Exam (elaborations) TEST BANK Advanced Accounting Part 2 (2015 Edition) ZEUS VERNON B. MILLAN

Chapter 13: Multiple Choice – Computational (For classroom instruction purposes) Measuring goodwill / gain on bargain purchase Use the following information for the next two questions: Fact pattern On January 1, 20x1, DIMINUTIVE Co. acquired all of the assets and assumed all of the liabilities of SMALL, Inc. As of this date, the carrying amounts and fair values of the assets and liabilities of SMALL acquired by DIMINUTIVE are shown below: Assets Carrying amounts Fair values Cash in bank 40,000 40,000 Receivables 800,000 480,000 Allowance for probable losses on receivables (120,000) - Inventory 2,080,000 1,400,000 Building – net 4,000,000 4,400,000 Goodwill 400,000 80,000 Total assets 7,200,000 6,400,000 Liabilities Payables 1,600,000 1,600,000 On the negotiation for the business combination, DIMINUTIVE Co. incurred transaction costs amounting to ₱400,000 for legal, accounting, and consultancy fees. 1. Case #1: If DIMINUTIVE Co. paid ₱6,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. 1,200,000 b. 1,120,000 c. 1,280,000 d. 1,240,000 2. Case #2: If DIMINUTIVE Co. paid ₱4,000,000 cash as consideration for the assets and liabilities of SMALL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. (800,000) b. (720,000) c. (880,000) d. 1,200,000 Non-controlling interests Use the following information for the next four questions: Fact pattern On January 1, 20x1, KNAVE acquired 80% of the equity interests of RASCAL, Inc. in exchange for cash. Because the former owners of RASCAL needed to dispose of their investments in RASCAL by a specified date, they did not have sufficient time to market RASCAL to multiple potential buyers. 1 As January 1, 20x1, RASCAL’s identifiable assets and liabilities have fair values of ₱4,800,000 and ₱1,600,000, respectively. Case #1: Non-controlling interest measured at fair value 3. KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent consultant was engaged who determined that the fair value of the 20% non-controlling interest in RASCAL, Inc. is ₱620,000. If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. 800,000 b. 2,060,000 c. 1,440,000 d. 1,420,000 Case #2: Non-controlling interest measured at fair value 4. KNAVE Co. elects the option to measure non-controlling interest at fair value. An independent consultant was engaged who determined that the fair value of the 20% non-controlling interest in RASCAL, Inc. is ₱620,000. If KNAVE Co. paid ₱2,400,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. (180,000) b. (800,000) c. (160,000) d. (200,000) Case #3: Non-controlling interest measured at fair value 5. KNAVE Co. elects the option to measure non-controlling interest at fair value. A value of ₱1,000,000 is assigned to the 20% noncontrolling interest in RASCAL, Inc. [(₱4M ÷ 80%) x 20% = 1,000,000]. If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc., how much is the goodwill (gain on bargain purchase) on the business combination? a. 200,000 b. 1,800,000 c. 2,440,000 d. 1,440,000 Case #4: Non-controlling interest’s proportionate share in net assets 6. KNAVE Co. elects the option to measure the non-controlling interest at the non-controlling interest’s proportionate share of RASCAL, Inc.’s net identifiable assets If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80% interest in RASCAL, Inc. and, how much is the goodwill (gain on bargain purchase) on the business combination? a. 1,440,000 b. 800,000 c. 1,400,000 c. 960,000 Transaction costs Use the following information for the next two questions: Fact pattern