Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) A Inc. owns 80% of B's outstanding voting shares. Under which of the following scenarios would
A's ownership percentage of B change?
A) B issues an additional 10,000 voting shares; A acquires 8,000 shares of the new issue.
B) B issues an additional 10,000 voting shares; A acquires 6,400 shares of the new issue.
C) B Inc. announces a 2-for-1 stock split to all its common shareholders.
D) B retires 20,000 voting share, and in doing so, buy back 16,000 shares from A.
Answer: B
2) Assume that X Corp. controls Y Corp., X constantly purchases and sells Y's voting shares on the
open market while always ensuring that it maintains a controlling interest over Y. Which of the
following statements pertaining to X buying and selling activity is correct?
A) As X sells shares of Y, the non-controlling interest decreases.
B) As X buys shares of Y, the non-controlling interest increases.
C) As X sells shares of Y, the non-controlling interest increases.
D) X's activity has no effect on the non-controlling interest.
Answer: C
3) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of goodwill arising from this business combination?
A) $5,000 B) $150,000 C) ($5,000) D) Nil
Answer: B
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,4) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What percentage of its Investment in 123 was sold by ABC?
A) 14% B) 56% C) 20% D) 50%
Answer: C
5) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is ABC's ownership interest in 123 after its sale?
A) 56% B) 42% C) 14% D) 70%
Answer: A
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,6) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What would be the carrying amount of the "Investment in 123 Inc." account after the sale?
A) $70,000. B) $280,000. C) $292,250. D) $350,000.
Answer: B
7) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What would be the amount of the gain or loss on the sale of the 7,000 shares?
A) A loss of $12,250. B) A gain of $57,750.
C) A loss of $70,000. D) A gain of $12,250.
Answer: A
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, 8) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of undepleted acquisition differential (including goodwill) after the sale?
A) $200,000 B) $300,000 C) $84,000 D) $140,000
Answer: A
9) ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 o
January 1, 2020.
On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,0
respectively. 123's book values approximated its fair values on the acquisition date with the exception of a
patent and a trademark, neither of which had been previously recorded. The fair values of the patent and
trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of the non-controlling interest at acquisition?
A) $150,000. B) $50,000. C) $8,400. D) $350,000.
Answer: A
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