Business Combinations and Consolidation Accounting
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School
Defence Authority College of Business**We aren't endorsed by this school
Course
ACCOUNTING 123
Subject
Accounting
Date
Jan 15, 2025
Pages
3
Uploaded by GeneralJaguarMaster1225
Business Combinations and Consolidation Accounting1.In a business combination, the acquirer must recognize the identifiable assets acquired and liabilities assumed at their:oA) Fair valueoB) Book valueoC) Nominal valueoD) Carrying value Answer: A) Fair value2.The purchase method of accounting for a business combination requires the acquirer to recognize:oA) Only the acquired entity's net assetsoB) Goodwill if the purchase price exceeds the fair value of net assetsoC) The fair value of equity issuedoD) A reduction in goodwill if the purchase price is less than the fair value of assets Answer: B) Goodwill if the purchase price exceeds the fair value of net assets3.Which of the following is considered a type of business combination?oA) MergeroB) AcquisitionoC) Purchase of a subsidiaryoD) All of the above Answer: D) All of the above4.How should the goodwill be calculated in an acquisition?oA) Purchase price minus the fair value of net identifiable assetsoB) Purchase price plus the fair value of net identifiable assetsoC) Purchase price minus net incomeoD) Purchase price minus dividends paid Answer: A) Purchase price minus the fair value of net identifiable assets5.A subsidiary's financial statements must be consolidated with the parent company when:oA) The parent company has control over the subsidiaryoB) The parent company owns more than 50% of the subsidiary's voting sharesoC) The subsidiary is not a foreign subsidiaryoD) Both A and B Answer: D) Both A and B6.Under IFRS, which of the following is true regarding goodwill impairment?oA) Goodwill is amortized over its useful lifeoB) Goodwill must be tested for impairment at least annuallyoC) Goodwill is never subject to impairment testingoD) Goodwill is only tested for impairment if there is a decline in market value Answer: B) Goodwill must be tested for impairment at least annually7.In the consolidation of financial statements, intercompany transactions:
oA) Are recorded on a net basisoB) Are eliminated in the consolidation processoC) Are ignored entirelyoD) Are added to the parent’s income statement Answer: B) Are eliminated in the consolidation process8.Under the acquisition method of accounting, the acquirer recognizes goodwill when:oA) The purchase price exceeds the fair value of the identifiable assets and liabilities acquiredoB) The fair value of the identifiable assets and liabilities is greater than the purchase priceoC) The parent company has operational control over the subsidiaryoD) The acquirer purchases 100% of the shares of the target company Answer: A) The purchase price exceeds the fair value of the identifiable assets and liabilities acquired9.Which of the following is a requirement for the consolidation of financial statements?oA) The parent must own more than 50% of the subsidiary’s equityoB) The parent must have voting controloC) The parent and subsidiary must share common goalsoD) The parent must control decision-making Answer: B) The parent must have voting control10.How are non-controlling interests treated in consolidated financial statements?oA) They are reported as equity in the consolidated balance sheetoB) They are included as liabilities in the consolidated balance sheetoC) They are not included in the consolidated financial statementsoD) They are treated as part of the parent’s equity Answer: A) They are reported as equity in the consolidated balance sheet11.Which of the following does not need to be consolidated?oA) A subsidiary that the parent controlsoB) An entity over which the parent has significant influenceoC) A joint venture that is jointly controlledoD) A special-purpose entity if the parent controls it Answer: B) An entity over which the parent has significant influence12.Under the consolidation process, when there is an intercompany sale of inventory:oA) The sale is recognized in the consolidated financial statementsoB) The sale is eliminated during consolidationoC) The sale is treated as revenue in the consolidated financial statementsoD) The sale affects the non-controlling interest only Answer: B) The sale is eliminated during consolidation13.The primary purpose of goodwill in business combinations is:
oA) To represent the future economic benefits expected from the combinationoB) To account for the differences in stockholder equityoC) To reflect the fair market value of tangible assets acquiredoD) To determine the value of the subsidiary's stock Answer: A) To represent the future economic benefits expected from the combination14.When consolidating financial statements, how is a parent company’s income from its subsidiary recorded?oA) The parent recognizes the income of the subsidiary proportionally based on ownershipoB) Income from the subsidiary is eliminated from the consolidated income statementoC) The parent recognizes full income from the subsidiary without any eliminationoD) The subsidiary’s income is reported separately in the parent’s income statement Answer: B) Income from the subsidiary is eliminated from the consolidated income statement15.Which of the following would be considered an acquisition-related cost in a business combination?oA) Professional fees for legal and advisory servicesoB) Cost of integrating the acquired company’s operationsoC) Post-acquisition restructuring costsoD) All of the above Answer: A) Professional fees for legal and advisory services