Question 1

Compute the consolidated cash account at December 31, 2018.

Accepted Answer

From the information given in the problem, we can calculate the total cash balance as follows:
- Parent company cash balance on December 31, 2018: $200
- Subsidiary cash balance on December 31, 2018: $150
- Acquisition on October 1, 2018: $120
Total cash balance = $200 (parent company) + $150 (subsidiary) + $120 (acquisition) = $470
However, we need to consider that the acquisition occurred on October 1, 2018, so only 3 months worth of cash will be consolidated into the statement of cash flows. This means that we need to subtract 3/12 of the acquisition cash balance, which is $30. 
Therefore, the consolidated cash account at December 31, 2018 is $470 - $30 = $440. However, the problem only gives answer choices in increments of $25. The closest answer choice is C) $400.

Question 2

Compute the consolidated common stock account at December 31, 2018.

Accepted Answer

The total common stock of Parent Company ($800) and Subsidiary Company ($580) is $1,380. Since the subsidiary was acquired during the current year, there is no effect on the consolidated common stock account for any previous years. Therefore, the answer is $1,380.

Question 3

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

Accepted Answer

In the acquisition method, the acquiring company accounts for its investment by revaluing the net assets of the acquired company to their fair values at the acquisition date. Any excess of consideration transferred over the fair value of net assets acquired is allocated to goodwill. Therefore, option A is the correct statement. Option B and C are incorrect as they do not apply the fair value concept. Option D is incorrect as not all acquired long-term assets are revalued, only the ones that fall under the scope of revaluation rules.

Question 4

Assuming that Corr retains a separate corporate existence after this acquisition, at what amount is the investment recorded on Goodwin's books?

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Question 5

Which of the following statements is true?

Accepted Answer

The answer of Which of the following statements is true?
...

Question 6

Which of the following statements is true regarding a statutory consolidation?

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The answer of Which of the following statements is true...

Question 7

Compute the goodwill arising from this acquisition at December 31, 2018.

Accepted Answer

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Question 8

Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000.Blue Town Inc.had common stock of $700,000 and retained earnings of $980,000.On January 1, 2018, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock.This combination was accounted for using the acquisition method.Immediately after the combination, what was the amount of total consolidated net assets?

Accepted Answer

The total consolidated net assets are calculated by adding the fair value of the consideration given by Blue Town ($35 * 34,000 shares = $1,190,000) to Blue Town's existing net assets ($700,000 common stock + $980,000 retained earnings = $1,680,000), resulting in $2,870,000.

Question 9

Compute the consolidated revenues for 2018.

Accepted Answer

Consolidated revenues = Revenues of Parent Company + Revenues of Subsidiary Company= $2,000 + $700= $2,700

Question 10

Compute the consolidated receivables and inventory for 2018.

Accepted Answer

To compute the consolidated receivables and inventory, we need to add up the values for both subsidiaries given in the table.
Consolidated receivables = $1,200 + $340 = $1,540
Consolidated inventory = $800 + $500 + $400 + $60 = $1,760
Therefore, the correct answer is C, $1,540.

Question 11

In this acquisition business combination, what total amount of common stock and additional paid-in capital should Goodwin recognize on its consolidated financial statements?

Accepted Answer

The total amount of consideration paid by Goodwin in this acquisition is $1,200, which consists of $750 in cash plus $450 of Goodwin's own common stock (7,500 shares x $60 per share).

The common stock and additional paid-in capital that Goodwin should recognize on its consolidated financial statements is equal to the fair value of the stock issued in the acquisition. To calculate this, we need to know the fair value of Goodwin's common stock.

We are told that the fair value of Goodwin's common stock at the acquisition date is $115 per share. Therefore, the total fair value of the 7,500 shares issued by Goodwin in the acquisition is:

7,500 shares x $115 per share = $862,500

This amount should be split between common stock and additional paid-in capital in accordance with the legal requirements in the state of incorporation (which are not provided in the question). For simplicity, we will assume that the entire amount is recorded as additional paid-in capital.

Therefore, the total amount of common stock and additional paid-in capital that Goodwin should recognize on its consolidated financial statements is:

Common stock: $450
Additional paid-in capital: $862,500

Total: $863,000

This amount should be recorded as a non-cash investing and financing activity in the statement of cash flows.

Question 12

Compute the consolidated equipment (net) account at December 31, 2018.

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Question 13

Compute the consolidated buildings (net) account at December 31, 2018.

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Question 14

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

Accepted Answer

When consideration transferred is less than fair value of net assets acquired, a gain on bargain purchase is recorded. This means that the acquiring company has paid less for the net assets acquired than their fair value. As per IFRS 3, the gain on bargain purchase is recognized directly in profit or loss of the acquiring company in the period of the acquisition. Therefore, option C is the correct choice.

Question 15

Compute the consolidated expenses for 2018.

Accepted Answer

To compute the consolidated expenses for 2018, we need to add up the expenses of both January and February:
$960 + $1,045 = $2,005. Thus, our answer choice is B.

Question 16

Compute the consideration transferred for this acquisition at December 31, 2018.

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Question 17

Which of the following is a not a reason for a business combination to take place?

Accepted Answer

Increasing the stock price of the acquired company is not a reason for a business combination to take place. While it may be an attractive outcome of a business combination, it is not a primary reason for the combination to take place. The other choices, including cost savings, quick entry into new markets, diversification of business risk, and vertical integration, are all common reasons for businesses to combine.

Question 18

Assume that Botkins acquired Volkerson on January 1, 2017.Immediately afterwards, what is the value of the consolidated Common Stock?

Accepted Answer

To calculate the consolidated Common Stock value after acquiring Volkerson, we need to add the Common Stock value of Botkins and Volkerson. Botkins' Common Stock value is given as $150,000 in the balance sheet, while Volkerson's Common Stock value can be calculated as follows:

Volkerson Common Stock = Par value of outstanding shares + Additional paid-in capital 
= $60,000 + $66,000 
= $126,000

Therefore, the consolidated Common Stock value = Botkins' Common Stock value + Volkerson's Common Stock value 
= $150,000 + $126,000 
= $276,000

Hence, the correct answer is option D.

Question 19

Which of the following statements is true regarding a statutory merger?

Accepted Answer

In a statutory merger, the acquired company dissolves as a separate corporation and becomes a division of the acquiring company. Thus, option C is the correct statement. Option A is incorrect because the original companies do not remain as separate divisions. Option B is incorrect because one corporation is not a subsidiary of the other. Option D is incorrect because acquiring the stock of the acquired company would make it a subsidiary, not a merger. Option E is incorrect because statutory mergers are still a legal option.

Question 20

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

Accepted Answer

The acquisition method of accounting requires the net assets of the acquired company to be reported at their fair value, rather than their book value. Goodwill is recognized as an asset and not reported as a development cost. The method allows for the consideration paid in the combination to be cash or other assets, not just voting common stock. Indirect costs of the combination are expensed as incurred, rather than reducing additional paid-in capital.

Quiz 2: Consolidation of Financial Information