This document contains an exam for an advanced financial accounting course. It includes 3 questions assessing understanding of consolidation methods, business combinations, and accounting for investments. Question 1 has 6 parts related to applying consolidation methods to a sample business acquisition. Question 2 contains 5 multiple choice questions about consolidation standards. Question 3 has two parts: the first asks to calculate goodwill and prepare consolidation journal entries and balance sheet for a business purchase, and the second provides financial information for an investment and asks to prepare the relevant journal entries.

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Ch 5 lecture notes summer 2020 inetrmediate accounting
advance accounting (Humber College)
Studocu is not sponsored or endorsed by any college or university
Ch 5 lecture notes summer 2020 inetrmediate accounting
advance accounting (Humber College)
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2. Student number:________________________________
Humber College
Advanced Financial Accounting
ACCT 360-TEST # 1
Winter 2021
Your Marks
Question #1 _______ (20 marks)
Question #2 _______ (10 marks)
Question #3 _______ (20 marks)
TOTAL
A
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3. QUESTION 1
1. Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019:
(a) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated
Balance Sheet on the date of acquisition if the identifiable net assets (INA) method were used?
Parent Inc Sub Inc Sub Inc
(carrying value) (carrying
value)
(fair value)
Cash $180,000 $36,000 $36,000
Accounts Receivable $100,000 $40,000 $40,000
Inventory $ 60,000 $24,000 $27,000
Plant and Equipment (net) $200,000 $80,000 $93,000
Goodwill $ - $ 8,000
Trademark $ - $12,000 $15,000
Total Assets $540,000 $200,000
Current Liabilities $ 80,000 $50,000 $50,000
Bonds Payable $320,000 $20,000 $24,000
Common Shares $ 90,000 $80,000
Retained Earnings $ 50,000 $50,000
Total Liabilities and Equity $540,000 $200,000
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4. (b) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date
of acquisition if the identifiable net assets (INA) method were used?
(c ) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated
Balance Sheet if the fair value enterprise (FVE) method were used?
(d) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date
of acquisition if the fair value enterprise (FVE) method were used?
(e ) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
the Shareholders' Equity section of Parent's consolidated balance sheet on the date of acquisition
would total to what amount under the fair value enterprise method?
(f) Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000,
the assets section of Parent's consolidated balance sheet on the date of acquisition would total to
what amount under the fair value enterprise method?
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5. QUESTION 2
1. Which statement about the differences between consolidation methods permitted under ASPE
and IFRS is true?
A. IFRS and ASPE both require the use of the fair value enterprise method or the identifiable net
assets method.
B. IFRS and ASPE both require the use of the identifiable net assets method.
C. IFRS permits either the fair value enterprise method or identifiable net assets method; ASPE
requires the fair value enterprise method.
D. IFRS permits either the fair value enterprise method or the identifiable net assets method;
ASPE requires the identifiable net assets method.
2. When a contingent consideration arising from a business combination is classified as equity,
how is any change in its fair value accounted for if the difference arises due to a change in
circumstances?
A. As an adjustment to the consideration paid for the subsidiary.
B. As an adjustment to an estimate included in the determination of net income.
C. As a memorandum entry indicating that additional shares had been issued.
D. As an adjustment to consolidated contributed surplus.
3. Company Y purchases a controlling interest in Company Z on January 1, 2019. 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.
4. 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.
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6. 5. On January 1, 2019, A Company issued 6,000 new common shares to the shareholders of B
Corporation for all of their shares in B Corporation. Prior to the new share issuance by A
Company, it had 5,000 common shares issued and outstanding. The former shareholders of B
Corporation would now own 55% (6,000/11,000) of the outstanding shares.
What is the outcome of this transaction?
A. The legal parent, A Company, is treated as the subsidiary and the legal subsidiary, B
Corporation, is treated as the parent for reporting purposes. Therefore, the consolidated balance
sheet would incorporate B Corporation's net assets at carrying value and A Company's net assets
at fair value.
B. Since A Company shares were issued to the shareholders of B Company for the purchase, A
Company will be the parent company and B Corporation, the subsidiary for reporting purposes.
Therefore, the consolidated balance sheet would incorporate A Company's net assets at carrying
value and B Corporation's net assets at fair value.
C. Since neither A Company nor B Corporation can be identified as the acquirer, the consolidated
balance sheet would incorporate A Company's net assets at carrying value and B Corporation's
net assets at carrying value.
D. Since neither A Company nor B Corporation can be identified as the acquirer, consolidated
financial statements are not required. Each entity is only required to prepare separate entity
financial statements
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7. QUESTION 3
(a) ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in
cash on July 1, 2019. On the date, the balance sheets of each of these companies were as
follows:
ABC123 Inc DEF456 Inc
Cash and Short-Term
Securities
$900,000 $200,000
Inventory $ 50,000 $120,000
Plant and Equipment (net) $350,000 $150,000
Goodwill $ - $ 80,000
Total Assets $1,300,000 $550,000
Current Liabilities $ 180,000 $160,000
Bonds Payable $ 400,000 $100,000
Common Shares $ 500,000 $200,000
Retained Earnings $ 220,000 $ 90,000
Total Liabilities and Equity $1,300,000 $550,000
On that date, the fair values of DEF456 Assets and Liabilities were as follows:
Cash and Short-Term Securities $200,000
Inventory $ 90,000
Plant and Equipment (net) $250,000
Current Liabilities $160,000
Bonds Payable $ 88,000
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8. 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.
Based on the information provided:
a) Calculate the amount of Goodwill arising from this combination.
b) Prepare the journal entry to record ABC123's acquisition of DEF456's shares.
c) Prepare ABC123's Consolidated Balance Sheet immediately following its acquisition of
DEF123's voting shares.
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9. (b) X purchased 40% of Y on January 1, 2019 for $400,000. Y paid dividends of $50,000 in
each year. Y's income statements for 2019 and 2020 showed the following.
At December 31, 2019, the fair value of the investment was $440,000 and at December
31, 2020 the fair value of the investment was $420,000.
Required:
Prepare X's journal entries for 2019 and 2020, assuming that this is a non-strategic
investment and is accounted for at fair value through profit and loss (FVTPL).
2019 2020
Income (loss) before income taxes $100,000 ($60,000)
Income tax expense (recovery) 40,000 (15,000)
Net income (loss) $60,000 ($45,000)
Other comprehensive income (net of tax) 20,000 25,000
Comprehensive income (loss) $80,000 ($20,000)
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