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12/15/21, 11:27 AM QUIZ 2 - Accounting for Business Combination
QUIZ 2 - Accounting for

Business Combination
Consolidation - Date of Acquisition
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God bless and good luck :-)
Points: 38/45
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SECTION *
BSA 3-5
BSA 3-10
BSA 3-11
BSMA 3-4
BSMA 3-6
BSMA 3-7
BSMA 3-9
BSMA 3-11
Statement I. The non-controlling interest is presented in the consolidated

financial statements as an equity separately from the equity of the parent.
Statement II. If the ownership interest in a subsidiary changed but did not result
to loss of control, the parent should recognize a gain or loss associated with the
transaction.
*
(1/1 Point)
Both statements are true.
Both statements are false.
Statement I is true; Statement II is false. 
Statement I is false; Statement II is true.

On the date of acquisition, consolidated shareholder equity is equal to:

*
(1/1 Point)
the sum of the parent and subsidiary’s shareholder equities.
the parent’s shareholder equity. 
the subsidiary’s shareholder equity.
the sum of the parent’s shareholder equity plus its pro-rata share of the subsidiary’s
shareholder equity.
Panay Company acquired all the outstanding shares of Samar Company by

issuing 50,000 shares of its P10 par value ordinary shares on July 1, 2021. The
fair value of Panay’s share was P15. Panay also incurred P20,000 for legal fees
and P15,000 for printing and registering the new shares. At the date of
acquisition, Samar had the following balances: Assets – P850,000; Liabilities –
P180,000; Share Capital – P500,000; Share Premium – P150,000; and Retained
Earnings – P20,000. The carrying values of the identifiable assets and liabilities
of Samar were equal to their fair values except for accounts receivable which
was understated by P7,500 and plant assets with fair value lower than carrying
value by P75,000.
How much is the Increase in the Equity of Panay?

*
(2/2 Points)
715,000.00 
At the date of acquisition, business combination resulting in a parent-subsidiary

relationship, the difference between current fair values and carrying amounts of
the subsidiary’s net assets is:
*
(1/1 Point)
Reflected in a consolidation elimination 
Recorded in the applicable asset and liability accounts of the subsidiary
Recorded in the applicable asset and liability accounts of the parent
Accounted for in some other manner

6
Which of the following is the best theoretical justification for consolidated

financial statements?
*
(0/1 Point)
In form, the companies are one entity and in substance, they are separate
In form and substance, the companies are one entity
In form, the companies are separate and in substance, they are one entity 
In form and substance, the companies are separate
Pinoy Company purchased the net asset of Smart Company (excluding cash) by
paying P250,000 cash, issuing shares with a fair value of P1,810,000 and issuing
a bond debenture with a fair value of P380,000 on January 2, 2021. The financial
statements of Pinoy and Smart as of this date were as follows (see image
below).
The book value reflected the fair value of the assets and liabilities except that
the inventory of Pinoy had a fair value of 1,500,000 and the inventory and
equipment of Smart had a fair values of P750,000 and P1,400,000 respectively.
Pinoy also incurred the following costs: Finder’s fee – P10,000; Accountant’s fee
– P15,000; Legal fees – P7,500; Printing of stock certificates – P5,000; and Audit
and accountant’s fee related to stock issuance – P20,000. Pinoy only paid 50%
of the said acquisition related costs.
How much is the Goodwill/Gain on Bargain Purchase?

*
(2/2 Points)
120,000.00 

8
below).
How much is the Consolidated Equity? *

(0/2 Points)
9,112,500.00
Correct answers: 9,232,500.00
Petron Company issued new shares of its P5 par value ordinary shares valued at
P12 per share in exchange for 90% outstanding shares (P2 par value) of Shell
Company on March 31, 2021. The fair value and book value of Shell’s
identifiable assets and liabilities were the same except inventory which was
understated by P30,000 and equipment which was overstated by P90,000. The
financial statements of Petron and Shell were (see image below).
Petron incurred the following costs: Legal fees – P11,200; Audit fees for SEC
registration of share issue - P5,000; Brokerage fee - P2,500; and Accountant fee
for pre-acquisition audit – P15,000. The parent opted to measure NCI using
proportionate share and the business combination resulted to a goodwill of
P99,000.
How much is the Consolidated Equity?

*
(2/2 Points)
2,215,300.00 
10
Statement I. Upon consolidation, the goodwill account should be debited in the

elimination entry if the consideration transferred, previously held interest, and
non-controlling interest are less than the fair value of net assets acquired.
Statement II. In a net asset acquisition, the parent should recognize the goodwill
as an asset in its separate financial statements.
*
(1/1 Point)
Both statements are false.
Statement I is true; Statement II is false.
Statement I is false; Statement II is true. 
11
The Retained Earnings Account of the subsidiary appears in:

*
(1/1 Point)
The consolidated financial statements
The parent’s accounting records
The subsidiary’s accounting records 
All of the above
12
Consolidated financial statements prepared as of the date of acquisition

involving a partially owned subsidiary must include the Non-Controlling Interest
which shall include:
*
(1/1 Point)
The share in the adjustment of net identifiable assets to fair value.
The share on the goodwill to be recognized.
The interest in the subsidiary stockholder’s equity accounts
All of the above 
13
P99,000.
How much is the Consolidated Assets?

*
(2/2 Points)
3,500,300.00 
14
Statement I. Upon consolidation, the equity of the parent should be eliminated

in full.
Statement II. If the parent acquired all the outstanding shares of the subsidiary,
the parent needs not to present consolidated financial statements.
*
(1/1 Point)
Both statements are false. 
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15
Statement I. Under the cost method, the carrying value of the investment in
subsidiary is decreased by the share from the accumulated net profits of the
subsidiary arising subsequent to the date of acquisition.
Statement II. The non-controlling interest is based on the book value of net
assets of the subsidiary.
*
(1/1 Point)
16
When a parent-subsidiary relationship exists, consolidated financial statements

are prepared in recognition of the accounting concept of:
*
(1/1 Point)
Legal Merger
Business Combination
Legal Entity
Economic Entity 
17

value by P75,000.
Assuming that Panay purchased the net assets of Samar, how much is the
Increase in the Equity of
Panay?
*
(2/2 Points)
715,000.00 
18
Power Company started negotiating for the acquisition of 69,000 outstanding

shares of Super Company. The offer was to pay P3,000,000 cash and issue
50,000 shares to the stockholders of Super. Also, Power promised to pay an
additional P1,000,000 cash within one year if the net income of Super exceeds
P10,000,000. On July 1, 2021, the stockholders of Super accepted the offer. On
this date, the fair value of the shares and contingent consideration were
P2,550,000 and P750,000 respectively. The stockholders’ equity of Power and
Super at the date of acquisition were as follows (see image below).
The fair value and book value of Super’s identifiable assets and liabilities were
the same except for inventory which was overvalued by P50,000 and Equipment
which was overdepreciated by P100,000. Power opted to measure NCI at fair
value of P1,850,000. Power also paid the following acquisition related costs:
Legal fees - P41,200; Audit fees for SEC registration of share issue - P50,000;
Brokerage fee - P22,500; Accountant fee for pre-acquisition audit - P35,000;
Printing and registration of stock certificates - P10,000; Other direct costs of
acquisition - P16,800; and General administrative costs - P25,000.
How much is the Consolidated Retained Earnings?

*
(0/2 Points)
5,859,500.00
19
Acquirer Company issued 80,000 new shares of its P10 par value ordinary shares
and paid cash of P2,000,000 for the net assets of Acquiree Company on January
2, 2021. Acquirer also agreed to pay P500,000 one year after the acquisition
date if the net income of Acquiree will exceed P10,000,000. The share of
Acquirer was valued at P15. At this date, the fair value and book value of
Acquiree’s identifiable assets and liabilities were the same except for inventory
which was undervalued by P50,000 and Equipment which was underdepreciated
by P100,000. The financial statements of Acquirer and Acquiree were (see image
below).
As of the acquisition date, there was only a low probability of the profit target
being met, so the fair value of the additional consideration was determined at
P150,000. Acquirer also incurred the following costs: Finder’s fee - 20,000;
Professional fee - 60,000; Audit and accountant’s fee related to stock issuance -
10,000 and Printing and registration of shares - 5,000.
How much is the Goodwill/Gain on Bargain Purchase?

*
(2/2 Points)
330,000.00 
20
below).
How much is the Consideration Transferred?

*
(2/2 Points)
3,350,000.00 
21
In a stock acquisition that results to goodwill, the acquirer should classified it in

its separate financial statements as a/an:
*
(1/1 Point)
Equity
Asset
Liability
None of the above 
22
Power Company started negotiating for the acquisition of 69,000 outstanding

shares of Super Company. The offer was to pay P3,000,000 cash and issue
50,000 shares to the stockholders of Super. Also, Power promised to pay an
additional P1,000,000 cash within one year if the net income of Super exceeds
P10,000,000. On July 1, 2021, the stockholders of Super accepted the offer. On
this date, the fair value of the shares and contingent consideration were
P2,550,000 and P750,000 respectively. The stockholders’ equity of Power and
Super at the date of acquisition were as follows (see image below).
The fair value and book value of Super’s identifiable assets and liabilities were
the same except for inventory which was overvalued by P50,000 and Equipment
which was overdepreciated by P100,000. Power opted to measure NCI at fair
value of P1,850,000. Power also paid the following acquisition related costs:
Legal fees - P41,200; Audit fees for SEC registration of share issue - P50,000;
Brokerage fee - P22,500; Accountant fee for pre-acquisition audit - P35,000;
Printing and registration of stock certificates - P10,000; Other direct costs of
acquisition - P16,800; and General administrative costs - P25,000.
How much is the Consolidated Shareholders’ Equity?

*
(2/2 Points)
34,999,500.00 
23
below).
How much is the Consolidated Assets immediately after the business

combination?
*
(2/2 Points)
10,805,000.00 
24
Gain on Bargain Purchase treated as other income in a business combination

should be:
*
(1/1 Point)
Credited to the income account of both acquirer and acquire
Credited to the share premium account of the acquirer
Credited to a deferred credit account
Credited to the income account of the acquirer 
25
Any excess of the fair value over book value attributable to land on the date of
acquisition is to be:
*
(1/1 Point)
allocated to other identifiable assets.
capitalized and amortized.
charged to Retained Earnings on the date of acquisition.
taken into income when the Land is sold. 

26
below).
How much is the Consolidated Liability? *

(0/2 Points)
1,966,250.00
27
P99,000.
How many is the Number of Shares Issued?

*
(2/2 Points)
71,250.00 
28
Statement I. PFRS 10 requires the subsidiary entity to present consolidated

financial statements.
Statement II. There is control if the acquirer holds 80% interest of the acquiree
and is entitled to receive a fixed return.
*
(1/1 Point)
29

value by P75,000.
How much is the Increase in the Assets of Panay?

*
(2/2 Points)
715,000.00 
30
Consolidation eliminations are entered on:

*
(1/1 Point)
Both parent and subsidiary’s accounting record
Neither the parent not the subsidiary’s accounting records 
The parent’s accounting records only
The subsidiary’s accounting records only
31

value by P75,000.
Assuming that Panay purchased the net assets of Samar, how much is the
Increase in the Assets of
Panay?
*
(2/2 Points)
895,000.00 
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12/15/21, 11:27 AM QUIZ 2 - Accounting for Business Combination

QUIZ 2 - Accounting for

God bless and good luck :-)

Statement I. The non-controlling interest is presented in the consolidated

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false. 

Statement I is false; Statement II is true.

On the date of acquisition, consolidated shareholder equity is equal to:

the sum of the parent and subsidiary’s shareholder equities.

the parent’s shareholder equity. 

the subsidiary’s shareholder equity.

Panay Company acquired all the outstanding shares of Samar Company by

How much is the Increase in the Equity of Panay?

At the date of acquisition, business combination resulting in a parent-subsidiary

Reflected in a consolidation elimination 

Recorded in the applicable asset and liability accounts of the subsidiary

Recorded in the applicable asset and liability accounts of the parent

Accounted for in some other manner

Which of the following is the best theoretical justification for consolidated

In form and substance, the companies are one entity

In form and substance, the companies are separate

How much is the Goodwill/Gain on Bargain Purchase?

How much is the Consolidated Equity? *

Correct answers: 9,232,500.00

How much is the Consolidated Equity?

Statement I. Upon consolidation, the goodwill account should be debited in the

Both statements are true.

Both statements are false.

Statement I is true; Statement II is false.

Statement I is false; Statement II is true. 

The Retained Earnings Account of the subsidiary appears in:

The consolidated financial statements

The parent’s accounting records

The subsidiary’s accounting records 

All of the above

Consolidated financial statements prepared as of the date of acquisition

The share in the adjustment of net identifiable assets to fair value.

The share on the goodwill to be recognized.

The interest in the subsidiary stockholder’s equity accounts

All of the above 

How much is the Consolidated Assets?

Statement I. Upon consolidation, the equity of the parent should be eliminated

Both statements are true.

Both statements are false. 

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

Both statements are true.

Both statements are false. 

Statement I is true; Statement II is false.

Statement I is false; Statement II is true.

When a parent-subsidiary relationship exists, consolidated financial statements

Panay Company acquired all the outstanding shares of Samar Company by

Power Company started negotiating for the acquisition of 69,000 outstanding

How much is the Consolidated Retained Earnings?

Correct answers: 5,849,500.00

How much is the Goodwill/Gain on Bargain Purchase?

How much is the Consideration Transferred?