Hawassa University

School of Management and Accounting

Accounting and Finance Program
Test-II for the course Advanced Financial Accounting
Date of test: December 10, 2015
Maximum Marks: 20%
Time allowed: 1 Hour

Name:____________________________________ ID No._____________ Section:_____________

_________________________________________________________________________________

Part I– Multiple Choice Questions (1 pt each)

Read each questions and select the right answer from the given alternatives and write the letter of your
choice on the separate answer sheet.
1. Which of the following is correct about the receipt of shipment by the consignee?
[A] The consignee debit inventory and credits Consignment In ledger account
[B] The consignee debit inventory and credits Consignment Out ledger account
[C] The consignor recorded by a memorandum notation in the Consignment In ledger account
[D] None of the above
2. Which of the following is true about installment sales:
[A] An installment sale of real or personal property or service provides for a series of payments
over a period of months or years.
[B] An installment sale of real or personal property or service requires for a lamp sum payment on
a specific period of time.
[C] It usually a requirement down payment as well as interest and carrying charges on the unpaid
balance.
[D] The accounting procedure used to recognize gross profit is merely installment method of
accounting.
[E] A and D
[F] A and C
3. The choice of accounting method by a consignor depends on whether:
[A] Consignment gross profits are measured separately from those on regular sales?
[B] The consignee rendered account sales or not?
[C] Sales on consignment are combined with regular sales?
[D] A and C
[E] None of the above
4. Which of the following is correct about the accrual basis of accounting in installment sales?
[A] The entire gross profit is realized at the time of sales regardless of cash collection.
[B] Gross profit is realized periodically.
[C] No profit is recognized until all costs of the merchandise sold have been recovered.
[D] All of the above
[E] None of the above
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5. The circumstances in which the use of the installment method of accounting is permitted are:
[A] Collection of installment receivables is not reasonably assured
[B] Installment receivables are collectible over an extended period of time
[C] There is no reasonable basis for estimating the degree of collectability of the installment
receivables
[D] All of the above
[E] None of the above
6. When the consignee received goods under consignment basis,
[A] It is recorded in a liability account until the goods are sold by the consignee
[B] It is neither include it in inventories nor record trade accounts payable or other liability
account.
[C] The shipment of merchandise on consignment may be referred to by the consignee as a
consignment out.
[D] All of the above
[E] None of the above
7. The report rendered by the consignee is called;
[A] A balance sheet [D] All of the above
[B] A sales journal [E] None of the above
[C] An account sales
8. Under installment sales a security agreement enables to require sufficient down payment to cover
the loss of value when the merchandise moves out of the “new’ category.
[A] True [B] False
9. Title to the merchandise remains with the owner, who is called a consignee.

[A] True [B] False

10. A type of business combination which involves the combination of companies found within the
same industry is referred to as;
A. Horizontal
B. Vertical
C. Conglomerate
D. None of the above
11. The method of arranging a business combination which requires all the constituent companies to
be dissolved and liquidated is;
A. Statutory merger
B. Statutory consolidation

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 C. Acquisition of common stock
D. Acquisition of assets
12. Which one of the following is the reason for hostile takeover form of business combination?
A. Growth
B. Income tax advantage
C. Obtaining new management strength
D. Expansion and diversification of product lines and market share
E. All of the above
F. None of the above

Part II: Work Out Question ( Points)

1. On December 31, 1999, Best Corporation acquired the net assets of Lost Corporation directly from
Lost for 500,000 cash, in a purchase type business combination. Best paid legal fees of 50,000 in
connection with the combination & 40,000 legal fees paid for SEC registration statement for Best
common stock.

The condensed balance sheet of Lost prior to the business combination, with related CFV data, is
presented below:
LOST CORPORATION (Combinee)
Balance sheet (prior to business combination)
December 31, 1999

Asset
Carrying Amount CFV
Current Assets 290,000 300,000
Investment in Marketable debt securities 50,000 60,000
Plant assets (net) 900,000 1,000,000
Intangible Assets (net) 90,000 100,000
Total assets 1,330,000 1,460,000
Liabilities & stockholder's equity
Current liabilities 200,000 200,000
Long term debt 600,000 640,000
Total liabilities 800,000 840,000
Common stock $1 par 500,000
Retained Earning 30,000
Total stockholder equity 530,000
Total liabilities and stockholder equity 1,330,000

Required:
a. Calculate the total cost of business combination?
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 b. Calculate the amount of goodwill or negative good will?
c. Prepare the journal entries;
i. To record acquisition of net assets of Lost corporation.
ii. To record payment of out of pocket costs incurred in acquisition of net assets of Lost
Corporation.
iii. To allocate total costs of net assets acquired to identifiable net assets.

Hawassa University
School of Management and Accounting
Accounting and Finance Program
Test-II for the course Advanced Financial Accounting
Date of exam: December 10, 2015
Maximum Marks: 20%
Time allowed: 1 Hour

Name:____________________________________ ID No._____________ Section:_________

______________________________________________________________________________

Answer Key
Part One: Multiple choices