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.
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.
2
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% non-controlling 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
On January 1, 20x1, SMUTTY acquired all of the identifiable assets and assumed all of the liabilities of OBSCENE, Inc. On this date, the identifiable assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively.
SMUTTY incurred the following acquisition-related costs: legal fees, ₱40,000, due diligence costs, ₱400,000, and general administrative costs of maintaining an internal acquisitions department, ₱80,000.
7. Case #1: As consideration for the business combination, SMUTTY Co. transferred 8,000 of its own equity instruments with par value per share of ₱400 and fair value per share of ₱500 to OBSCENE’s former owners. Costs of registering the shares amounted to ₱160,000. How much is the goodwill (gain on bargain purchase) on the business combination?
a. 716,000 b. 556,000 c. 600,000 d. 1,200,000
8. Case #2: As consideration for the business combination, SMUTTY Co. issued bonds with face amount and fair value of ₱4,000,000. Transaction costs [Show Less]