Chapter 13: Multiple Choice – Computational (For classroom
instruction purposes)
Measuring goodwill / gain on bargain purchase
Use the following
... [Show More] information for the next two questions:
Fact pattern
On January 1, 20x1, DIMINUTIVE Co. acquired all of the assets and
assumed all of the liabilities of SMALL, Inc. As of this date, the
carrying amounts and fair values of the assets and liabilities of
SMALL acquired by DIMINUTIVE are shown below:
Assets
Carrying
amounts Fair values
Cash in bank 40,000 40,000
Receivables 800,000 480,000
Allowance for probable losses
on
receivables
(120,000)
-
Inventory 2,080,000 1,400,000
Building – net 4,000,000 4,400,000
Goodwill 400,000 80,000
Total assets 7,200,000 6,400,000
Liabilities
Payables 1,600,000 1,600,000
On the negotiation for the business combination, DIMINUTIVE Co.
incurred transaction costs amounting to ₱400,000 for legal,
accounting, and consultancy fees.
1. Case #1: If DIMINUTIVE Co. paid ₱6,000,000 cash as
consideration for the assets and liabilities of SMALL, Inc., how
much is the goodwill (gain on bargain purchase) on the business
combination?
a. 1,200,000 b. 1,120,000 c. 1,280,000 d.
1,240,000
2. Case #2: If DIMINUTIVE Co. paid ₱4,000,000 cash as
consideration for the assets and liabilities of SMALL, Inc., how
much is the goodwill (gain on bargain purchase) on the business
combination?
a. (800,000) b. (720,000) c. (880,000) d.
1,200,000
Non-controlling interests
Use the following information for the next four questions:
Fact pattern
On January 1, 20x1, KNAVE acquired 80% of the equity interests of
RASCAL, Inc. in exchange for cash. Because the former owners of
RASCAL needed to dispose of their investments in RASCAL by a
specified date, they did not have sufficient time to market RASCAL to
multiple potential buyers.
1
As January 1, 20x1, RASCAL’s identifiable assets and liabilities have
fair values of ₱4,800,000 and ₱1,600,000, respectively.
Case #1: Non-controlling interest measured at fair value
3. KNAVE Co. elects the option to measure non-controlling interest
at fair value. An independent consultant was engaged who
determined that the fair value of the 20% non-controlling interest
in RASCAL, Inc. is ₱620,000.
If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80%
interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?
a. 800,000 b. 2,060,000 c. 1,440,000 d.
1,420,000
Case #2: Non-controlling interest measured at fair value
4. KNAVE Co. elects the option to measure non-controlling interest
at fair value. An independent consultant was engaged who
determined that the fair value of the 20% non-controlling interest
in RASCAL, Inc. is ₱620,000.
If KNAVE Co. paid ₱2,400,000 cash as consideration for the 80%
interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?
a. (180,000) b. (800,000) c. (160,000)
d. (200,000)
Case #3: Non-controlling interest measured at fair value
5. KNAVE Co. elects the option to measure non-controlling interest
at fair value. A value of ₱1,000,000 is assigned to the 20% noncontrolling
interest in RASCAL, Inc. [(₱4M ÷ 80%) x 20% =
1,000,000].
If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80%
interest in RASCAL, Inc., how much is the goodwill (gain on bargain
purchase) on the business combination?
a. 200,000 b. 1,800,000 c. 2,440,000 d.
1,440,000
Case #4: Non-controlling interest’s proportionate share in
net assets
6. KNAVE Co. elects the option to measure the non-controlling
interest at the non-controlling interest’s proportionate share of
RASCAL, Inc.’s net identifiable assets
If KNAVE Co. paid ₱4,000,000 cash as consideration for the 80%
interest in RASCAL, Inc. and, how much is the goodwill (gain on
bargain purchase) on the business combination?
a. 1,440,000 b. 800,000 c. 1,400,000 c.
960,000
Transaction costs
Use the following information for the next two questions:
Fact pattern [Show Less]