
B. The pre-existing equity interest shall be remeasured at fair value with any
resulting gain or loss included in other comprehensive income.
C. The pre-existing interest shall not be remeasured.
D. The pre-existing interest shall be remeasured at fair value with any resulting
gain or loss recognized in retained earning.
Ans: A
6. How should an entity account for the incomplete information in preparing the
financial statements immediately after the acquisition?
A. Do not record the uncertain items until complete information is available.
B. Record a contra account to the investment account for the amounts
involved.
C. Record the uncertain items at the carrying amount of the acquiree.
D. Record the uncertain items at a provisional amount measured at the date
of acquisition.
Ans: D
7. The requirements of Business Combinations apply to all of the following
business combinations except for which one?
A. Combination between financial institutions
B. The acquisition of a foreign entity by a Philippine entity
C. Combination between not-for-profit organizations
D. The acquisition of a group of assets that constitutes a business.
Ans: C
8. Which method is acceptable to account for a business combination?
A. Purchase method, acquisition method and pooling o interest method
B. Purchase method and acquisition method
C. Purchase method and pooling of interest method
D. Acquisition method
Ans: D
9. An acquirer. incurred of acquisition costs related to the purchase of the net
assets of an acquiree The acquisition costs should be
A. Allocated on a pro rata basis to the nonmonetary assets acquired.
B. Capitalized as part of goodwill and tested annually for impairment.
C. Capitalized as other asset and amortized over five years.
D. Expensed as incurred in the current period.
Ans: D
10. Which of the following statements, if any, concerning a noncontrolling interest
in an acquiree is correct?
I. The value assigned to a noncontrolling interest in an acquiree must be
based on the proportional share of that interest in the net assets of the
acquiree.
II. The fair value per share of the noncontrolling interest in an acquiree must be
the same as the fair value per share of the controlling (acquirer) interest.
A. Both I and II.
B. I only.
C. Il only
D. Neither I nor Il.
Ans: D
11. In a business combination accounted for as an acquisition, the fair value of
the identifiable net assets acquired exceeds the fair value of the consideration
paid by the acquirer and the fair value of the noncontrolling interest in the
acquiree. The excess fair value of net assets over investment value should be
reported as
A. Gain.
B. Reduction of the values assigned to current assets and a deferred credit for
any unallocated portion.
C. Reduction of the values assigned to nonfinancial assets and a gain for any
unallocated portion.
D. Prorata reduction of the values assigned to current and noncurrent assets.
Ans: A
12. Which one of the following assets recognized in a business combination will
require that the amount recognized be amortized over future periods?
A. An asset arising from a contingency
B. A reacquired right asset
C. An indemnification asset
D. A contingent consideration asset
Ans: B
13. How should the acquirer recognize a bargain purchase in a business
acquisition?
A. As negative goodwill in the statement of financial position
B. As goodwill in the statement of financial position
C. As a gain in earnings at the acquisition date
D. As a deferred gain that is amortized into earnings over the estimated future
periods benefited
Ans: C
14. When a bargain purchase recurs in a business combination which of the
following types of information must be disclosed in the period of combination?
I. The amount of gain recognized
II. The income statement line item that includes the gain
III. A description of the basis of the bargain purchase amount
A. I only
B. I and II only
C. I and III only
D. I, II and III
Ans: D
15. Aye Company acquired all of the assets and liabilities of Bee Company for
cash in a legal merger. Which one of the following would not be recognized by
Aye Company on its books in recording the business combination?
A. Accounts receivable
B. Investment in Bee Company
C. Intangible asset-Patent
D. Accounts payable
Ans: B
16. Planet Company acquired controlling interest in Earth Company in a legal
acquisition. Which one of the following could not be part of the entry to record
the acquisition?
A. Debit Investment in Earth Company
B. Debit Goodwill
C. Credit Cash
D. Credit Ordinary shares capital
Ans: B
17. Consolidated financial statements are typically prepared when one entity has
a controlling financial interest in another unless
A. The subsidiary is a finance entity.
B. The fiscal year-ends of two entities are more than three months apart.
C. Such control is likely to be temporary.
D. The two entities are in unrelated industries, such as manufacturing and real
estate.
Ans: C
18. A parent is exempted from preparing consolidated financial statements if all
of the following conditions exist, except
A. The parent is wholly or partially owned and the owners do not object to the
nonconsolidation.
B. The parent does not have any debt or equity instruments publicly traded.
C. The parent reports one class of share capital in the statement of financial
position
D. The ultimate parent prepares consolidated financial statements that
comply with IFRS.
Ans: C
19. Which of the following conditions is required to exclude a subsidiary from
consolidation?
A. The other owners object to the nonconsolidation.
B. The parent makes an election not to consolidate.
C. The other owners do not object to the nonconsolidation and the subsidiary
does not have any publicly traded debt or equity instruments.
D. The parent must own 100% of the subsidiary.
Ans: C
20.The noncontrolling interest should be recorded at what amount?
A. The fair value of the shares held by the acquirer
B. The fair value of the shares not held by the acquirer or the proportionate
share of the fair value of net identifiable assets of the acquiree
C. The proportionate share of the carrying amount of net identifiable assets of
the acquiree
D. The fair value of the shares held by the noncontrolling interest plus goodwill
Ans: B
21. For the purpose of consolidating financial interests, a majority voting interest is
deemed to be
A. 50% of the directly or indirectly owned outstanding voting shares of another
entity.
B. 50% of the directly or indirectly owned outstanding voting shares and at
least 50% of the directly owned outstanding nonvoting shares of another
entity.
C. Greater than 50% of the directly or indirectly owned outstanding voting
shares of another.
D. Greater than 50% of the directly or indirectly owned outstanding voting
shares and at least 50% of the directly or indirectly owned outstanding
nonvoting shares of another entity.
Ans: C
22.Following a business combination accomplished through a legal acquisition,
transactions between affiliated entities can originate with:
A. Parent Company
B. Subsidiary Company
C. Both Parent Company and Subsidiary Company
D. Neither parent Company nor Subsidiary Company
Ans: C
23.A subsidiary, acquired for cash in a business combination, owned inventories
with a market value different from the book value as of the date of
combination. A consolidated statement of financial position prepared
immediately after the acquisition would include this difference as part of
A. Deferred Credits
B. Goodwill
C. Inventories
D. Retained Earnings
Ans: C
24.Which one of the following would be of concern in preparing consolidated
financial statements at the end of the operating period following a business
combination that would not be a concern in preparing financial statements
immediately following a combination?
A. Whether or not there are intercompany accounts receivable and accounts
payable.
B. Whether or not goodwill resulted from the business combination.
C. Whether the parent carries its investment in the subsidiary using the cost
method or the equity method.
D. Whether or not there is a noncontrolling interest in the subsidiary.
Ans: C
25.Under which of the following methods of carrying a subsidiary on its books, if
any, will the carrying amount of the investment normally change following a
combination?
A. Both cost method and equity method
B. Cost method
C. Equity method
D. Neither cost method nor equity method
Ans: C
26.When a parent company uses the cost method on its books to carry its
investment in a subsidiary, which one of the following will be recorded by the
parent on its books?
A. Parent's share of subsidiary's net income or net loss.
B. Parent's amortization of goodwill resulting from excess investment cost over
fair value of subsidiary's net assets.
C. Parent's share of subsidiary's cash dividends declared.
D. Parent's depreciation of excess investment cost over book values of
subsidiary's net assets.
Ans: C
27.A 70%-owned subsidiary company declares and pays a cash dividend. What
effect does the dividend have on the retained earnings and noncontrolling
interest equity reported on the consolidated statement of financial position?
A. No effect on either retained earnings or noncontrolling interest.
B. No effect on retained earnings and a decrease in noncontrolling interest.
C. Decrease in both retained earnings and noncontrolling interest.
D. A decrease in retained earnings and no effect on noncontrolling interest.
Ans: B
28.Which one of the following will occur on consolidated financial statements if
an intercompany transaction is not eliminated.
A. An understatement eliminated.
B. An overstatement of sales
C. An understatement of purchases
D. An overstatement of accounts receivable
Ans: B
29.A parent sells goods to its subsidiary, which in turn sells the goods to an
unaffiliated firm. Which of these transactions, if any, should be eliminated in
the consolidating process?
A. Parent to subsidiary and subsidiary to an unaffiliated firm
B. Parent to subsidiary
C. Subsidiary to unaffiliated firm
D. Neither transactions
Ans: B
30.An intercompany depreciable fixed asset transaction resulted in an
intercompany gain. Which one of the following is least likely to be reflected in
the consolidated financial statements prepared at the end of the period in
which the intercompany transaction occurred?
A. Consolidated income will be less than the sum of the incomes of the
separate companies being combined.
B. Consolidated assets will be less than the sum of the assets of the separate
companies being combined.
C. Consolidated depreciation expense will be more than the sum depreciation
expense of the separate companies being combined.
D. Consolidated accumulated depreciation will be more than the sum of
accumulated depreciation of the separate companies being combined.
Ans: C
31. Which of the following is not a characteristic of intercompany bonds?
A. Intercompany bonds may occur on the date a business combination or
subsequent to a business combination.
B. When bonds become intercompany, it is as though the bonds have been
retired for consolidated purposes.
C. Intercompany bonds can result in the recognition of gain or a loss for
consolidating purposes.
D. When bonds become intercompany, they are written off of the books of the
issuing affiliate and the investing affiliate.
Ans: D
32.ABC Trading Co. has a branch in Manila. On December 31, 2024, the Investment
in Manila Branch account in the home office books showed a balance of
P3,860,000. The interoffice accounts were in agreement at the beginning of the
year. For purposes of reconciling the reciprocal accounts, the following facts
were ascertained:
a. The home office erroneously recorded a remittance of P48,000 from
its Malabon branch as a remittance from its Manila branch.
b. The branch failed to take up a P15,000 debit memo from the home
office representing its share in training expenses.
c. The branch did not record a Home office credit memo for P21,000
representing collection from branch customers.
Compute the unadjusted balance of the Home Office Current account on
December 31, 2024
A. 3,908,000
B. 3,902,000
C. 3,914,000
D. 3,818,000
33.A home office ships inventory to its branch at a mark-up of 125% based on
cost. The required balance of the unrealized intercompany account is
P1,140,000. During the year, the home office sent merchandise to the branch
costing P7,200,000. At the start of the year, the branch's books showed
P1,440,000 of inventory coming from the home office.
The unrealized intercompany account must be decreased by
A. 9,800,000
B. 948,000
C. 2,088,000
D. 8,660,000
34.The Home Office in Ortigas shipped merchandise costing P1,400,000 to the
Ayala branch and paid for the freight charges of P10,500. The home office bills
the branch at 125% of the cost. The Ayala branch was subsequently instructed
to transfer one-half of the merchandise to the Pateros branch, wherein the
Pateros branch paid for the P3,500 freight. If the shipment was made directly
from Ortigas to Pateros, the freight cost would have been P7,000.
By how much will the Ayala Branch charge the Home Office Current account?
A. 880,250
B. 897,750
C. 885,500
D. 883,750
35.On December 31, 2024, the Home Office Current account in the books of the
Makati Branch has a balance of P5,850,000. In analyzing the activity in each of
these accounts for December, you found the following differences:
a. A P120,000 branch remittance to the home office initiated on
December 21, 2024, was recorded twice by the home office on December 26
and 28.
b. The home office incurred P216,000 advertising expenses and
allocated 1/3 of this amount to the branch on December 20. The branch
recorded this transaction on December 22, amounting to P7,200.
c. Inventory costing P301,800 was sent to the branch by the home office
on December 15. The billing was at cost, but the branch recorded the
transaction at P318,000.
The adjusted balance of the reciprocal accounts on December 31, 2024
A. 5,801,400
B. 5,931,000
C. 5,898,600
D. 5,769,000
36.The home office in Pasig shipped merchandise costing P333,000 to the Bicol
branch and paid the freight amounting to P25,200. The home office transfers
merchandise to the branch at a 20% mark-up based on cost. The Bicol branch
was subsequently instructed to transfer the merchandise to the Palawan
branch, wherein the latter paid for P16,800 freight. If the shipment was made
directly from Pasig to Palawan, the freight cost would have been P37,200.
Compute the amount credited to the Home Office Current account in the
books of the Palawan branch
A. 362,800
B. 420,000
C. 370,200
D. 427,440
37.A home office ships inventory to its branch and billed 125% of the cost during
2024. The branch inventory allowance account shall be adjusted downward to
P285,000. During the year, the home office sent merchandise to the branch
costing P1,100,000. At the start of the year, the branch's books showed P105,000
of inventory on hand that was received from the home office. The branch
inventory allowance account was debited to P20,000 in the books of the home
office at the end of 2024.
Compute the 2024 ending inventory in the books of the branch
A. 1,140,000
B. 1,425,000
C. 1,410,000
D. 1,125,000
38.Which of the following statements regarding accounting for the home office
and branch is FALSE?
A. The required balance of the branch inventory allowance account is the
markup in the branch's ending inventory from the home office.
B. The combined net income of the home office and its branches is presented
in the separate Statement of Comprehensive Income of the Home office.
C. The stockholders’ equity of the branch is eliminated in the working paper
and not extended in the combined statement of financial position.
D. The realized markup represents the understatement in the net income per
branch books.
Ans: C
39.The Home Office in Pasay shipped merchandise costing P1,680,000 to the
Mandaluyong branch; the freight collected amounting to P12,600.
Mandaluyong branch was subsequently instructed to transfer P1,008,000 of
the merchandise to the Cainta branch, wherein the Cainta branch paid for
P4,200 freight. Had the merchandise been shipped directly from Pasay to
Cainta, the freight cost would have been P8,400.
Compute the excess freight chargeable to Pasay
A. 0
B. 8,400
C. 1,680
D. 3,360
40.On June 1, 2024, Sta. Rosa, a home office, established an agency in Tagaytay,
sending samples costing P490,000, which are useful until the end of May 2025
and have a salvage value of 10% of cost. A working fund of P398,125 is to be
maintained on an imprest basis. In 2024, the agency submitted to the home
office a sales order amounting to P4,134,375. Sales per invoice were P3,215,625,
which the home office duly approved. Collections during the year amounted
to P1,717,021.25 net of a 3% sales discount. The cost of merchandise sold during
the year equals 75% of the gross sales. Vouchers for expenses amounted to
P214,375.
How much net income would be reported by the Tagaytay agency on
December 31, 2024?
A. 315,927.50
B. 508,865
C. 279,177.50
D. (95,427.50)
41. Which of the following statements is TRUE regarding accounting for the home
office and branch?
A. Both the Investment in Branch and Home Office Current accounts are
eliminated in the books of the home office and the branch, respectively.
B. A debit memo received by the branch may be a notification from the home
office regarding the payment made by the home office to a branch supplier.
C. A credit memo increases the reciprocal accounts in their respective books.
D. In an interbranch transaction, the branch may use an investment in another
branch account.
Ans: A
42.On September 1, 2024, ABC Co. acquired all the identifiable net assets of JKL.
The total assets of JKL is P2,430,000, while its liabilities amount to P610,000. The
book values of the acquired company’s identifiable assets and liabilities equal
their fair values. As a consideration, ABC issued its own shares of stock with a
market value of P1,715,000 and cash amounting to P375,000. Contingent
consideration that was probable and reasonably estimated on the date of
acquisition amounted to P148,000. The merger resulted in P648,000 goodwill.
Compute the pre-existing goodwill of JKL Company immediately before the
merger.
A. 154,000
B. 230,000
C. 698,000
D. 456,000
Use the following information for numbers 43 and 44:
DEF Corporation acquired all the identifiable net assets of TUV Company on
August 1, 2024. TUV Company reported assets with a book value of P1,520,000
and liabilities of P890,000. The total consideration of the surviving company is
composed of cash amounting to P110,000 and shares with a par value of P16,
which is P4 less than its fair value.
The acquiring company determined that the fair value of the machinery of
TUV was P30,000 higher than its book value, and the recorded amount of the
inventory was overvalued by P12,000. All other identifiable assets and liabilities
reported by the acquired company approximated the recorded amounts.
The following are independent cases relating to the merger:
43.Compute the number of shares issued under the merger, assuming the
acquiring company recorded a gain on a bargain purchase of P212,000.
A. 16,300
B. 13,300
C. 17,500
D. 14,500
44.Assume the total consideration of the surviving company is composed of cash
amounting to P110,000 and bonds traded at 125. Compute the face amount of
the bonds issued under the merger, assuming the acquiring company
recorded goodwill of P184,000.
A. 596,800
B. 577,600
C. 529,600
D. 548,800
45.The working paper eliminating entries prepared by TUV Co. on the date of
acquisition for FGH Co. resulted to the following balances:
Account Name Dr (Cr)
Ordinary Shares – FGH Co. 600,000
Share Premium – FGH Co. 200,000
Retained Earnings – FGH Co. (100,000)
Inventory 80,000
Equipment 200,000
Patent (120,000)
Goodwill ?
Investment in FGH Co. (855,000)
Noncontrolling Interest in Net Assets (285,000)
If P70,000 of the full goodwill is attributable to the non-controlling interest,
which of the following is correct?
A. The percentage of ownership of TUV Co. is 67%.
B. Goodwill from business combination is P280,000.
C. The book value of the assets acquired is higher than it’s fair value.
D. Goodwill from business combination is P210,000.
Use the following information for numbers 46 and 47:
On January 1, 2024, PQR Co. acquired 70% of the outstanding shares of MNO
Co. at a price of P1,350,000. On the date of acquisition, MNO Co. had a total
equity of P1,200,000 (Ordinary shares, P500,000 and Retained Earnings,
P700,000). All the assets and liabilities of MNO Co. have book value equal to its
fair value except for machinery which is undervalued by P50,000. The
remaining useful life of the machinery is 2.5 years.
In 2025, the companies resulted to the following:
PQR Co. MNO Co.
Net income 750,000 500,000
Dividends paid 200,000 150,000
During 2025, PQR Co. sold merchandise to MNO Co. at 150% of its cost, the
same percentage that was used last year. The composition of MNO Co.
inventory were as follows:
Acquired from PQR Co. Acquired from XYZ Co.
Beginning balance 19,200 100,000
Ending Balance 36,000 135,000
The retained earnings of MNO Co. per book at the beginning of 2025 was
P900,000. Non-controlling interest is measured using the proportionate share.
Impairment of goodwill, if any amount to P40,000 and P50,000 in 2024 and
2025, respectively.
46.Compute the consolidated net income attributable to parent in 2025.
A. 939,400
B. 925,400
C. 1,059,400
D. 935,400
47.Compute the non-controlling interest in net assets in 2025.
A. 591,500
B. 545,000
C. 528,000
D. 540,000
48.The QRS Corp. acquired 60% of the outstanding shares of JKL Corp. At the
beginning of the year, JKL Corp sold machinery to QRS Corp. for P490,000. The
machinery was acquired 3 years ago with a carrying value of 700,000 and a
total estimated useful life of 10 years. QRS Corp. and JKL Corp reported net
income of P600,000 and P550,000, respectively. Dividends declared and paid
by JKL Corp for the year amounted to P100,000.
Compute the non-controlling interest in net income
A. 292,000
B. 208,000
C. 304,000
D. 220,000
Net income P550,000 + UL 210,000 - RL 30,000 = 730,000 x 40% = 292,000
Use the following information for numbers 49 and 50:
On January 1, 2024, ABC Co. acquired 70% of the outstanding shares of LMN Co.
at underlying book value. On January 2, 2024, ABC sold an equipment to LMN
for P500,000 cash. The equipment had an original cost of P1,000,000 and is
now 60% depreciated after 3 years from original purchase date. Net income of
ABC and LMN for 2024 amounted to P1,000,000 and P500,000 respectively. Net
income of ABC and LMN for 2025 amounted to P1,500,000 and P900,000
respectively.
49.Assuming the equipment was still being used by LMN at the end of 2024,
compute the consolidated net income attributable to controlling interest 2024.
A. 1,450,000
B. 1,300,000
C. 1,315,000
D. 1,400,000
50.Assuming the equipment was sold by LMN to outsiders on July 1, 2024, which
resulted to a gain of P120,000. Compute the increase or decrease to gain on
sale of equipment for consolidation purposes.
A. 75,000 decrease
B. 75,000 increase
C. 50,000 increase
D. 0
