Long term debt 200 200 total liabilities 350 350

Long-term debt 200 200
Total liabilities 350 350
Common stock 150 150
Paid-in capital 80 80
Retained earnings 220
Total shareholders’ equity 450
Total liabilities and shareholders’ equity $800
The amount of goodwill resulting from this purchase, if any, would be
A. $200,000
B. $150,000
C. $100,000
Answer (C) is correct .
Goodwill is the excess of (1) the sum of the acquisition-date fair values of (a) the consideration
transferred ($600,000), (b) any noncontrolling interest in the acquiree ($0), and (c) the acquirer’s
previously held equity interest in the acquiree ($0) over (2) the net of the acquisition-date fair values of
the identifiable assets acquired ($850,000) and liabilities assumed ($350,000). The amount of goodwill
is calculated as follows:
Consideration transferred $600,000
Acquisition-date fair value of net assets acquired ($850,000 – $350,000) (500,000)

ﻝﻭﺩ ﻥﻳﺗﺎﻧﻘﻟﺍ ﻰﻠﻋ ﺎﻫﻭﻗﻼﺗﺣ ﺎﻫﻭﺟﺎﺗﺣﺗ ﻲﻠﻟﺍ ﻪﻠﺋﺳﻻﺍﻭ ﺏﺗﻛﻟﺍ ﻝﻛ
Goodwill $100,000
D. $0
Question: 5
Entity X owns 90% of Entity Y. Early in the year, X lent Y $1,000,000. No payments have been
made on the debt by year end. Proper accounting at year end in the consolidated financial statements would
A. Eliminate 100% of the receivable, the payable, and the related interest.
Answer (A) is correct .
In a consolidated statement of financial position, reciprocal balances, such as receivables and payables,
between a parent and a consolidated subsidiary should be eliminated in their entirety regardless of the
portion of the subsidiary’s shares held by the parent. Thus, all effects of the $1,000,000 loan should be
eliminated in the preparation of the year-end consolidated statement of financial position.
B. Eliminate 100% of the receivable and the payable but not any related interest.
C. Eliminate 90% of the receivable, the payable, and the related interest.
D. Eliminate 90% of the receivable and the payable but not any related interest.
Question: 6
How should the acquirer recognize a bargain purchase in a business acquisition?
A. As negative goodwill in the statement of financial position.
B. As goodwill in the statement of financial position.
C. As a gain in earnings at the acquisition date.
Answer (C) is correct .
A bargain purchase is recognized in the consolidated financial statements as an ordinary gain at the
acquisition date. A bargain purchase occurs when the net of the acquisition-date fair values of
identifiable assets acquired and liabilities assumed exceeds the sum of the acquisition-date fair values
of the consideration transferred, any noncontrolling interest recognized, and any previously held equity
interest in the acquiree.
D. As a deferred gain that is amortized into earnings over the estimated future periods benefited.
Question: 7
A corporation owns 60% of S Corp.’s outstanding capital stock. On May 1, the corporation advanced
S $70,000 in cash, which was still outstanding at December 31. What portion of this advance should be eliminated
in the preparation of the December 31 consolidated balance sheet?