CPA Financial Accounting and Reporting (FAR) : Business Combinations
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #3 : Cost Method
The Bowman Company purchases 10,000 shares of Dalton Company's 300,000 outstanding shares at January 1, Year 2, for $18.34 per share plus a commission of $640. During Year 2, Dalton pays dividends of $2 per share. How much will Bowman report as its investment in Dalton and as dividend income in Year 2?
$204,040 in its investment account; $0 in dividend income
$201,400 in its investment account; $0 in dividend income
$184,040 in its investment account; $20,000 in dividend income
$183,400 in its investment account; $20,000 in dividend income
$184,040 in its investment account; $20,000 in dividend income
Bowman's investment will be accounted for at cost ($18.34 per share x 10K shares + commission of $640). Under the cost method, they will recognize dividend income of $2 per share x 10K shares.
Example Question #4 : Cost Method
The valuation of goodwill is a calculation in a business calculation:
Of all of the unlimited life intangible assets
Of all of the increases in market valuation of the intangible assets acquired
Of the residual paid above the fair value of the identifiable net assets
To offset the bargain purchase cost
Of the residual paid above the fair value of the identifiable net assets
The amount of goodwill recorded on the balance sheet by an acquiring firm for a business combination represents the excess of the price paid over the fair value of the identifiable net assets acquired.
Example Question #5 : Cost Method
A company has a 24% investment in another firm that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?
The company's accounting policy for the investment
Whether the investee company is involved in any litigation
The reason for the company's decision to invest in the investee company
The names and ownership percentages of the other stockholders in the investee company
The company's accounting policy for the investment
A company owning between 20-50% in another firm in which the investment is accounted for using the equity method is considered as having significant influence over the company and is required to disclose the company's accounting policy for the investment.
Example Question #1 : Cost Method
Of the following values, which should be disclosed for the purposes of reporting financial instruments such as debt or equity securities?
Carrying value
Both
Fair value
Neither
Both
Both of these values must be reported for a company that holds financial instruments otherwise users of the statements would not be able to see gain or losses that the company incurs.
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