1. Kris owns 80% of Bob’s voting common shares, and 55% of Jimmy’s preferred shares.

Which of
the following statement is correct?
a. Kris has direct control over Jimmy.
b. Kris has indirect control over Jimmy.
c. Kris has no control over Jimmy.
d. Kris has contingent control over Jimmy.
2. A Inc. owns 80% of B’s outstanding voting shares. Under which of the following scenarios would
A’s ownership percentage of B increase?
a. B Inc. announces a 2 for 1 stock split to all its common shareholders.
b. B issues an additional 10,000 voting shares. A acquires 9,000 shares of the new issue.
c. B issues an additional 10,000 voting shares. A acquires 6, 400 shares of the new issue.
d. B retires 20,000 voting shares, and in doing so, buy backs 16,000 shares from b.
3. Assuming that Rica acquired 30% of Riza’s voting common shares January 1 and another 30% on
July 1, what would be appropriate accounting with respect to these acquisition?
a. Rica will need to track two sets of acquisition differential; one for each purchase.
b. The equity method would be used for the January1-July1 period, and consolidation
must be done for the July 1-December 31 period.
c. The purchases should all be grouped together and treated as a single block purchase.
d. The costs method should be used until the controlling interest is acquired on July1.
4. Marga owns 70% of Cassy’s voting common shares, which in turn owns 60% of Carlo’s voting
common shares. Carlo owns 30% of Dina’s voting common shares. What companies does Marga
control?
a. Cassy and Carlo.
b. Cassy and Dina.
c. Carlo and Dina.
d. Cassy, Carlo and Dina.
5. Lino and Jackie each owns 45% of Ace’s voting common shares. Jade owns the remaining 10%
of the voting common shares of Ace. Which company controls Ace?
a. More information is needed to identify the acquirer.
b. Lino and Jackie jointly control Ace.
c. Lino control Ace.
d. Jackie control Ace.
6. Bella purchased 10% of the voting common shares of Lucas for 150,000. At year end the
investment’s market value was 130,000. If the investment is classified as Fair Value through OCI
(aka Available for sale), which of the following statements is true?
a. Bella’s balance sheet will report the investment at 150,000.
b. Bella’s will report a loss of 20,000 in its income statement.
c. Bella’s will report a loss of 20,000 on its statement of changes in shareholder’s equity.
d. Bella’s accumulated comprehensive income will decrease by 20,000.
7. Isagani purchased 10% of the voting common shares of Isay for 150,000 on January 1. Isay
declared 30,000 of dividends on November 1. At December 31, year end, the investment’s
market value was 130,000 and Isay reported 60,000 of net income. If the investment is classified
 as Fair Value through Profit and Loss ( aka held for trading), how much income would Isagani
report related to this investment for the year?
a. 20,000 loss.
b. 1,000 loss.
c. 17,000 loss.
d. 14,000 loss.

Use the following information to answer questions 8 and 9:

Borden Company owns 70% of the ordinary shares of Megan Company and 25% of the ordinary
shares of King Company. In addition, Megan owns 40% of the ordinary shares of King Company.

8. What is the non-controlling interest’s percentage ownership in King?

a. 35%.
b. 47%.
c. 60%.
d. 75%.
9. Which of the following best describes the relationship between Borden and King?
a. Borden controls 25% of the voting shares of King and should report King using the equity
method.
b. Borden controls 53% of the voting shares of King and should report King using the equity
method.
c. Borden controls 53% of the voting shares of King and should report King using
consolidation.
d. Borden controls 65% of the voting shares of King and should report King using
consolidation.

Use the following information to answer questions 10-15:

ABC Inc. purchased 35,000 out of 123 Inc.’s 50,000 outstanding voting shares for 350,000 on
January 1, 2009. On the date of acquisition, 123 common stock and retained earnings were
valued at 120,000 and 180,000 respectively. 123’s book values approximated its fair values on
the acquisition date with the exception of a patent and a trademark, neither of which had been
previously recorded. The fair market values of the patent and trademark on the date of
acquisition were 30,000 and 20,000 respectively. Both items have a useful life of 8 years.

During 2009 123 Inc. reported 140,000 in net income and paid 32,000 in dividends. There were
no intercompany transactions or goodwill impairment.

On January 2, 2010, ABC sold 14,000 shares of 123 on the open market for 98,000.

ABC Inc. uses the equity method to account for its investment in 123 Inc.

10. What is the amount of goodwill arising from this business combination?
a. 5,000.
 b. 150,000.
c. (5,000).
d. Nil.
11. What percentage of the Investment in 123 was sold by ABC?
a. 14%.
b. 21%.
c. 28%.
d. 40%.
12. What is ABC’s ownership interest in 123 after its sale?
a. 21%.
b. 36%.
c. 56%.
d. 42%.
13. What would be the balance in the investment in 123 Inc. accounts after the sale?
a. 252,735.
b. 280,560.
c. 271,050.
d. 210,000.

Ans: A [350,000 + (140,000 – 32,000– 50,000/8) x 0.70] x (1-0.40)

14. What is the amount of the non-controlling interest at acquisition?

a. 50,000.
b. 18,000.
c. 8,400.
d. 150,000.
15. What is the carrying value of the trademark after the sale?
a. 20,000.
b. 17,500.
c. 10,500.
d. 12,600.

Use the following information to answer questions 16-17:

The following information pertains to the shareholdings of an affiliated group of companies. The
respective ownership interest of each company is outlined below.
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method. The Net Incomes for
these companies for the year ended December 31, 2009 were as follows:
A Inc. 1,000,000
J Inc. 200,000
G Inc. 600,000
 D Inc. 300,000
Y Inc. 100,000
Unrealized intercompany profits earned by the various companies for the year ended December
31, 2009 are shown below:

G Inc. 10,000

Y Inc. 10,000

J Inc. 20,000

All companies are subject to a 25% tax rate.

16. What is the amount of non-controlling interest that would appear on A Inc.’s Consolidated
Income Statement?
a. 400,000
b. 373,875
c. 382,500
d. Nil.
17. What is the Net Income for the combined entity?
a. 2,170,000
b. 660,000
c. 1,510,000
d. 1,773,625