Exam 3: Business Combinations

The following data pertains to questions Parent and Sub Inc had the following balance sheets on December 31,2008: On January 1,2009 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:

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Question 1

Correct Answer:

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One common criticism of the Purchase Method is that:

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Question 2

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George Peterson is the President of Alpha Beta Corporation ("ABC").ABC is a very active non-public corporation.The senior executives of ABC are anxious to institute and executive stock/equity compensation plan.This is difficult to do given that ABC is currently privately owned)George has contacted you as he understands that there is a method available to go public without incurring the substantial costs of doing so.Prepare a memorandum outlining how ABC might achieve this goal.

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Question 3

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ABC might consider a tool referred to as a reverse takeover.A reverse takeover occurs when an enterprise obtains ownership of the shares of another enterprise but,as part of the transaction,issues enough voting shares that control of the enterprise passes to the shareholders of the acquired enterprise.ABC would be acquired by a publically listed company but enough voting shares will be issued in the acquisition to give control to ABC 's shareholders.Although legally the company that issues the shares is regarded as the parent or continuing enterprise,the enterprise whose former shareholders now control the combined enterprise is treated as the acquirer.As a result,the issuing enterprise is deemed to be a continuation of the acquirer and the acquirer is deemed to have acquired control of the assets and business of the issuing enterprise in consideration for the issue of share capital.If ABC is the active company not listed on an exchange,it would take over a company listed on an exchange.A business combination is initiated by ABC whereby the publically listed company issues shares to the shareholders of ABC and the net result is that the shareholders of ABC became the majority shareholders of the combined entity.

Which of the following acquirees assets and liabilities are not valued at the date of acquisition?

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Question 4

The following information pertains to Questions ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July1,2008.On the date,the balance sheets of each of these companies were as follows: On that date,the fair values of DEF456 Assets and Liabilities were as follows: 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 only worth $500,000.Briefly explain how your response to Question 65 would change.Do not prepare Consolidated Financial Statements.

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Question 5

The following data pertains to questions Parent and Sub Inc had the following balance sheets on July 31,2006: Yours Inc's Book Values were equal to their Fair Values on the date of acquisition,with the exception of Yours' Plant and Equipment,which was worth $100,000. -What would be the balance in Yours Inc's Retained Earnings Account after the Pooling of Interests in Question 29 has taken place?

(Multiple Choice)

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Question 6

The net income generated by the net assets of the acquired company is adjusted for:

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Question 7

The following data pertains to questions Parent and Sub Inc had the following balance sheets on July 31,2006: Yours Inc's Book Values were equal to their Fair Values on the date of acquisition,with the exception of Yours' Plant and Equipment,which was worth $100,000. -Assume Mine and Yours engage in a Business Combination which qualifies as a Pooling of Interests.On August 1,2006,Mine Inc issues 10,000 shares with a fair market value of $20 each to acquire the assets and liabilities of Yours Inc.What entry would be made in Mine's books on that date?

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Question 8

XYZ Inc.owns 55% of DEF's 100,000 outstanding voting shares.Another company,GHI Inc,owns 40%,with the remaining shares being held by many individual investors.GHI Inc.also owns $25,000,000 worth of DEF Inc's $1,000 par value bonds,each of which is convertible to one voting share of DEF Inc.Which of the following statements regarding the control of DEF Inc.is correct?

(Multiple Choice)

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Question 9

The following data pertains to questions Parent and Sub Inc had the following balance sheets on December 31,2008: On January 1,2009 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 Current Assets of the combined entity should be valued at:

(Multiple Choice)

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Question 10

A Inc.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 11

How should intangible assets which are readily identifiable but not accurately measured be accounted for?

(Multiple Choice)

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Question 12

Which of the following statements best describes the current treatment of negative Goodwill in Canada and the U.S?

(Multiple Choice)

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Question 13

The process of preparing Consolidated Financial Statements involves the elimination of inter-company transactions between a Parent Company and its subsidiary.Where would these entries be recorded?

(Multiple Choice)

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Question 14

Which of the following statements regarding the Pooling of Interests Method is false?

(Multiple Choice)

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Question 15

A Company wishes to acquire control of B Company as cheaply as possible.For economic reasons,a consultant recommended that A Inc do this through a purchase of assets,rather than a purchase of shares.Which of the following statements regarding the above scenario is correct?

(Multiple Choice)

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Question 16

Zen Inc.owns 35% of Sun Inc's voting shares.Zen is by far the largest single shareholder of Sun Inc's shares,with the rest of Sun's shares being very widely held by individual investors.There was a very poor turnout at Sun Inc's recent annual meeting,enabling Zen Inc to elect the majority of Sun's Board of Directors.Does Zen control Sun?

(Multiple Choice)

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Question 17

Parent Company acquires Sub Company's common shares for cash.On the date of acquisition,Sub had Goodwill of $100,000 on its books.Which of the following statements regarding Sub's Goodwill on the date of acquisition is correct?

(Multiple Choice)

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Question 18

Which of the following would not be considered a Business Combination?

(Multiple Choice)

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Question 19

The carrying value of Depreciable Assets on a potential subsidiary's books is only of concern when:

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Question 20

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One common criticism of the Purchase Method is that:

Which of the following acquirees assets and liabilities are not valued at the date of acquisition?

The net income generated by the net assets of the acquired company is adjusted for:

A Inc.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:

How should intangible assets which are readily identifiable but not accurately measured be accounted for?

Which of the following statements best describes the current treatment of negative Goodwill in Canada and the U.S?

The process of preparing Consolidated Financial Statements involves the elimination of inter-company transactions between a Parent Company and its subsidiary.Where would these entries be recorded?

Which of the following statements regarding the Pooling of Interests Method is false?

A Company wishes to acquire control of B Company as cheaply as possible.For economic reasons,a consultant recommended that A Inc do this through a purchase of assets,rather than a purchase of shares.Which of the following statements regarding the above scenario is correct?

Parent Company acquires Sub Company's common shares for cash.On the date of acquisition,Sub had Goodwill of $100,000 on its books.Which of the following statements regarding Sub's Goodwill on the date of acquisition is correct?

Which of the following would not be considered a Business Combination?

The carrying value of Depreciable Assets on a potential subsidiary's books is only of concern when:

A Survey of International Accounting

Investments in Equity Securities

Consolidated Statements on Date of Acquisition

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

Aintercompany Profits in Depreciable Assets

Consolidated Cash Flows and Ownership Issues

Other Consolidated Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of the Financial Statements of Foreign Operations

Accounting for Not-For-Profit Organizations and Governments

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