CA427

QUIZ

FEBRUARY 24, 2022

MULTIPLE CHOICE (1 point each)

INSTRUCTION: Put all your answers on the google forms/answer sheet as provided in the
google classroom.

1. A horizontal merger is a merger between

a. two or more firms from different and unrelated markets.
b. two or more firms at different stages of the production process.
c. a producer and its supplier.
d. two or more firms in the same market.

2. A subsidiary shall be excluded from consolidation when

a. the investor is a venture capital organization, mutual fund, unit trust or similar
entity.
b. the business activities of the subsidiary are dissimilar from those of the other
entities within the group.
c. there is evidence that control is intended to be temporary because the subsidiary
is acquired with the intention to dispose of it within twelve months from the date of
acquisition.
d. the subsidiary is operating under severe long-term restrictions that significantly
impair its ability to transfer funds to the parent.

3. The term “control” means ownership, directly or indirectly through subsidiaries of

a. more than one-half of the outstanding voting stock of another company.
b. at least 20% of the voting stock of another company.
c. at least 50% of the voting stock of another company.
d. at least 10% of the voting stock of another company.

4. A “group” for consolidation purposes is

a. a parent and all its subsidiaries.
b. an entity that has one or more subsidiaries.
c. an entity, including an unincorporated entity such as partnership that is controlled
by another entity.
d. an entity that obtains control over entities or businesses.

5. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity
interest that are not owned directly or indirectly through subsidiaries by the parent.
a. Non-controlling interest c. Residual interest
b. Controlling interest d. Subsidiary interest
6. X owns 50% of Y’s voting shares. The board of directors consists of 6 members. X appoints
three of them and Y appoints the other three. The casting vote at meetings always lies
with the directors appointed by X. Does X have control over Y?
a. No, control is equally split between X and Y.
b. Yes, X holds 50% of the voting power and has the casting vote at board meetings
in the event there is no majority decision.
c. No, X owns only 50% of the entity’s shares and therefore does not have control.
d. No, control can be exercised only through voting power, not through a casting
vote.

7. A horizontal merger is a merger between

a. two or more firms from different and unrelated markets.
b. two or more firms at different stages of the production process.
c. a producer and its supplier.
d. two or more firms in the same market.

8. A subsidiary shall be excluded from consolidation when

a. the investor is a venture capital organization, mutual fund, unit trust or similar
entity.
b. the business activities of the subsidiary are dissimilar from those of the other
entities within the group.
c. there is evidence that control is intended to be temporary because the subsidiary
is acquired with the intention to dispose of it within twelve months from the date of
acquisition.
d. the subsidiary is operating under severe long-term restrictions that significantly
impair its ability to transfer funds to the parent.

9. The term “control” means ownership, directly or indirectly through subsidiaries of

a. more than one-half of the outstanding voting stock of another company.
b. at least 20% of the voting stock of another company.
c. at least 50% of the voting stock of another company.
d. at least 10% of the voting stock of another company.

10. A “group” for consolidation purposes is

a. a parent and all its subsidiaries.
b. an entity that has one or more subsidiaries.
c. an entity, including an unincorporated entity such as partnership that is controlled
by another entity.
d. an entity that obtains control over entities or businesses.

11. It is that portion of the profit or loss and net assets of a subsidiary attributable to equity
interest that are not owned directly or indirectly through subsidiaries by the parent.
a. non-controlling interest c. residual interest
b. controlling interest d. subsidiary interest
12. Which of the following terms best describes the financial statements of a parent in which the
investments are accounted for on the basis of the direct equity interest?
a. single financial statements c. separate financial statements
b. combined financial statements d. consolidated financial statements

13. When a parent-subsidiary relationship exists, consolidated financial statements are

prepared in recognition of the accounting concept of
a. reliability. c. legal entity.
b. materiality. d. economic entity.

14. Which of the following consolidation items will affect only the Consolidated Net Income
Attributable to the Parent’s Shareholders but not the Non-controlling Interest in Net Income?
a. Amortization of difference between fair value over book value of the assets or
liabilities of the subsidiary.
b. Impairment loss of the total goodwill arising from business combination.
c. Gain on bargain purchase arising from business combination.
d. Unrealized or realized gain/loss on upstream transactions.

15. Which of the following statements concerning preparation of consolidated financial

statements of a group or separate financial statements of a parent corporation is incorrect?
a. IAS 27 does not mandate which entities are required to present separate
financial statements.
b. IFRS 10 requires an entity (parent) that controls one or more other entities
(subsidiaries) to present consolidated financial statements including all its
subsidiaries regardless of industries except when the parent is an (1) investment
entity or (2) a non-public entity which is partially or wholly owned by another
entity which prepares consolidated financial statements.
c. In preparing consolidated financial statements, IFRS 10 provides that the parent
corporation shall recognize and measure at fair value all the identifiable assets
and liabilities of subsidiaries including contingent liability provided it is a present
obligation and can be estimated reliably.
d. In preparing consolidated financial statements, IFRS 10 requires the parent to
present non-controlling interest (NCI) as part of consolidated shareholders’ equity
separately from the equity of the owners of the parent and IFRS 3 requires non-
controlling interest to be measured initially as the higher between NCI’s Fair
Value or NCI’s Proportionate Share of the fair value of the net assets of the
subsidiary.

16. Consolidated financial statements are designed to provide:

a. informative information to all shareholders.
b. the results of operations, cash flows, and the balance sheet in an understandable
and informative manner for creditors.
 c. the results of operations, cash flows, and the balance sheet as if the parent and
subsidiary were a single entity.
d. subsidiary information for the subsidiary shareholders.

17. Consolidated financial statements are appropriate even without a majority ownership if
which of the following exists:
a. the subsidiary has the right to appoint members of the parent company’s board of
directors.
b. the parent company has the right to appoint a majority of the members of the
subsidiary’s board of directors through a large minority voting interest.
c. the subsidiary owns a large minority voting interest in the parent company.
d. the parent company has an ability to assume the role of general partner in a
limited partnership with the approval of the subsidiary’s board of directors.

18. A controlling interest in a company implies that the parent company

a. owns all of the subsidiary’s stock.
b. has acquired a majority of the subsidiary’s common stock.
c. has paid cash for a majority of the subsidiary’s stock.
d. has transferred common stock for a majority of the subsidiary’s outstanding
bonds and debentures.

19. On October 2, 2022, Ace Company acquires 60% ownership in Jen Company for
P7,500,000 which translates to a purchase price of P10 per share. Jen Company’s
shares were trading at about 8 per shares as of the acquisition date. The fair value of
the net identifiable assets, with a carrying value of P6,000,000, is P8,000,000. The
amount of non-controlling interest arising the consolidation is?
a. P5,000,000 b. P4,000,000 c. P3,200,000 d. P2,000,000

20. ATC Company acquired a 70% interest in Agate Company for P1,960,000 on March 9, 2021
when the fair value of Agate’s identifiable assets and liabilities was P1,700,000 and
elected to measure the non-controlling interest at its share of the identifiable net
assets. Annual impairment reviews of goodwill have not resulted in any impairment
losses being recognized. Before the fiscal year end of ATC on June 30, 2022,
information was available that the fair value of Agate’s net assets on acquisition date is
P2,700,000. Under IFRS 3 Business Combination, what figure in respect of goodwill
should be carried in ATC’s consolidated statement of financial position?
a. P70,000 b. P260,000 c. P770,000 d. P1,470,000

21. On January 1, 2022, Park Corporation and Strand Corporation and their condensed balance
sheets are as follows:

Park Co. Strand Co.

Current assets P70,000 P20,000
Non-current assets 90,000 40,000
 Total assets 160,000 60,000

Current liabilities P30,000 P10,000

Long-term debt 50,000 -
Stockholders’ equity 80,000 50,000
Total liabilities and stockholders’ equity 160,000 60,000

On January 2, 2022, Park Corporation borrowed P60,000 and used the proceeds to
obtain 80% of the outstanding common shares of Strands Corporation. The acquisition
price was considered proportionate to Strands fair value. The P60,000 debt is payable
in 10 equal annual principal payments plus interest beginning December 31, 2022. The
excess fair value of the investments over the underlying book value of the acquired net
assets is allocated to inventory (60%) and to goodwill (40%). The amount of current
liabilities in the consolidated financial statement is:
a. P30,000 b. P40,000 c. P46,000 d. P50,000

22. On May 1, 2022, Pete Corporation acquires 80% of the outstanding common stock of Sure
Company for P2,800,000. Professional fees paid to effect the combination amounts
to P70,000. On the date of acquisition, the stockholders’ equity of Sure Company is
as follows:

Capital stock P3,000,000

Retained earnings 437,500

On May 1, the book value of the net assets of Sure is equal to their fair values. NCI
is measured at implied fair value.

In the preparation of consolidated statement of financial position on May 1, 2022,

what is the working paper elimination entry?
a. Capital stock – Sure P3,000,000
Retained earnings – Sure 437,500
Goodwill 62,500
Investment in Sure P2,800,000
NCI 700,000

b. Capital stock – Sure P2,400,000

Retained earnings – Sure 350,000
Goodwill 120,000
Investment in Sure P2,870,000

c. Capital stock – Sure P2,400,000

Retained earnings 350,000
Investment in Sure P2,750,000
 d. Capital stock – Sure P3,000,000
Retained earnings 437,500
Investment in Sure P2,750,000
NCI 687,500

23. On January 2, 2022, Papa Inc. acquired 80% of the outstanding shares of Son Company for
P1,952,000 cash. At the time of acquisition, the stockholders’ equity section of the
two companies is shown below:

(In Thousands)
Papa Inc. Son Inc.
Common stock P4,000 P1,600
Additional paid in capital 3,000 480
Retained earnings 6,840 420
Total P13,840 P2,500

Assuming NCI is measured at its implied fair value. What is the stockholders’ equity
on the consolidated statement of financial position on January 2, 2022?
a. P13,840,000 b. P14,328,000 c. P17,260,000 d. P15,440,000

24. Pearl Company paid P270,000 for a 90% interest in Seal Company on January 1, 2022. The
stockholders’ equity of Seal Company included paid in capital of P200,000 and
retained earnings of P100,000.

During 2022, the total comprehensive income of Pearl Company was P60,000 and
dividends paid were P20,000.

During 2022, Seal Company had a total comprehensive income of P20,000 and it
paid dividends of P10,000.

What is the non-controlling interest (NCI) on December 31, 2022?

a. P30,000 b. P31,000 c. P32,000 d. P33,000

25. Panasonic Corporation has several subsidiaries that are included in its consolidated
financial statements. In its December 31, 2022, trial balance, Panasonic had the
following inter-company balances before eliminations:

Debit Credit
Current receivables due from Sony Co. P32,000
Non-current receivables from Sony Co. 114,000
Cash advance to Sure Corp. 6,000
Cash advance from Stop Co. P 15,000
Inter-company payable to Stop Co. 105,000
 In its December 31, 2022 consolidated statement of financial position, what amount
should Panasonic report as inter-company receivables?
a. P152,000 b. P146,000 c. P 36,000 d. P 0

Problems 26 and 27 using the following information:

Pinoy Corporation acquired on January 1, 2022, 75% of the outstanding common stock of Sisa
Company for P207,000. On that date, Sisa’s statement of financial position showed
stockholders’ equity of:

Common stock, par P100 P200,000

Retained earnings 50,000

The excess between the price paid and the book value of subsidiary net assets is allocated to
equipment which has an estimated remaining life of ten years.

For the year ended December 31, 2022, Sisa reported net income of P60,000 and paid cash
dividends of P20 per share of its common stock.

26. What is the excess allocated to equipment on January 1, 2022?

a. P69,000 b. P20,000 c. P26,000 d. P15,000

27. What is the NCI on December 31, 2022?

a. P75,000 b. P73,350 c. P42,500 d. P45,500

Problems 28 and 29 using the following information:

Pluro Company purchases 8,000 shares of Sun Company for P64 per share. Before acquisition,
Sun Company has the following balance sheet:

Assets Liabilities and Equity

Cash and cash equivalents P20,000 Current liabilities P250,000
Inventory 280,000 Common stock, P5 par 50,000
Property and equipment 400,000 APIC 130,000
Goodwill 100,000 Retained earnings 370,000
Total assets P800,000 Total liabilities and equity P800,000

On the date of acquisition, Pluto believes that the inventory has a fair value of P400,000 and
that the property and equipment is worth P500,000.

28. On the date of acquisition, what is the goodwill (gain on acquisition) to be reported on the
consolidated statement of financial position?
a. P(30,000) b. P30,000 c. P(24,000) d. P24,000

29. The allocation of goodwill (gain on acquisition) is:

a. P(30,000) P(6,000)
b. P30,000 P 6,000
 c. P(24,000) -
d. P24,000 -

Problems 30 through 33 using the following information:

On January 2, 2022, Philippines Corporation purchase 80% of Singapore Company’s
outstanding shares for P648,000. P30,000 of the excess is attributable to goodwill and the
balance to an equipment with an economic life of ten years. Non-controlling interest is
measured at its fair value on date of acquisition. On the date of acquisition, stockholders’ equity
of the two companies were as follows:

Philippines Corporation Singapore Corporation

Ordinary shares P1,050,000 P 240,000
Retained earnings 1,560,000 420,000

On December 31, 2022, Singapore Company reported net income of P105,000 and paid
dividends of P36,000 to Philippines. Philippines reported earnings from its separate operations
of P285,000 and paid dividends of P138,000. Goodwill had been impaired and should be
reported at P6,000 on December 31, 2022.

30. What is the non-controlling interest in profit of Singapore Company on December 31, 2022?
a. P21,000 b. P13,800 c. P18,750 d. P18,600

31. What is the consolidated profit attributable to parent shareholders on December 31, 2022?
a. P340,200 b. P360,000 c. P336,000 d. P356,400

32. What is the consolidated retained earnings attributable to parent’s shareholders equity on
December 31, 2022?
a. P1,757,400 b. P2,079,750 c. P1,762,200 d. P1,758,000

33. What amount of non-controlling interest is to be presented in the consolidated statement of

financial position on December 31, 2022?
a. P164,250 b. P145,500 c. P166,800 d. P154,500

34. Papa Corporation owns 75% of the outstanding stock of San Company, acquired at book
value during 2019. Selected information from the accounts of Papa and San for 2022 are as
follows:
Papa San
Sales ₱900,000 ₱500,000
Cost of goods sold 490,000 190,000

During 2022, Papa sold merchandise to San for ₱50,000 at a gross profit of ₱20,000. Half of
this merchandise remained in San’s inventory at December 31, 2022. San’s December 31, 2021
inventory included unrealized profit of ₱4,000 on goods acquired from Papa.
In the consolidated income statement for Papa Corporation and subsidiary for the year
2022, consolidated sales and cost of goods sold should be:
a. ₱1,450,000 and ₱636,000 c. ₱1,350,000 and ₱634,000
 b. 1,350,000 and 636,000 d. 1,400,000 and 624,000

35. Pidro Corporation owns an 80% interest in Sisa Company, and at December 31, 2021,
Pidro’s investment in Sisa under the cost method was equal to 80% of Sisa’s stockholder’s
equity. During 2022, Sisa sells merchandise to Pidro for ₱100,000, at a gross profit to Sisa of
₱20,000. At December 31, 2022, half of this merchandise is included in Pidro’s inventory.
Separate incomes for Pidro and Sisa for 2022 are summarized as follows:
Pidro Sisa
Sales ₱500,000 ₱300,000
Cost of sales (250,000) (200,000)
Operating expenses (125,000) (40,000)
Net income from own operations ₱125,000 ₱60,000

In the consolidated income statement for 2022, NCI in net income of subsidiary is:
a. ₱12,000 b. ₱11,000 c. ₱10,000 d. ₱14,000

36. Pat Corporation owns 70% of Susan Company’s outstanding stock, acquired on January
1, 2021. Susan regularly sells merchandise to Pat at 150% of Susan’s cost. Pat’s December 31,
2021 and 2022 inventories include goods purchased intercompany of ₱112,500 and ₱33,000,
respectively. The separate incomes (excluding investment income) of Pat and Susan for 2022
are summarized below:
Pat Susan
Sales ₱1,200,000 ₱800,000
Cost of goods sold (600,000) (500,000)
Operating expenses (400,000) (100,000)
Net income from own operations 200,000 200,000

Consolidated net income should be allocated to parent and NCI in the amount of:
a. ₱338,550 and ₱67,950, respectively
b. 346,500 and 67,950, respectively
c. 346,500 and 60,000, respectively
d. 358,550 and 67,950, respectively

37. Patton Corporation acquired a 60% interest in Solis Company on January 1, 2022 for
₱360,000, when Solis’ net assets had a book value and fair value of ₱600,000. During 2022,
Patton sold inventory items that cost ₱600,000 to Solis for ₱800,000, and Solis’ inventory at
December 31, 2022 included one-fourth of this merchandise. Patton reported separate income
from its own operations (excluding investment income) of ₱300,000, and Solis reported a net
loss of ₱150,000 for 2022. Consolidated net income for Patton Corporation and Subsidiary for
2022 is:
a. ₱180,000 b. ₱100,000 c. ₱160,000 d. ₱260,000

38. Santos Company, a 75%-owned subsidiary of Pardo Corporation, sells inventory items
to its parent at 125% of cost. Inventories of the two affiliated companies for 2022 are as follows:
Pardo Santos
Beginning inventory ₱400,000 ₱250,000
 Ending inventory 500,000 200,000

Pardo’s beginning and ending inventories include merchandise acquired from Santos of
₱150,000 and ₱200,000, respectively. If Santos reports net income of ₱300,000 for 2022,
Pardo’s investment income under the equity method will be:
a. ₱195,000 b. ₱255,000 c. ₱215,000 d. ₱217,500

39. On January 1, 2022, Puzon Company purchased 75% of the outstanding stock of
Suazon Company at book value. During 2022, Suazon sold inventory items costing ₱50,000 to
Puzon for ₱75,000. Puzon resold 60% of this inventory to outsiders during the year for
₱100,000. For the year 2022, Puzon had net income from its own operations of ₱200,000 and
paid dividends of ₱120,000. Suazon’s net income for the year was ₱110,000; it paid ₱40,000 in
dividends. What is the consolidated net income attributable to parent for 2022?
a. ₱273,000 b. ₱276,000 c. ₱300,000 d. ₱275,000

40. On January 1, 2021, Pat Corporation acquired 80% of Sun Company at book value. The
following information is available for years 2021 and 2022:
2021 2022
Net income from its own operations
Pat ₱500,000 ₱550,000
Sun 200,000 225,000
Intercompany sales by Pat to Sun 100,000 120,000
Intercompany cost of sales 60,000 60,000
Invty. @ billed prices, Dec. 31 20,000 30,000

The consolidated net income in 2021 and 2022 are:

a. ₱652,000 and ₱723,000, respectively
b. 692,000 and 768,000, respectively
c. 652,000 and 715,000, respectively
d. 653,600 and 724,400, respectively

***nothing follows***