1 on december 31 20×2 bates ltd purchased 75 of the outstanding common shares of ted 4309885

 

1) On December 31, 20X2, Bates Ltd. purchased 75% of the outstanding common shares of Ted Ltd. for $1,050,000 in cash. The balance sheets of Bates and Ted immediately before the acquisition were as follows (in 000s):

	Bates		Ted
	Book Value	Fair Value	Book Value	Fair Value
Cash	$160	$160	$100	$100
Accounts receivable	420	400	280	280
Inventory	600	680	300	350
Capital assets	1,820	2,000	1,320	1,620
	$3000		$2,000
Current liabilities	$280	$280	$160	1$80
Long-term liabilities	1,100	1,100	900	900
Common shares	500		500
Retained earnings	1,120		440
	$3,000		$2,000

At the time of acquisition, Ted's capital assets still had a remaining useful life

of ten years. What is the amount of the adjustment to the net book value of capital assets on the consolidated statement of financial position at December 31, 20X2 under the parent-company approach?

A) $  94,500

B) $135,000

C) $157,000

D) $225,000

2) Which consolidation method does not include incorporating 100% of a subsidiary's revenues and expenses?

A) Proportionate consolidation

B) Parent-company method

C) Parent-company extension method

D) Entity method

3) Which consolidation method includes only the parent's share of a subsidiary's goodwill?

A) Proportionate consolidation

B) Parent-company method

C) Parent-company extension method

D) Entity method

4) Which of the following statements about IFRS 3, Business Combinations is true?

A) IFRS 3 allows organizations to use either the parent-company method or the entity method.

B) IFRS 3 allows organizations to use either the parent-company extension method or the entity method.

C) IFRS 3 allows organizations to use either the parent-company method or the parent-company extension method.

D) IFRS 3 allows organizations to use either the parent-company method, the parent-company extension method, or the entity method.

5) Assume that a parent company has 4 subsidiaries. Under IFRS 3, which of the following statements is true?

A) All 4 subsidiaries must be reported using the parent-company extension

method.

B) All 4 subsidiaries must be reported using the entity method.

C) Each subsidiary must be reported using either the parent-company extension method or the entity method. Consistency is not required.

D) All 4 subsidiaries must be reported using either the parent-company extension method or the entity method. Consistency is required.

6) Arnez Ltd. acquired 70% of Bedard Ltd. At the acquisition date, Bedard's net identifiable assets had a carrying value of $825,000 and a fair value of $1,000,000. Arnez paid $910,000 for the acquisition. Under the parent-company extension method, what amount should be reported for goodwill on Arnez's consolidated statement of financial position?

A) $210,000

B) $300,000

C) $332,500

D) $475,000

Answer:  A

Type: MC      Page Ref: 206-207

Difficulty:  Moderate

7) Sunny Co. purchased 80% of Reuben Ltd. for $1,200,000. At the date of acquisition, the carrying value of Reuben's net identifiable assets was $1,000,000, and the fair value was $1,300,000. What is the amount of the goodwill under the entity method?

A) $0

B) $200,000

C) $240,000

D) $300,000

Answer:  B

Type: MC      Page Ref: 209-211

Difficulty:  Moderate

8) Olthius Ltd. purchased 60% of Fredo Ltd. for $1,500,000. At the date of acquisition, the carrying value of Fredo's net identifiable assets was $1,800,000 and the fair value was $2,200,000. What is the amount of the goodwill under the entity method?

A) $(300,000)

B) $120,000

C) $300,000

D) $400,000

Answer:  C

Type: MC      Page Ref: 209-211

Difficulty:  Moderate

9) Amber Ltd. purchased 80% of Patel Ltd. for $1,000,000. At the time of acquisition, the carrying value of Patel's net identifiable assets was $1,000,000 and the fair value was $1,350,000. What is the amount of the goodwill under the entity method?

A) $(100,000)

B) $100,000

C) $280,000

D) $350,000

10) Lopez Ltd. purchases 65% of Wheatfall Co. Under the entity method of consolidation, what is allocated to non-controlling interest?

A) 35% of Wheatfall's net assets at fair value

B) 35% of Wheatfall's net assets at carrying value

C) 35% of Wheatfall's net assets at carrying value plus 35% of Wheatfall's fair value increments excluding goodwill

D) 35% of Wheatfall's net assets at carrying value plus 35% of Wheatfall's fair value increments including goodwill