The Islamic University of Gaza

Faculty of Commerce
Accounting Department

Advanced
Accounting
Make-Up Exam First Semester
2015/2016

Time Allowed: TWO hours

Student Name ..
Student No.

..

Ramadan Al-Omari, FCCA

23 February 2016

Question No. 1 Choose the correct answer

(10 marks)
1. Reasons an acquiring company may pay more than book value
include:
a. Fair values of specific tangible or intangible assets of the
subsidiary may exceed its recorded value because of
appreciation.
b. The book values of specific tangible assets of the subsidiary may
exceed the fair values of such assets.
c. Excess payment may indicate existence of contingent liabilities.
d. Liabilities, generally long-term, may be understated.
2. A majority-owned subsidiary may be excluded from the
consolidated statements if
a. The parent and subsidiary companies operate in different
countries.
b. Subsidiarys business is not related to that of the parent
company.
c. Control is meant to be temporary.
d. Merger was as a result of a hostile acquisition.
3. From an accounting point of view, the difference between acquired
goodwill and self-generated goodwill is that
a. Acquired goodwill is recorded and tested annually for
impairment. Self-generated goodwill is recorded and amortized.
b. Acquired goodwill is recorded and annually tested for
impairment. Self-generated goodwill is not recorded.
c. Acquired goodwill is not recorded. Self-generated goodwill is
recorded and amortized over the number of years of its useful
life.
d. Both are not recorded.
4. Acquired intangible assets other than goodwill with a limited useful
life are
a. Amortized, and not reviewed for impairment.
b. Not amortized, but are tested annually for impairment.
c. Not amortized, and not tested for impairment.
d. Are amortized over its useful economic life and are reviewed for
impairment
5. Goodwill impairment is determined by comparing

a. Implied value of a reporting unit to its carrying amount (goodwill

excluded).
b. Fair value of a reporting unit to its carrying amount (goodwill
excluded).
c. Implied value of a reporting unit to its carrying amount (goodwill
included).
d. Fair value of a reporting unit to its carrying amount (goodwill
included).
6. When a portion of the difference between implied and book values
is allocated to a depreciable asset
a. Recorded income must be adjusted in order to determine
consolidated net income.
b. No adjustment is needed as consolidated income represents the
sum of the reported income of the individual companies of the
affiliated group.
c. Adjustment is needed only in the case of amortizable assets.
d. If the parent company owns 75% or more of the subsidiarys
equity.

7. Which of the following is the incorrect statement?

a. Consolidated sales include only sales with parties outside the
affiliated group.
b. Consolidated cost of sales includes only the cost to the affiliated
group of goods that have been sold to parties outside the
affiliated group.
c. Consolidated inventory on the balance sheet is recorded at the
net realizable value estimated by the last affiliated company
holding the inventory at the end of the financial period.
d. Consolidated inventory in the income statement is recorded at its
cost to the affiliated group.
8. In the event of a bargain acquisition (after carefully considering the
fair valuation of all subsidiarys assets and liabilities) the FASB requires
the following accounting:
a. An ordinary gain is reported in the financial statements of the
consolidated entity.
b. An ordinary loss is reported in the financial statements of the
consolidated entity.
c. Negative goodwill is reported on the balance sheet.
d. Assets are written down to zero value, if needed.
9. Which of the following is the incorrect statement?
a. When any portion of the difference between implied and book
values is allocated to depreciable and amortizable assets,
recorded income must be adjusted in determining consolidated
net income in current and future periods.
3

b. Adjustment is needed to reflect the difference between the

amount of amortization and/or depreciation recorded by the
subsidiary and the appropriate amount based on consolidated
carrying values.
c. The difference between implied and book values at date of
acquisition should first be allocated to the individual assets to
reflect their fair values, any remaining difference will be treated
as goodwill.
d. Implied value < aggregate fair values = bargain. Bargain should
be recognized as an Extra-ordinary gain.
10. Which of the following is the correct statement?
a. In the consolidated balance sheet, assets and liabilities are
summed only when the parent owns 100% of the subsidiary.
b. Non-controlling interests are reflected as a component of owners
equity in the consolidated balance sheet.
c. Eliminations must be made to cancel the effects of transactions
among the parent and its subsidiaries only if they take place in
the first year of acquisition.
d. A work paper is usually used to summarize the effects of the
various additions and eliminations in the individual books of the
affiliated group.

Question No. 2
marks)

(10

On January 1, 2013, Panorama Company acquired the net assets of Softring Ltd. for
$800,000 cash. On that date, the fair value of Softring Ltds identifiable assets was
$900,000 and the fair value of its liabilities was $200,000. Panorama decided to measure
goodwill impairment using the present value of future cash flows to estimate the fair
value of Softring Ltd. The information for the subsequent years is as follows:
Year
2013
2014
2015

Carrying Value of
Softring Net Assets*
500,000
520,000
510,000

Fair Value of
of Softring Net Assets
540,000
470,000
525,000

Present Value of
Future Cash Flows
650,000
530,000
550,000

*Excluding Goodwill
For each year determine the amount of goodwill impairment, if any, and prepare
the journal entry needed each year to record the goodwill impairment.
Question No 3
(10
marks)
On January 1, 2015, Pam Company purchased an 80% interest in Shaw
Company for $540,000. On this date, Shaw Company had common
stock of $400,000 and retained earnings of $140,000. An examination
of Shaw Companys assets and liabilities revealed that their book value
was equal to their fair value except for marketable securities and
equipment:
Book Value
Fair Value
Marketable securities
20,000
45,000
Equipment
120,000
140,000
You are required to prepare the worksheet entries to eliminate
the investment, recognize the non-controlling interest, and to
allocate the difference between implied and book.
Question No. 4
(10
marks)
Pennsylvania Company purchased 90% of the outstanding voting
shares of Sysco Ltd. at the beginning of 2014 for $480,000. At the time
of purchase, Sysco Ltds total stockholders equity amounted to
$400,000. Income and dividend distributions for Song Company for the
years 2014 and 2015 are as follows:
2014
2015
Net Income (Loss)
$60,000
(40,000)
Dividend Distribution
30,000
20,000
You are required to prepare journal entries for Pennsylvania
Company for the years 2014 and 2015 to account for its
investment in Sysco Ltd assuming that Pennsylvania Company
uses the partial equity method to record its investment.

Question No. 5
marks)

(10

Parker Company owns 90% of the outstanding stock of Samsung

Company. The following transactions took place during 2015.
1. Parker Company sold merchandise $450,000 to Samsung
Company at 20% above cost. During 2015, Samsung Company
sold to third parties 90% of the goods purchased from Parker
Company.
5

Prepare the work paper journal entries at the end of 2015 to

eliminate the effects of the above intercompany transaction. (3
marks)
2. On January 1, 2015, Samsung Company sold Land to Parker
Company for $400,000. Samsung had originally purchased the Land
on in June 2012 for $300,000.
3. On December 31, 2015, Parker Company sold the land purchased
from Samsung Company to Toshiba Company, a company outside the
affiliated group, for $650,000.
You are required to
(a)
Prepare the necessary journal entries to record the
above intercompany transactions in the books of both
Companies,
(b)
Prepare the work paper entries necessary to eliminate
the effects of the intercompany transactions on the
consolidated financial statements. Parker Company uses
the complete equity method; and
(c)
Calculate the gain that should be recognized in the
consolidated statements in 2015.
Question No. 6
marks)

(10

On January 1, 2015, Pizza Company purchased 80% of the outstanding

common stock of Subway Company for $180,000. At that time,
Subways stockholders equity consisted of common stock, $124,000;
other contributed capital, $12,000; and retained earnings, $24,000.
On December 31, 2015, the Income statement and the retained
earnings for the two companies were as follows:
Income Statement
Sales
Dividend income
Total revenue
Cost of goods sold
Other expenses
Total cost and expense
N
et Income

Pizza
$ 260,000
16,000
276,000
130,000
20,000
150,000
126,000

Retained Earnings Statement

Retained earnings, 1/1/15
Net income

40,000
126,000

Dividends declared

(30,000)

Retained earnings, 12/31/15

$ 136,000

You are required to:

6

Subway
$ 80,000
80,000
40,000
14,000
54,000
26,000
24,000
26,000
(20,000)
$ 30,000

1. Prepare a Computation and Allocation Schedule upon

acquisition on 1 January 2015.
2. Prepare the work paper journal entries to eliminate the
following:
a. The investment account.
b. The difference between implied and the book value;
and
c. The intercompany dividend.
3. Calculate the following
a. The Consolidated Retained Earnings at 31 December
2015
b. The Non-Controlling Interest in equity at 31
December 2015