Parent and Sub Inc. had the following balance sheets on December 31, 2018: \[\begin{array} { | l | l | l |} \hline & \text { Parent } & \text { Sub } \\ \hline \text { Current Assets } & \$ 60,000 & \$ 10,000 \\ \hline \text { Fixed Assets (net) } & \$ 100,000 & \$ 60,000 \\ \hline \text { Total Assets } & \$ 160,000 & \$ 70,000 \\ \hline\\ \hline \text { Current Liabilities } & \$ 42,000 &\$ 35,000 \\ \hline \text { Bonds Payable } & \$ 20,000 &\$ 12,000 \\ \hline \text { Common Shares } & \$ 90,000 & \$ 12,000 \\ \hline \text { Retained Earnings } & \$ 8,000 &\$ 11,000 \\ \hline \text { Total Liabilities and Equity } & \$ 160,000 &\$70,000 \\ \hline \end{array}\] On January 1, 2019 Parent purchased all of Sub Inc.'s Common Shares for $40,000 in cash. On that date, Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000, respectively. Assuming that Consolidated Financial Statements were prepared on that date, answer the following: The Fixed Assets of the combined entity should be valued at:

A) $70,000 B) $120,000 C) $154,000 D) $160,000 A) $70,000 B) $120,000 C) $154,000 D) $160,000

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: \[\begin{array} { | l | l | l | } \hline & \text { Telecom Inc } & \text { Intron Inc } \\ \hline & & \\ \hline \text { Cash and Short-Term Securities } & \$ 920,000 & \$ 200,000 \\ \hline \text { Inuentory } & \$ 150,000 & \$ 20,000 \\ \hline \text { Plant and Equipment (net) } & \$ 330,000 & \$ 180,000 \\ \hline \text { Total Assets } & \$ 1,400,000 & \$ 400,000 \\ \hline & & \\ \hline \text { Current Liabilities } & \$ 420,000 & \$ 90,000 \\ \hline \text { Bonds Payable } & \$ 700,000 & \$ 200,000 \\ \hline \text { Common Shares } & \$ 180,000 & \$ 60,000 \\ \hline \text { Retained Earnings } & \$ 100,000 & \$ 50,000 \\ \hline \text { Total Labilities and Equiby } & \$ 1,400,000 & \$ 400,000 \\ \hline \end{array}\] On that date, the fair values of Intron's assets and liabilities were as follows: \[\begin{array} { | l | l | } \hline \text { CashiShort-Term Securities } & \$ 200,000 \\ \hline \text { Inventory } & \$ 15,000 \\ \hline \text { Plant and Equipment (net) } & \$ 250,000 \\ \hline \text { Current Liabilities } & \$ 90,000 \\ \hline \text { Bonds Payable } & \$ 210,000 \\ \hline \end{array}\] Assume that two days after the acquisition, the Goodwill was put to an impairment test, after which it was decided that its true value was $70,000. Required: Prepare the necessary journal entry to write-down the goodwill as well as another Consolidated Balance Sheet to reflect the new Goodwill amount.

Journal Entry: \[\begin{array} { | l | l

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: \[\begin{array} { | l | l | l | } \hline & \text { ABC123 Inc } & \text { DEF 456 Inc } \\ \hline & & \\ \hline \text { Cash and Short-Term Securities } & \$ 900,000 & \$ 200,000 \\ \hline \text { Inventory } & \$ 50,000 & \$ 120,000 \\ \hline \text { Plant and Equipment (net) } & \$ 350,000 & \$ 150,000 \\ \hline \text { Goodwill } & \$ - & \$ 80,000 \\ \hline \text { Total Assets } & \$ 1,300,000 & \$ 550,000 \\ \hline & & \\ \hline \text { Current Liabilities } & \$ 180,000 & \$ 160,000 \\ \hline \text { Bonds Payable } & \$ 400,000 & \$ 100,000 \\ \hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\ \hline \text { Retained Earnings } & \$ 220,000 & \$ 90,000 \\ \hline \text { Total Liabilities and Equity } & \$ 1,300,000 & \$ 550,000 \\ \hline \end{array}\] On that date, the fair values of DEF456 Assets and Liabilities were as follows: $\begin{array}{|l|l|} \hline \text { Cash and Short-Term Securities } & \$ 200,000 \\ \hline \text { Inventory } & \$ 90,000 \\ \hline \text { Plant and Equipment (net) } & \$ 250,000 \\ \hline \text { Current Liabilities } & \$ 160,000 \\ \hline \text { Bonds Pay able } & \$ 88,000 \\ \hline \end{array}$ In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Assuming that DEF456's Plant and Equipment was worth $400,000. Calculate the goodwill arising from this business combination and state how it would be shown in the consolidated balance sheet on the acquisition date.

The new Purchase Price discrepancy would

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: \[\begin{array} { | l | l | l | } \hline & \text { Telecom Inc } & \text { Intron Inc } \\ \hline & & \\ \hline \text { Cash and Short-Term Securities } & \$ 920,000 & \$ 200,000 \\ \hline \text { Inuentory } & \$ 150,000 & \$ 20,000 \\ \hline \text { Plant and Equipment (net) } & \$ 330,000 & \$ 180,000 \\ \hline \text { Total Assets } & \$ 1,400,000 & \$ 400,000 \\ \hline & & \\ \hline \text { Current Liabilities } & \$ 420,000 & \$ 90,000 \\ \hline \text { Bonds Payable } & \$ 700,000 & \$ 200,000 \\ \hline \text { Common Shares } & \$ 180,000 & \$ 60,000 \\ \hline \text { Retained Earnings } & \$ 100,000 & \$ 50,000 \\ \hline \text { Total Labilities and Equiby } & \$ 1,400,000 & \$ 400,000 \\ \hline \end{array}\] On that date, the fair values of Intron's assets and liabilities were as follows: \[\begin{array} { | l | l | } \hline \text { CashiShort-Term Securities } & \$ 200,000 \\ \hline \text { Inventory } & \$ 15,000 \\ \hline \text { Plant and Equipment (net) } & \$ 250,000 \\ \hline \text { Current Liabilities } & \$ 90,000 \\ \hline \text { Bonds Payable } & \$ 210,000 \\ \hline \end{array}\] Required: Based on the information provided, answer the following: a) Prepare the journal entry to record the purchases Intron's shares. b) Prepare the required journal entry prior to the preparation of the Consolidated Financial Statements.

a) \[\begin{array} { | l | l | l | } \h

Exam 3: Business Combinations

Parent and Sub Inc. had the following balance sheets on December 31, 2018: Parent Sub Current Assets \ 60,000 \ 10,000 Fixed Assets (net) \ 100,000 \ 60,000 Total Assets \ 160,000 \ 70,000 Current Liabilities \ 42,000 \ 35,000 Bonds Payable \ 20,000 \ 12,000 Common Shares \ 90,000 \ 12,000 Retained Earnings \ 8,000 \ 11,000 Total Liabilities and Equity \ 160,000 \7 0,000 On January 1, 2019 Parent purchased all of Sub Inc.'s Common Shares for $40,000 in cash. On that date, Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000, respectively. Assuming that Consolidated Financial Statements were prepared on that date, answer the following: The Fixed Assets of the combined entity should be valued at:

(Multiple Choice)

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Question 21

1234567 Inc. is contemplating a Business Combination with 7654321 Inc. One company is incorporated under Federal law, the other under provincial law. Is a statutory amalgamation permissible under these circumstances?

(Multiple Choice)

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Question 22

Company Inc. owns all of the outstanding voting shares of Firm Inc. On January 1^st, 2017, Firm Inc. would like to purchase all of the voting shares of its main competitor, N-CORP Inc. Briefly discuss the purported accounting implications of this transaction.

(Essay)

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Question 23

AInc. is contemplating a Business combination with B Inc. However, A Inc.'s management is uncertain as to whether it should purchase B's assets or a majority of B's voting shares. The fair market values of B's assets far exceed their book values. A's management should be advised that IN MOST CASES:

(Multiple Choice)

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Question 24

Sonic Enterprises Inc has decided to purchase 100% of the voting shares of Jackson Inc. for $300,000 in Cash on May 1, 2018. On the date, the balance sheets of each of these companies were as follows: Sonic Inc Jackson Inc Cash and Short-Term Securities \ 750,000 \ 30,000 Inventory \ 60,000 \ 20,000 Plant and Equipment (net) \ 280,000 \ 140,000 Total Assets \ 1,090,000 \ 190,000 Current Liabilities \ 150,000 \ 25,000 Bonds Pay able \ 120,000 \ 30,000 Common Shares \ 120,000 \ 70,000 Retained Earnings \ 700,000 \ 65,000 Total Liabilities and Equity \ 1,090,000 \ 190,000 On that date, the fair values of Jackson's assets and liabilities were as follows: Cash and Short-Term Securities \ 40,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 25,000 Bonds Payable \ 25,000 Sonic's Book Values approximated their Fair Values on that date. Required: a) Calculate the amount of Goodwill arising from this combination. b) Prepare the journal entry to record Sonic's acquisition of Jackson's Shares. c) Prepare Sonic's Consolidated Balance Sheet immediately following its acquisition of Jackson's assets.

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Question 25

The IASB standard (IFRS 3 Business Combinations) issued with respect to the treatment of negative goodwill requires that:

(Multiple Choice)

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Question 26

Assume that X Inc. wishes to enter into a Business Combination with Y Inc. on January 1, 2017. X is unsure whether it should purchase Y's assets or liabilities or whether it should purchase all of Y's outstanding voting shares. X and Y are incorporated in different jurisdictions. On January 1, Y Inc was estimated to have various intangibles estimated to be worth a total of $1,000,000. Of this amount, $250,000 can be attributable to a Trademark owned by Y. Required: In the absence of any other figures, prepare a brief report explaining anything that would be of interest the Board of Directors of X Inc.

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Question 27

When are parent companies allowed to comprehensively revalue the assets and liabilities of a subsidiary to their fair values at the acquisition date, following a business combination?

(Multiple Choice)

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Question 28

Which of the following statements is correct?

(Multiple Choice)

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Question 29

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: Telecom Inc Intron Inc Cash and Short-Term Securities \ 920,000 \ 200,000 Inuentory \ 150,000 \ 20,000 Plant and Equipment (net) \ 330,000 \ 180,000 Total Assets \ 1,400,000 \ 400,000 Current Liabilities \ 420,000 \ 90,000 Bonds Payable \ 700,000 \ 200,000 Common Shares \ 180,000 \ 60,000 Retained Earnings \ 100,000 \ 50,000 Total Labilities and Equiby \ 1,400,000 \ 400,000 On that date, the fair values of Intron's assets and liabilities were as follows: CashiShort-Term Securities \ 200,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 90,000 Bonds Payable \ 210,000 Assume that two days after the acquisition, the Goodwill was put to an impairment test, after which it was decided that its true value was $70,000. Required: Prepare the necessary journal entry to write-down the goodwill as well as another Consolidated Balance Sheet to reflect the new Goodwill amount.

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Question 30

How is negative goodwill treated under the acquisition method?

(Multiple Choice)

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Question 31

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: ABC123 Inc DEF 456 Inc Cash and Short-Term Securities \ 900,000 \ 200,000 Inventory \ 50,000 \ 120,000 Plant and Equipment (net) \ 350,000 \ 150,000 Goodwill \ - \ 80,000 Total Assets \ 1,300,000 \ 550,000 Current Liabilities \ 180,000 \ 160,000 Bonds Pay able \ 400,000 \ 100,000 Common Shares \ 500,000 \ 200,000 Retained Earnings \ 220,000 \ 90,000 Total Liabilities and Equity \ 1,300,000 \ 550,000 On that date, the fair values of DEF456 Assets and Liabilities were as follows: Cash and Short-Term Securities \ 200,000 Inventory \ 90,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 160,000 Bonds Pay able \ 88,000 In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Based on the information provided: a) Calculate the amount of Goodwill arising from this combination. b) Prepare the journal entry to record ABC123's acquisition of DEF456's shares. c) Prepare ABC123's Consolidated Balance Sheet immediately following its acquisition of DEF123's voting shares.

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Question 32

AInc. purchased 100% of B Inc.'s voting shares for cash. The Assets and Liabilities reported in the Consolidated Balance Sheet of A Inc. prepared on the date of acquisition will include:

(Multiple Choice)

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Question 33

Assume that two companies wish to engage in a Business Combination involving a share exchange. Once the share exchange is consummated, each shareholder group will have an equal number of voting shares. Which of the following statements best describes the course of action that must be taken under these circumstances?

(Multiple Choice)

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Question 34

Under the new-entity method, which of the following statements is TRUE?

(Multiple Choice)

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Question 35

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: ABC123 Inc DEF 456 Inc Cash and Short-Term Securities \ 900,000 \ 200,000 Inventory \ 50,000 \ 120,000 Plant and Equipment (net) \ 350,000 \ 150,000 Goodwill \ - \ 80,000 Total Assets \ 1,300,000 \ 550,000 Current Liabilities \ 180,000 \ 160,000 Bonds Payable \ 400,000 \ 100,000 Common Shares \ 500,000 \ 200,000 Retained Earnings \ 220,000 \ 90,000 Total Liabilities and Equity \ 1,300,000 \ 550,000 On that date, the fair values of DEF456 Assets and Liabilities were as follows: Cash and Short-Term Securities \ 200,000 Inventory \ 90,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 160,000 Bonds Pay able \ 88,000 In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Assuming that DEF456's Plant and Equipment was worth $400,000. Calculate the goodwill arising from this business combination and state how it would be shown in the consolidated balance sheet on the acquisition date.

(Essay)

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Question 36

A Corporation had net income of $50,000 in 2018 and $60,000 in 2019, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2018 and $40,000 in 2019. On January 1, 2019, A Corporation acquired all of the outstanding common shares of B Company for a cash payment of $300,000. Assume that there was no acquisition differential on this business combination. What net income would A Corporation report for 2018 in its comparative consolidated financial statements at the end of 2019?

(Multiple Choice)

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Question 37

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: Telecom Inc Intron Inc Cash and Short-Term Securities \ 920,000 \ 200,000 Inuentory \ 150,000 \ 20,000 Plant and Equipment (net) \ 330,000 \ 180,000 Total Assets \ 1,400,000 \ 400,000 Current Liabilities \ 420,000 \ 90,000 Bonds Payable \ 700,000 \ 200,000 Common Shares \ 180,000 \ 60,000 Retained Earnings \ 100,000 \ 50,000 Total Labilities and Equiby \ 1,400,000 \ 400,000 On that date, the fair values of Intron's assets and liabilities were as follows: CashiShort-Term Securities \ 200,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 90,000 Bonds Payable \ 210,000 Required: Based on the information provided, answer the following: a) Prepare the journal entry to record the purchases Intron's shares. b) Prepare the required journal entry prior to the preparation of the Consolidated Financial Statements.

(Essay)

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Question 38

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory, and Land with a book value of $120,000.UNI also had $1,400,000 in liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value. How much goodwill would be created by IOU's acquisition of UNI?

(Multiple Choice)

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Question 39

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory and Land with a Book value of $120,000.UNI also had $1,400,000 in Liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value. Which of the following is the correct journal entry to record IOU's acquisition of UNI?

(Multiple Choice)

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Question 40

1234567 Inc. is contemplating a Business Combination with 7654321 Inc. One company is incorporated under Federal law, the other under provincial law. Is a statutory amalgamation permissible under these circumstances?

Company Inc. owns all of the outstanding voting shares of Firm Inc. On January 1^st, 2017, Firm Inc. would like to purchase all of the voting shares of its main competitor, N-CORP Inc. Briefly discuss the purported accounting implications of this transaction.

AInc. is contemplating a Business combination with B Inc. However, A Inc.'s management is uncertain as to whether it should purchase B's assets or a majority of B's voting shares. The fair market values of B's assets far exceed their book values. A's management should be advised that IN MOST CASES:

The IASB standard (IFRS 3 Business Combinations) issued with respect to the treatment of negative goodwill requires that:

When are parent companies allowed to comprehensively revalue the assets and liabilities of a subsidiary to their fair values at the acquisition date, following a business combination?

Which of the following statements is correct?

How is negative goodwill treated under the acquisition method?

AInc. purchased 100% of B Inc.'s voting shares for cash. The Assets and Liabilities reported in the Consolidated Balance Sheet of A Inc. prepared on the date of acquisition will include:

Under the new-entity method, which of the following statements is TRUE?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Consolidation of Non-Wholly Owned Subsidiaries

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters

Exam 3: Business Combinations

1234567 Inc. is contemplating a Business Combination with 7654321 Inc. One company is incorporated under Federal law, the other under provincial law. Is a statutory amalgamation permissible under these circumstances?

Company Inc. owns all of the outstanding voting shares of Firm Inc. On January 1st, 2017, Firm Inc. would like to purchase all of the voting shares of its main competitor, N-CORP Inc. Briefly discuss the purported accounting implications of this transaction.

AInc. is contemplating a Business combination with B Inc. However, A Inc.'s management is uncertain as to whether it should purchase B's assets or a majority of B's voting shares. The fair market values of B's assets far exceed their book values. A's management should be advised that IN MOST CASES:

The IASB standard (IFRS 3 Business Combinations) issued with respect to the treatment of negative goodwill requires that:

When are parent companies allowed to comprehensively revalue the assets and liabilities of a subsidiary to their fair values at the acquisition date, following a business combination?

Which of the following statements is correct?

How is negative goodwill treated under the acquisition method?

AInc. purchased 100% of B Inc.'s voting shares for cash. The Assets and Liabilities reported in the Consolidated Balance Sheet of A Inc. prepared on the date of acquisition will include:

Under the new-entity method, which of the following statements is TRUE?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Consolidation of Non-Wholly Owned Subsidiaries

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters

Company Inc. owns all of the outstanding voting shares of Firm Inc. On January 1^st, 2017, Firm Inc. would like to purchase all of the voting shares of its main competitor, N-CORP Inc. Briefly discuss the purported accounting implications of this transaction.