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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Select the correct answer for each of the following questions.1. Cedar Company's planned combination with Birch Company on January 1, 20X2. can be structured as either a purchase or a pooling of
Multiple-Choice Questions on Pooling Treatment [AICPA Adapted]Select the correct answer for each of the follow ing questions.1. On June 30. 20X2. Pane Corporation exchanged 150.000 shares of its S20
McDermott Corporation has been in the midst of a major expansion program. Much of its growth had been internal, but in 20X 1 McDermott decided to continue its expansion through the acquisition of
Center Company and North Corporation agreed to merge on January 1. 20X1, in a business combination recorded as a pooling of interests. Abbreviated balance sheet data for the two companies included
Reed Company exchanged shares of its $ 1 par common stock for all of the assets and liabilities of Bradford Corporation in a merger treated as a pooling of interests. Immediately prior to the
The balance sheets of Regal Company and Sour Corporation contained the following balances on January 1, 20X1:\section*{Required}Prepare a balance sheet for the combined entity immediately after Regal
The following balance sheets were prepared for Adam Corporation and Best Company on January \(1,20 \mathrm{X} 2\), just before they entered into a business combination:Adam acquired all of the assets
The following financial statement information was prepared for Blue Corporation and Sparse Company at December \(31,20 \times 2\) :Blue Corporation and Sparse Company agreed to combine as of January
On July 1, 20X2, Alan Enterprises merged with Cherry Corporation through an exchange of stock and subsequent liquidation of Cherry. Alan issued 200,000 shares of its stock to effect the combination.
On January 1, 20X2, Frost Company acquired all of the assets and liabilities of TKK Corporation by issuing 24,000 shares of its \(\$ 4\) par value common stock. At that date, Frost Company shares
Taylor Corporation exchanged shares of its \(\$ 2\) par common stock for all of the assets and liabilities of Mark Company in a planned merger. Immediately prior to the combination, Mark's assets and
Anchor Corporation paid cash of \(\$ 178.000\) to acquire the net assets of Zink Company on February 1, 20X3. The balance sheet data for the two companies and fair value information for Zink Company
Eagle Company purchased the net assets of Lark Corporation on January 3, 20X2, for \(\$ 565,000\) cash. In addition, \(\$ 5,000\) of direct costs were incurred in consummating the combination. At the
On January 1, 20X3, More Products Corporation issues 12,000 shares of its \(\$ 10\) par value stock to acquire the net assets of Light Steel Company. Underlying book value and fair value information
Ramrod Manufacturing acquired all the assets and liabilities of Stafford Industries on January 1, \(20 \mathrm{X} 2\), in exchange for 4.000 shares of its \(\$ 20\) par value common stock. Balance
Below are the balance sheets of the Boogie Musical Corporation and the Toot-Toot Tuba Company as of December 31, \(20 \mathrm{X} 5\).In preparation for a possible business combination, a team of
Bilge Pumpworks and Seaworthy Rope Company agreed to merge on January 1, 20X3. On the date of the merger agreement, the companies report the following data:Bilge Pumpworks has 10,000 shares of its
On January 1, 20X2. End Corporation acquired all of the assets and liabilities of Cork Corporation by issuing shares of its common stock in a business combination recorded as a purchase. Partial
On January 1, 20XI, Alpha Corporation acquired all of the assets and liabilities of Bravo Company by issuing shares of its \(\$ 3\) par value stock to the owners of Bravo Company in an exchange
Integrated Industries Inc. entered into a business combination agreement with Hydrolized Chemical Corporation (HCC) to assure an uninterrupted supply of key raw materials and to realize certain
Obscure Advertising and Brown Company are considering joining forces in a business combination to be recorded as a pooling of interests. The balance sheet data of the two companies at the time of
Using the data presented in Problem 1-21, prepare the journal entries made by Frost Company to record the business combination as a pooling of interests.Data From Problem 1-211.21 On January 1, 20X2,
Using the data presented in Problem 1-22, prepare the journal entries made by Taylor Corporation to record the business combination as a pooling of interests.Data From Problem 1-22Taylor Corporation
Using the data presented in Problem 1-25, prepare all journal entries to be recorded on More Products Corporation's books assuming the business combination is recorded as a pooling of interests.Data
Using the data presented in Problem 1-26, (a) prepare all journal entries to record the acquisition on Ramrod Manufacturing's books, and \((b)\) prepare a balance sheet immediately following the
Use the data presented in Problem 1-27 to do the following:a. Record the combination on Boogie Musical Corporation's books assuming that the combination was treated as a pooling of interests and
Use the data presented in Problem 1-28 to do the following:a. Prepare a balance sheet for the combined entity immediately following the merger assuming Bilge Pumpworks issues 700 shares of its stock
On January \(1,20 \mathrm{X} 1\), Speedy Plumbers issued shares of its \(\$ 5\) par value stock to acquire all the shares of Flash Heating Company, which was liquidated immediately thereafter. The
On May 6, 20X1. Roto Corporation acquired all the assets and liabilities of Spice Company by issuing its \(\$ 5\) par voting common stock in exchange. Spice 's \(\$ 10\) par value common shares had a
On July 1, 20X2, Amalgamated Transport acquired all of the assets and liabilities of the Swamp Island Railroad by issuing 25,000 common shares. At the date of acquisition, Amalgamated's stock was
Use the data presented in P1-31 to do the following:a. Prepare all journal entries that Integrated Industries should have entered on its books to record the combination as a pooling of interests.b.
What types of investments in common stock normally are accounted for using (a) the equity method; \((b)\) the cost method?
From the point of view of an investor in common stock, what is a liquidating dividend? Is a liquidating dividend viewed in the same way by the investee?
Turner Manufacturing Corporation owns 40 percent of the common shares of Straight Lace Company. If Straight Lace Company reports net income of \(\$ 100,000\) for 20X5, what factors may cause Turner
* How will application of the equity method differ when pooling of interests treatment, rather than purchase treatment, is used in recording a business combination?
* How does the fully adjusted equity method differ from the basic equity method?
* What is the basic equity method? When might a company choose to use the basic equity method rather than the fully adjusted equity method?
Slanted Building Supplies purchased 32 percent of the voting shares of Flat Flooring Company in March 20X3. On December 31, 20X3, the officers of Slanted Building Supplies indicated they needed
Since Boomer Company's inception. Madison Company has owned 18 percent of Boomer's outstanding common stock. Madison provides three key management personnel to Boomer and purchased 25 percent of
Shoehorn Corp. owns 40 percent of the stock of Amalgamated Leather Tanneries and is debating the proper procedures to be used in reporting its ownership. Shoehorn Corporation produces highquality
The reporting treatment for investments in common stock depends on the level of ownership and the ability to influence policies of the investee. The reporting treatment may even change over time as
What does continuity of ownership mean, and how is it important in business combinations?
How does goodwill arise in a business combination? Under what conditions is it recorded?
When a purchase-type business combination occurs after the beginning of the year, the income earned by the acquired company between the beginning of the year and the date of combination is excluded
What is the maximum balance in retained earnings that can be reported by the combined entity following a business combination under purchase treatment?
What factors may make it attractive for a company to complete a business combination by acquiring the stock of another company and operating it as a subsidiary?
How does negative goodwill arise in a business combination? How is it normally treated for financial reporting purposes?
How is the amount of additional paid-in capital determined when purchase treatment is used in recording a business combination?
How is a business combination likely to be recorded if convertible preferred stock is used to acquire the voting common shares of another company? Why?
How are prior-period financial statement data of the acquired company reported by the combined company following a business combination recorded as a purchase? Why?
Which of the costs incurred in completing a business combination can be capitalized under purchase treatment?
Which of the costs incurred in completing a business combination should be treated as a reduction of additional paid-in capital under purchase treatment?
What are the major differences between purchase and pooling of interests treatment in recording ;business combination?
Why is it considered appropriate to carry forward retained earnings of all the combining companies in a poohng of interests?
When a business combination occurs after the beginning of the year, how is the income earned by the acquired company between the beginning of the year and the date of combination reported by the
What is the maximum balance in retained earnings that can be reported by the combined entity following a business combination under pooling of interests treatment?
How is the amount of additional paid-in capital determined when pooling of interests treatment is used in recording a business combination?
How is prior-period financial statement data of the acquired company reported by the combined company following a business combination recorded as a pooling of interests?
Which of the costs incurred in completing a business combination can be capitalized under pooling of interests treatment?
Which of the costs incurred in completing a business combination
Accounting procedures for business combinations differ among countries. In most countries, pooling of interests accounting is unacceptable, while accounting standards in some countries permit
Midvale Corporation plans to acquire ownership of Bostwick Corporation in an exchange of common shares to take place in the middle of the current year. The president of Midvale Corporation is
Flavin Company entered into a business combination with Stevens Company in the middle of the year. The combination was accounted for as a pooling of interests. Both companies use the same methods of
A merger boom comparable to those of the 1 960s and mid- 1 980s occurred in the 1 990s and into the new century. The merger activity of the 1960s was associated with increasing stock prices and heavy
Particular factors within individual industries often lead to an unusual number of business combinations occurring within those industries over a relatively short period of time. Three industries
Companies often have different reasons for and approaches to expansion through business combinations. Cisco Systems is a company that is thought to acquire other companies to fill identifiable
Some companies grow large through internal expansion. Other companies rise to be among the largest in their industries through a series of business combinations. Two major companies that have
When a company purchases another company for an amount difterent than the book value of the acquired company's net assets, the difference must be allocated in the manner prescribed by generally
The valuation of unlisted shares is highly subjective, especially when the object is to fix a fair price for acquisition by the company or by the owner's fellow-shareholders.You are required(a) to
Charles Moon, the managing director of your client Neptune plc, is negotiating with a view to Neptune plc acquiring the entire share capital of Sirius Group Ltd ('Sirius').He has informed you that
Prentice Foods Ltd prepares ready-to-cook foods which are mainly sold as 'own label' products by one of the leading UK supermarket chains. Most of the company's shares are, owned by ten members of
Look Ahead \& Co were instructed to value as at 31 December 1992 a minority holding of 10000 25p shares in Arbor Ltd held by D. Dodd who is considering disposing of his shareholding.Arbor Ltd is
You act in the capacity of financial adviser to a number of companies. One of them, Fig plc, whose managing director is not familiar with finance, has asked you to explain some financial terms which
FRS 3, Reporting Financial Performance, requires that earnings per share should be calculated on the profit after tax, minority interest and extraordinary items. FRS 3 permits an additional measure
A plc is a company which is listed on the UK Stock Exchange. Your client, Mr B, currently owns 300 shares in A plc. Mr B has recently received the published financial statements of A plc for the year
In November 1996 the Accounting Standards Board issued FRS 1 (Revised) - Cash Flow Statements. The appendix to FRS 1 contains a number of examples of cash flow statements drawn up in accordance with
Inverness plc has prepared the following draft financial statements for the year ended 31 October 1997:Profit and loss account for the year ended 31 October 1997Additional information (1) During the
You are the management accountant of Holmes plc and you are in the process of preparing the consolidated cash flow statement. Your Managing Director is aware that the statement is required by FRS 1 -
The following draft financial statements relate to the Baron Group plc.Draft group profit and loss account for the year ended 30 November 1997The consolidated carrying values of all the assets and
Fogel Limited commenced trading as a carpet manufacturer on 1 November 1986. The accountant decided to produce a value added statement with the financial accounts for the year ended 31 October
Pitted Prunes plc merged with Rosy Plums plc and changed its name to Pitted Rosy Plums plc in June 1987. The figures included in the accounts for the year ended 31 December 1987 included the results
In recent years several large listed companies have purchased their own ordinary shares.\section*{You are required to summarise}(a) the accounting requirements for a public listed company when it
Capital plc carried on business in four product segments, namely aircraft design, hairdressing salons, import agencies and beauty products.The directors are now considering the dividend policy and
Renewal plc was incorporated in 1985 to carry on business as manufacturers of designer jewellery. The company has incurred recent trading losses but has now returned to modest profitability. The
High plc acquired \(60 \%\) of the issued ordinary shares of Low plc on 1 December 1989 at which date Low plc had a debit balance on reserves of \(£ 2230000\). The directors of High plc expected to
The Collapsible Chair Company Limited was incorporated in 1972 and traded profitably until the 1990 s. During the early 1990 s the entry of new competitors into the market led to a fall in demand for
Medical Equipment plc was incorporated in 1970 to assemble medical equipment used in hospitals. The directors of the company had a major shareholding and were all engaged full time in the operational
Aztec plc was incorporated in 1968 as an importer of silver artefacts from South America which it customised for the UK market. The company had sold its products in the luxury market and traded
The interpretation of financial statements is assisted by the use of ratio analysis. However, this process can be said to have inherent limitations and some ratios may not be appropriate in all
The following companies carry on distribution businesses for the supermarket industry. Their draft accounts for the year ended 31 December 1997 were as follows:Requirements (a) Calculate suitable
Arizona plc has carried on business for a number of years as a retailer of a wide variety of 'do it yourself' goods. The company operates from a number of stores around the United Kingdom.In recent
The following information is available for a group classified within the 'Engineering, Vehicles' sector in the Financial Times.By the year end, the group's principal activities comprised public
You are the chief financial accountant of Soda plc, a manufacturer and wholesaler of soft drinks. Soda plc is in direct competition with Fizz plc and Pop Ltd.The finance director has informed you
Recycle plc is a listed company which recycles toxic chemical waste products. The waste products are sent to Recycle plc from all around the world. You are an accountant (not employed by Recycle plc)
(a) Describe the current requirements for the disclosure of segmental information in the annual report.(b) Discuss the advantages and disadvantages to the users and preparers of annual reports of
Travis plc is a large grocery retailing and wholesaling organisation. It is presently drawing up its financial statements for the year ended 31 October 1993 and, mindful of the requirements of SSAP
Spreader plc is a UK parent company with a number of wholly-owned subsidiaries in the US and Europe. Extracts from the consolidated financial statements of the group for the year ended 30 April 1997
You are a management accountant who provides financial planning advice to a range of individual and corporate clients. One of your clients, Mr Green, owns 1000 shares in Prospect plc, a mining
FRS 8 - Related Party Disclosures - was issued in October 1995. Prior to its existence, there were specific requirements for related-party disclosures contained in the 1985 Companies Act and the
Groups of companies with overseas branches and subsidiaries have problems in determining the manner in which their results are included in the consolidated and parent company

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