Modern Advanced Accounting in Canada

Canadian 7th Edition Hilton Test Bank

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03
Student: _

1. Company A has made an offer to purchase all of the outstanding shares of Company B for $10 per share (the current market value
of the shares). In response to Company A's offer, the shareholders of Company B were given rights to purchase additional shares at
$8 per share. Which of the following tactics was employed by Company B to prevent Company A from acquiring control of
Company B?

A Pac-man defence.
B. Selling the crown jewels.
C. Poison Pill.
D. Reverse-takeover.

2. 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 ofinventory 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?

A $30,000.
B. $50,000.
C. $80,000.
D. Nil.

3. IOU Inc. purchased all of the outstanding common shares of UNI Inc. for $800,000. On the date of acquisition, UN I's assets
included $2,000,000 oflnventory 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?

A
Debit Credit
Investment in UNI $800,000
Cash $800,000
B.
Inventory $2,000,000
Land $ 170.,000
Goodwill $ 30,000
Liabilities $1,400,000
Cash $ 800.000
C. '
Net Assets $800,000
Cash $ 800 :, 000
D. No entry.
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4. 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 oflnventory and Land with a Book value of $120,000.UNI also had $1,400,000 in Liabilities on that date. UN
I'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.

Assuming that the acquisition was properly recorded at cost, which of the following journal entries is required to prepare
Consolidated Financial Statements the day following the acquisition?
A Debit Credit
Investment in UNI $800,000
Cash $800,000
B Inventory $2,000,000
Land $ 170,000
Goodwill $ 30,000
Liabilities $1,400,000
Investment in UNI $ 800 ,. 000
Net Assets $800,000
Cash $ 800,000
D. No entry.

5. 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 oflnventory 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.

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

A Subsidiary's goodwill is considered as an identifiable asset and should therefore be included in Parent Company's Acquisition
Differential calculation.
B. Subsidiary's goodwill is considered as an identifiable asset and should therefore be excluded from Parent Company's Acquisition
Differential calculation.
C. Subsidiary's goodwill is not considered as an identifiable asset and should therefore be excluded from Parent Company's
Acquisition Differential calculation.
D. Subsidiary's goodwill is not considered as an identifiable asset and should therefore be included in Parent Company's Acquisition
Differential calculation.

6. Which of the following would NOT be included in the Acquisition Cost?

A. Share issue costs.

B. The Fair Market Value of any Shares Issued.
C. Contingent Consideration.
D. The Fair Value of assets transferred.

7. How should the acquisition cost of a Business Combination be allocated prior to preparing Consolidated Financial Statements?

A The difference between the acquisition cost and the book values of the acquirer's identifiable assets should be treated as goodwill.
B. The acquisition cost should be allocated to the acquired company's identifiable assets and liabilities to bring them to their fair
value.
C. The acquisition cost should be reflected as an increase in the acquirer's Investment (in the subsidiary) account.
D. The treatment of the acquisition cost depends largely on the type of consideration given by the acquirer.

8. During an acquisition, when should intangible assets NOT be recognized apart from Goodwill?

A The assets have been identified but not accounted for by the subsidiary.
B. The assets have been identified and accounted for by the subsidiary.
C. The assets can be sold, licensed or exchanged.
D. The assets have been accounted for by the subsidiary but have no Fair Value on the date of acquisition.

9. Which of the following pertaining to Consolidated Financial Statements is correct?

A The preparation of consolidated Financial Statements means that the companies involved cease to operate as separate legal entities.
B. The preparation of Consolidated Financial Statements is at the Parent Company's discretion.
C. When one company has control over another, Consolidated Financial Statements must be prepared for the combined entity.
D. Before preparing Consolidated Financial Statements, a subsidiary's Financial Statements prior to the date of acquisition must be
restated.

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10. Company Y purchases a controlling interest in Company Z on January 1, 2012. Which of the following would appear as the
Shareholders' Equity amount on Company Y's Consolidated Balance Sheet on the date of acquisition?

A. Company Y's Shareholders' Equity.

B. The sum of the Shareholders' Equity of both companies.
C. Company Y's Shareholders' Equity as well as Company Y's proportional share of company Z's net assets at book value.
D. Company Y's Shareholders' Equity as well as Company Y's proportional share of company Z's net assets at Fair Market Value.

11. 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?

A On the Parent's books only.

B. On the Subsidiary's books.
C. The entries are not recorded in the books of either company. The entries are only made on the working papers.
D. The effect of any inter-company transaction must be reflected on the books of both companies.

12. Parent and Sub Inc. had the following balance sheets on December 31, 2012:

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 $70,000
On January 1, 2013 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:

A $70,000.
B. $86,000.
C. $114,000.
D. $170,000.

13. Parent and Sub Inc. had the following balance sheets on December 31, 2012:

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 $70,000

On January 1, 2013 Parent purchased all of Sub lnc.'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.

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14. Parent and Sub Inc. had the following balance sheets on December 31, 2012:

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 $70,000
On January 1, 2013 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 Goodwill arising from this Business Combination would be:

A. ($17,000).
B. $7,000. C.
$17,000. D.
$120,000

15. Parent and Sub Inc. had the following balance sheets on December 31, 2012:

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 $70,000
On January 1, 2013 Parent purchased all of Sub lnc.'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 Shareholders' Equity section of the Consolidated Balance Sheet would show what amount?

A. $19,000.
B. $90,000.
C. $98,000.
D. $121,000.

16. IAS 27 outlines the requirements for identifying the company that is the acquirer in a business combination when it's not clear who
that is. Which is NOT a consideration in determining which company is the acquirer?

A. If the means of payment is cash, which party is paying the cash.

B. Relative holdings of voting shares in the combined entity.
C. Voting rights of the respective parties after the combination of their businesses.
D. Any by-laws or provisions of the incorporation acts of each company that details the manner in which a business combination will
occur at law.

17. The new TASB standard issued with respect to the treatment of negative goodwill requires that:

A. it must be recognized in income immediately as an extraordinary item.

B. it must be recognized in income immediately.
C. it can be deferred and amortized over a maximum of 40 years.
D. it must be reflected as an increase in Liabilities and a Reduction in Capital for the Parent Company.

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

A They should be ignored since they can't be accurately measured.

8. They should be independently appraised and accounted for at their appraised value.
C. They should be included in Goodwill.