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BUSINESS COMBINATIONS & CONSOLIDATED F/STHEORY & COMPUTATIONAL1.A business combination may be legally structured as a merger, a consolidation, an investment in stock, or a direct acquisition of assets. Which of the following best describes a business combination that is legally structured as a merger?a.The surviving company is one of the two combining companiesb.The surviving company is neither of the two combining companiesc.An investor-investee relationship is established d.A parent-subsidiary relationship is established2.Business combinations may be accomplished either through a direct acquisition of assets and liabilities by a surviving corporation or by stock investment in one or more companies. In accordancewith the PFRSs, a parent-subsidiary relationship always arisea.When more that 50% interest is acquired in the acquireeb.When a consideration is transferred in the combinationc.From a vertical or horizontal combinationd.When control is obtained by one of the combining constituents3.Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine theamounts to be reported for the plant and equipment and long-term debt acquired from Company K?Plants and equipmentLong-term debt4.Light Co. acquired Dark Co. in a business combination. Light Co. has been leasing out a building to Dark years before the business combination. If the terms of the operating lease relative to market terms is favourable, Light Co. shalla.Recognize an intangible assetb.Recognize a liabilityc.Recognize an assetd.Not recognize anything5.Penn Corp. paid Php300,000 for the outstanding common stock of Star Co. At that time, Star hadthe following condensed balance sheet:
Carrying amountsCurrent assetsPhp40,000Plant and equipment, net380,000Liabilities200,000Stockholders’ equity220,000The fair value of the plant and equipment was Php600,000 more than its recorded carrying amount. The fair values and carrying amounts were equal for all other assets and liabilities. What amount of goodwill, related to Star’s acquisition, should Penn report in its consolidated balance sheet?