Midterm Exam 15 December 2013, questions and answers PDF

Preview

Summary

Republic of the Philippines CAGAYAN STATE UNIVERSITY Tuguegarao City College of Business, Entrepreneurship and AccountancyFirst Mockboard Examinations Practical Accounting 2 R.SI. Multiple Choice (2 points each - total 100 points) Instructions: Choose the BEST answer for each of the following items....

Description

1

Republic of the Philippines CAGAYAN STATE UNIVERSITY Tuguegarao City College of Business, Entrepreneurship and Accountancy

Practical Accounting 2

First Mockboard Examinations

R.S.Purugganan

I. Multiple Choice (2 points each - total 100 points) Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each item on the Special Answer Sheet provided. Any alteration or erasure is considered a wrong answer. (Submit supporting computations in good form) Do not write on the Questionnaire Use the following data to answer numbers 1 - 6: On January 2, 2010 YOU Corporation acquired all of ME Corporation’s assets and liabilities by issuing shares of its common stock. Partial balance sheet data for the companies prior to the business combination and immediately after the combination are as follows: ____________________________________________________________________________________________ YOU Corp. ME Corp. Combined Book value Book value Entity ____________________________________________________________________________________________ Cash P 40,000 P 10,000 P 50,000 Accounts receivable 60,000 30,000 88,000 Inventory 50,000 35,000 96,000 Buildings and equipment (net) 300,000 110,000 430,000 Goodwill ________ ______ ?___ Total Assets P450,000 P185,000 ?___ Accounts payable Comon stock, P5 par Additional paid in capital Retained Earnings Total liabilities and equities

P 188,000 100,000 65,000 97,000 P 450,000

P 84,000 40,000 28,000 33,000 P 185,000

P 272,000 126,000 247,000 ?___ P ?___

1. What number of shares did YOU issue to acquire ME’s assets and liabilities? a. 2,500 c. 5,000 b. 4,500 d. 5,200 2. What was the market value of the shares issued by YOU? a. P200,000 c. P208,500 b. P208,000 d. P250,000 3. What was the fair value of the inventory held by ME at the date of combination? a. P35,000 c. P46,000 b. P40,000 d. P64,000 4. What was the fair value of the net assets held by ME at the date of combination? a. P125,000 c. P135,000 b. P130,000 d. P140,000 5. What amount of goodwill, if any, will be reported by the combined entity immediately following the combination? a. P75,000 c. P87,000 b. P78,000 d. P88,000 6. If the depreciable assets held by ME had an average remaining life of ten years at the date of acquisition, what amount of depreciation expense will be reported on those assets on December 31, 2010? a. P12,000 c. P14,000 b. P13,000 d. P15,000 . Use the following data to answer Nos. 7-9: Chico Company acquired Atis Corporation on January 2, 2010, by issuing common shares. All of Atis’assets and liabilities were immediately transferred to Chico, which reported total par value of shares outstanding of P218,400 and P327,600 and additional paid in capital of P370,000 and P650,800 immediately before and after the business combination, respectively. 7. Assuming that Chico’s common stock had a market of P25 per share at the time of acquisition, what number of shares

was issued? a. P10,000

b. P10,500

c. P15,000

d. P15,600

2

8. What is the par value per share of Chico’s common stock? a. P7 b. P8 c. P9 d. P10 9. Assuming that Atis’identifiable assets had a fair value of P476,000 and its liabilities had a fair value of P120,000, what amount of goodwill did Chico record at the time of the business combination? a. P30,000 b. P34,000 c. P35,000 d. P40,000 10. KING Company acquired all of QUEEN Corporation’s assets and liabilities on January 2, 2008, in a business combination, at that date, QUEEN reported assets with a book value of P624,000 and liabilities of P356,000. KING noted that QUEEN had P40,000 of research and development costs on its books at the acquisition date that did not appear to be of value. KING also determined that patents developed by QUEEN had a fair value of P120,000 but had not been recorded by Queen. Except for building and equipment. KING determined the fair val;ue of all other assets and liabilities reported by QUEEN approximated the recorded amounts. In recording the transfer of assets and liabilities to its books, KING recorded goodwill of P93,000. KING paid P517,000 to acquire QUEEN’s assets and liabilities. If the book value of QUEEN’s buildings and equipment was P341,000 at the date of acquisition, what was their fair value? a. P417,000 c. P341,000 b. P417,500 d. P441,000 11. On January 2, 2010, BAGO Corporation pays P200,000 cash and also issues 18,000 shares of P10 par common stock with a market value of P330,000 for all the outstanding stock of LUMA Company. In addition, BAGO pays P30,000 for registering and issuing the 18,000 shares and P70,000 for the other direct costs of the business combination, in which LUMA Corporation is dissolved. Summary balance sheet information for the companies immediately before the merger is as follows (in thousands). BAGO Book Value P350 150 260

LUMA Book Value P40 100 180

LUMA Fair Value P40 120 280

Total assets

P760

P320

P440

Liabilities Common stock Retained earnings

P240 420 100

P80 200 40

P70

Total liabilities and equity

P760

P320

Cash Inventories Property and equipment, net

What is the amount of goodwill to be recognized by BAGO Corporation? a. P230,000 c. P300,000 b. P260,000 d. P370,000 Use the following data to answer Nos. 12-15: Papa Corporation issued 120,000 shares of P10 par common stock with a fair value of P2,550,000 for all the outstanding stock of Mama Company. In addition, Papa incurred the following costs: Professional fees to arrange the business combination P25,000 Cost of SEC registration 12,000 Cost of printing and issuing stock certificates 3,000 Indirect costs of combining 2,000 Immediately before the business combination in which Mama Company was dissolved, Mama’s assets and equities were as follows (in thousands). Book value Fair value Current assets P1,000 P1,100 Plant assets 1,500 2,200 Liabilities 300 300 Common stock 2,000 Retained earnings 200 After reassessment, it was determined that the fair value of the plant assets is P1,800,000. 12. What is the total acquisition cost? a. P2,550,000

c. P2,575,000

b. P2,555,000

d. P2,580,000

3

13. Using the data in No.12, how much additional paid in capital is recorded by Papa? a. P1,330,000 b. P1,335,000 c. P1,350,000 d. P1,365,000 14. Using the data in No. 12, Papa should recognize: a. Goodwill of P45,000 c. negative goodwill of P425,000 b. Goodwill of P425,000 d. Income from acquisition of P25,000 15. Using the data in No. 12, the net assets acquired is to be recorded by Papa at: a. P2,200,000 c. P3,000,000 b. P2,600,000 d. P3,300,000 16. MALAKAS Corporation and MAGANDA Company agreed to combine their businesses, with MALAKAS Corporation as the surviving entity. MALAKAS will issue 48,000 shares of its capital stock, with a par value of P100 per share, and a fair market value of P175 per share. MALAKAS incurred the following additional acquisition costs: Professional fees Indirect acquisition costs (after combination) Costs to register and issue stock

P120,000 80,000 50,000

Before combination, their respective balance sheets showed stockholders’ equity accounts as follows:

Capital stock Additional paid in capital Retained earnings

MALAKAS P7,200,000 3,120,000 6,000,000

MAGANDA P3,600,000 360,000 2,040,000

Under the purchase method of acquisition, the total stockholders’ equity of MALAKAS Corporation after the combination is : a. P24,670,000 c. P24,840,000 b. P24,720,000 d. P24,890,000 17. GWAPO Corporation was merged into GWAPA Company in a combination properly accounted for as a purchase of interests. Their condensed balance sheets before the combination are:

Current assets Property and equipment, net Patents Total assets

GWAPO P3,288,000 4,654,000 P7,942,000

GWAPA P1,627,600 1,040,000 260,000 P2,927,000

Liabilities Capital stock, Par 100 Additional paid in capital Retained earnings Total liabilities and equity

P3,704,000 2,600,000 390,000 1,248,000 P7,942,000

P171,600 1,300,000 350,000 1,106,000 P2,927,600

Per appraisal’s report, GWAPA assets have fair values of: Current assets Property and equipment Patents

P1,653,600 1,248,000 338,000

GWAPO Corporation purchases the net assets of GWAPA for P3,168,000 cash. What is the total asset of GWAPO Corporation after the combination? a. P7,254,000 c. P8,113,600 b. P7,354,000 d. P9,181,600

18. PULA Corporation will issue common shares with a par value P10 for the net assets of PUTI Company. PULA’s common stock has a current market value of P40 per share. PUTI’s balance sheet on the date of acquisition follow: Current assets Property and equipment Liabilities

P320,000 Common stock, P5 par 880,000 Additional paid in capital 400,000 Retained earnings

P80,000 320,000 400,000

4

PUTI’s current assets are appraised at P400,000 and the property and equipment was also appraised at P1,600,000. Its liabilities are fairly valued. Accordingly, PULA Corporation issued shares of its common stock with a total market value equal to that of PUTI’s net assets including goowill. To recognize goodwill of P200,000, how many shares were to be issued by PULA? a. 40,000 b. 45,000 c. 50,000 d. 55,000 19. The stockholders’equities of FATHER Corporation and MOTHER Company at July 1, 2010 were as follows: FATHER MOTHER Capital stock, P100 P15,000,000 P8,000,000 Additional paid in capital 2,000,000 4,000,000 Retained earnings 6,000,000 3,000,000 On July 2, 2008, FATHER issued 150,000 of its shares with a market value of P120 per share for the assets and liabilities of MOTHER, and MOTHER was dissolved. On the same day, FATHER paid P50,000 for indirect cost and P100,000 for SEC registration of equity secutrities. After the combination, what is the total stockholders’ equity of FATHER Corporation? a. P40,850,000 c. P41,000,000 b. P40,900,000 d. P41,150,000 20. On May 31, 2010, MAHAL Company has assets and liabilities with the following fair values: Current assets Non-current assets Liabilities

P180,000 220,000 40,000

On June 1, 2010, GILIW Corporation purchases the net assets of MAHAL Company for P310,000 cash. In the books of GILIW Corporation, the acquisition resulted in: a. Negative goodwill of P50,000 b. Income from acquisition of P50,000 c. Reduction from current assets of P50,000 d. Deduction from non current assets of P50,000 21. On May 1, 2010, SWEET Corporation paid cash of P600,000 for all of the net assets of HEART Company and HEART is dissolved. The carrying value of the assets and liabilities of HEART on May 1, 2010 follow: Cash Inventory Plant and equipment (net accumulated Depreciation of P220,000) Goodwill Liabilities

P60,000 180,000 320,000 100,000 120,000

On May 1, 2010, HEART inventory had a fair value of P150,000, and the plant and equipment (net) had a fair value of P380,000. What is the amount of goodwill recorded in the books of SWEET as a result of the business combination? a. P-0b. P30,000 c. P100,000 d. P130,000 22. When MAYAMAN Company acquired POBRE Company’s net assets by issuing its own capital, it had the following expenditures: Broker’s fee Pre-acquisition audit fee Legal fees for merger agreement Audit fee for SEC registration of stock issue Printing of stock certificates

P50,000 40,000 47,000 46,000 11,000

Under PAS No. 3, the expenditures that should be debited to Additional Paid-in Capital (APIC) account is: a. P-0c. P57,000 b. P46,000 d. P137,000 23. On June 30, 2010 PURAW Corporation issued 100,000 shares of its P20 par value common stock for the net assets of NEGRO Company in a combination accounted for by the purchase method. The market value of PURAW’s common stock on June 30 was P36 per share. PURAW paid a fee of P100,000 to the broker who arranged this acquisition. Costs of SEC registration and issuance of the equity securities amounted to P50,000.

5

Contingent consideration determined to be paid after acquisition amounts to P20,000. What amount should PURAW capitalize as the cost of acquiring NEGRO’s net assets. a. P3,650,000 c. P3,720,000 b. P3,700,000 d. P3,750,000 24. Plata Corporation paid P100,000 cash for the net assets of Oro Company, which consisted of the following: Book Value Fair Value Current assets P20,000 P28,000 Property and equipment 80,000 110,000 Liabilities assumed 20,000 18,000 The property and equipment acquired in the business combination should be recorded at: a. P90,000 c. P100,000 b. P91,666 d. P110,000 25. On April 1, 2010, DEEKO Corporation paid P800,000 for the assets and liabilities of ALLAM Company in a transaction properly accounted for as a purchase. The book value of the assets and liabilities of ALLAM Company on April 1, 2010, follow: Cash P80,000 Inventory 240,000 Plant and equipment (net of accumulated depreciation 480,000 of P320,00) Liabilities 180,000 On April 1, 2007, it was determined that the inventory of ALLAM had a fair value of P190,000 and the plant and equipment (net) had a fair value of P560,000. What is the amount of goodwill resulting from the business combination? a. P-0c. P150,000 b. P50,000 d. P180,000 Use the following information to answer questions 26 to 30 On January 2, 2010, Polo Corporation purchase 80% of Son Company’s common stock for P324,000. P15,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an economic life of ten years. Noncontrolling interest is measured at its fair value on date of acquisition. On the date of acquisition, stockholders’ equity of the two companies are as follows:

Common Stock Retained earnings

Polo Corporation P525,000 780,000

Son Corporation P120,000 210,000

On December 31,2010, Son Company reported net income of P52,500 and paid dividends of P18,000 to Polo. Polo reported earnings from its separate operations of P142,500 and paid dividends of P69,000. Goodwill had been impaired and should be reported at P3,000 on December 31,2010. 26. What is the consolidated net income on December 31,2010? a. P178,875 c. 189,375 b. P177,000 d. 180,000 27. What is the consolidated retained earnings on december 31,2010? a. P879,000 c. P881,100 b. P878,700 d. P1,039,875 28. What is the NCI in net income of Son Company on December 31,2010? a. P9,375 c. P9,300 b. P10,500 d. P6,900

29. What amount of NCI is to be presented in the consolidated balance sheet on December 31,2010? a. P82,125 c. P77,250 b. P83,400 d. P72,750 30. What is the consolidated net income attributable to parent shareholders on December 31,2010? a. P168,000 c. P178,200 b. P170,100 d. P180,000

6

31. PP company purchase 75 % of the capital stock of SS company on December 31, 2005 at P210,000 more the book value of its net assets. The excess was allocated to equipment in the amount of P93,750 and to goodwill for the balance. the equipment has an estimated useful life of 10 years and goodwill was not impaired. For four years SS Company reported cumulative earnings of P945,000 and paid P273,000 in dividends. On January 2, 2010, non-controlling interest in net asset of SS company amounts to P393,750. Assuming NCI is measured at estimated fair value,what is the price paid by PP company on the date of acquisition? a. P887,250 c. P705,375 b. P700,875 d. P840,000 . Use the following information to answer question 32 to 35 Pepe corporation purchase 70% of Sisa company’s outstanding stock on January 2, 2009 for P346,500 cash. At the date, Sisa company reported book value of its net assets as P420.000. The excess is allocated to a depreciable asset with a remaining life of 10 years. The companies reported the following data for 2010: Retained Earnings January 1 Net income Dividends Pepe corporation P780,000 P180,000 P75,000 Sisa 345,000 37,500 15,000 Non-controling is measured at its estimated fair value. The following entry was included in the eliminating entries to prepare the consolidated financial statements at December 31,2010: Retained earnings,1/1-Sisa 31,500 non-controlling interest 31,500 32. What is the amount of retained earnings of Sisa company on January 2, 2009? a. P232,500 c. P240,000 b. P247,500 d. P255,000 33. What is the consolidated retained earnings to be reported on January 1, 2010? a. P853,500 c. P861,000 b. P885,000 d. P1,125,000 34. What is the consolidated net income attributable to parent shareholders on December 31, 2010? a. P199,500 c. P217,500 b. P190,500 d. P210,000 35. What is the consolidated retained earnings at December 31,2010? a. P969,000 c. P978,000 b. P895,500 d. P1,035,000 Use the following information to answer question 36 to 37 On January 2, 2010, P company acquired 80% interest in S company for P4,125,000 cash. On this date the outstanding capital stock and retained earnings of P company and S company are as follows: P company S company Common stock P2,250,000 P1,312,000 APIC 1,500,000 Retained earnings 5,250,000 3,187,500 There was no issuance of capital stock during the year. Non- controlling interest is measured at its fair value. Fair values of the following assets exceeded their book values as follows: Inventories, P210,000; property and equipment (useful life,10 years),P127,500. All other assets and liabilities are fairly valued. Goodwill if any is not impaired. On December 31,2010 the two companies reported the following operating results: P company S company Net income P1,785,000 P975,000 Dividends paid 525,000 262,500 36. What is the consolidated net income attributable to parent on December 31, 2010? a. P2,550,000 c. P2,176,800 b. P2,327,250 d. P2,355,000 37. What is the consolidated stockholders equity to be reported in the consolidated balance sheet on December 31, 2010? a. P10,651,800 c. P7,035,000 b. P13,500,000 d. P11,781,000 . Use the following information to answer 38 to 42 P company acquired 95 % interest from S company on January 2, 2009. The inventories acquired from affiliate in 2010 are: Beginning inventory, P84,375; ending inventory,P168,750. Intercompany sale of merchandise during the year amounts to P337,500 at a gross profit rate of 30%. In 2010 the data relating to the operations of P company and S company are: P company S company

Sales

P2,325,000

P1,275,000

7

Cost of sales Ending Inventory Net income Dividends Paid

1,087,500 230,000 843,750 337,500

667,500 210,000 506,250 168,750

38. Assuming downstream sale,what is the consolidated net income attributable to parent shareholders? a. P1,139,062.50 c. P1,125,075 b. P1,140,328 d. P1,162,800 39. Assuming upstream sale,what is the consolidated net income attributable to parents shareholders? a. P1,139,062.50 c. P1,125,075 b. P1,140,328 d. P1,162,800 40. What is the consolidated sales? a. P3,600,000 c. P3,350,000 b. 3,262,500 d. P3,512,500 41. What is the cost of sales? a. P1,394,687.5 c. P1,755,000 b. P1,417,500 d. P1,442,812.5 42. What is the consolidated ending inventory? a. P387,687.5 c. P389,375 b. P425,125 d. P390,000 43. On January 2, 2009, PP company purchased 70% of the stock of SS Company at book value. On may 1, 2009, PP company acquired a used machinery for P337,500 from SS company that was carried in the latters book at P270,000. The machinery has a remaining life of 6 years. on October 1, 2010, SS company purchased an equipment that was already 30% depreciated from PP company for P570,000. The original cost of this equipment was P900,000 and had a remaining life of 5 years. PP company SS company Net income P945,000 P165,000 Dividends paid 345,000 On the consolidated income statement in 2010, what is the consolidated net income attributable to parent stockholders? a. P1,125,375 c. P1,178,250 b. P1,131,375 d. P1,128,375 44. On September 18, 2010, OL Co. acquired all the TM Inc.’s P2,00...