Business-combination-quiz-
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BUSINESS COMBINATION QUIZ THEORIES
preferred stock to defer the acquisition of the company.
TRUE 1. The tender offer that is opposed by the acquire management is called a hostile bid.
FALSE 12. When a retail clothing store purchases a competitor in another city, a vertical combination has occurred.
TRUE 2. In an acquisition where the acquirer pays cash for the acquire assets, the book value of the acquirer increases.
FALSE 13. PFRS 3 requires the use for the purchase method in accounting for business combination.
TRUE 3. When two entities competing in the same industry combine, it is called a horizontal integration.
FALSE 14. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A is renting out a license to Entity B under an operating lease. The terms of the lease compared with market terms are favorable. The fair value of differential is ₱5. The goodwill is ₱25.
TRUE 4. One way that a horizontal business combination can increase sales for an entity is to expand into new product markets. TRUE 5. A vertical combination is one where the entities have a potential buyer –seller relationship. TRUE 6. Conglomerate combinations are easy for the government to challenge in court. TRUE 7. A vertical business combination generally involves companies attempting to improve the efficiency of operations by purchasing suppliers of inputs or purchases of outputs. TRUE 8. The acquisition date in a business combination is normally closing the date. TRUE 9. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A estimates liquidation costs of ₱10 in exiting the business activities of Entity B. The goodwill is 20. TRUE 10. If negotiation between management groups leads to a mutually agreeable business combination, the process is called a friendly takeover. TRUE 11. A poison pill is the term used to describe the issuance of a special kind of convertible
FALSE 15. Horizontal business combinations are likely to occur when management is attempting to dominate a geographic segment of the market. FALSE 16. Noncontrolling interest are measured at fair value only FALSE 17. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A incurred legal fees of ₱20 in negotiating the business combination. The goodwill is ₱40. FALSE 18. The entity that obtains control in business combination is called the acquiree. FALSE 19. The two important elements in the definition of business combination under PFRS 3 are “business and combination”. FALSE 20. The only way to attain control over the net assets of another entity is to purchase the net assets.
MCQ 1. This distinguishes a business combination from other types of investment transactions. Response: Obtaining of control 2. Company A marks a hostile takeover bid for control of company B. In response, Company B makes a counter-offer to purchase shares from Company A’s shareholders. Which of the following best describes Company’s B response? Response: Pac-man defense 3. Entity A and Entity B combined their business. The acquirer in the business combination is not clearly identifiable. Which of the following is not an indicator that Entity A is the acquirer? Response: Entity C, a new entity, is formed and Entity c transfers cash to Entity A and Entity B 4. PFRS 3 requires all business combinations to be accounted for using the Response: Acquisition Method 5. Company A has made an offer to purchase all of the outstanding shares of Company B for ₱10 per share (the current market value of the shares). In response to Company’s A offer, the shareholders of Company B were given rights to purchase additional shares at ₱8 per share. Which of the following tactics was employed by Company B to prevent Company A from acquiring control of Company B. Response: Poison Pill 6. Able Ltd. Offers to buy shares from the existing shareholders of Wei Co. at a premium price. The current management and board of directors of Wei have let Wei shareholders know that they do not approve of this. This is an example of a (n). Response: Hostile Takeover 7. Which of the following statements is incorrect regarding the consideration transferred in a business. Response: It includes those that are retained in the combined entity. 8. According to PFRS 3, the acquisition date is normally the Response: Closing Date 9. The defensive maneuver where a company bus stock from a potential acquirer at a premium over the market price is called which of the following? Response: Shark repellant 10. The entity that obtains control over another business in the business combination is called the Response: Acquirer
PROBLEM SOLVING
preferred stock to defer the acquisition of the company.
TRUE 1. The tender offer that is opposed by the acquire management is called a hostile bid.
FALSE 12. When a retail clothing store purchases a competitor in another city, a vertical combination has occurred.
TRUE 2. In an acquisition where the acquirer pays cash for the acquire assets, the book value of the acquirer increases.
FALSE 13. PFRS 3 requires the use for the purchase method in accounting for business combination.
TRUE 3. When two entities competing in the same industry combine, it is called a horizontal integration.
FALSE 14. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A is renting out a license to Entity B under an operating lease. The terms of the lease compared with market terms are favorable. The fair value of differential is ₱5. The goodwill is ₱25.
TRUE 4. One way that a horizontal business combination can increase sales for an entity is to expand into new product markets. TRUE 5. A vertical combination is one where the entities have a potential buyer –seller relationship. TRUE 6. Conglomerate combinations are easy for the government to challenge in court. TRUE 7. A vertical business combination generally involves companies attempting to improve the efficiency of operations by purchasing suppliers of inputs or purchases of outputs. TRUE 8. The acquisition date in a business combination is normally closing the date. TRUE 9. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A estimates liquidation costs of ₱10 in exiting the business activities of Entity B. The goodwill is 20. TRUE 10. If negotiation between management groups leads to a mutually agreeable business combination, the process is called a friendly takeover. TRUE 11. A poison pill is the term used to describe the issuance of a special kind of convertible
FALSE 15. Horizontal business combinations are likely to occur when management is attempting to dominate a geographic segment of the market. FALSE 16. Noncontrolling interest are measured at fair value only FALSE 17. Entity A acquires all the identifiable assets and assumes all the liabilities of Entity B for 100. Entity B’s identifiable assets and liabilities have fair values of ₱200 and ₱120, respectively. Entity A incurred legal fees of ₱20 in negotiating the business combination. The goodwill is ₱40. FALSE 18. The entity that obtains control in business combination is called the acquiree. FALSE 19. The two important elements in the definition of business combination under PFRS 3 are “business and combination”. FALSE 20. The only way to attain control over the net assets of another entity is to purchase the net assets.
MCQ 1. This distinguishes a business combination from other types of investment transactions. Response: Obtaining of control 2. Company A marks a hostile takeover bid for control of company B. In response, Company B makes a counter-offer to purchase shares from Company A’s shareholders. Which of the following best describes Company’s B response? Response: Pac-man defense 3. Entity A and Entity B combined their business. The acquirer in the business combination is not clearly identifiable. Which of the following is not an indicator that Entity A is the acquirer? Response: Entity C, a new entity, is formed and Entity c transfers cash to Entity A and Entity B 4. PFRS 3 requires all business combinations to be accounted for using the Response: Acquisition Method 5. Company A has made an offer to purchase all of the outstanding shares of Company B for ₱10 per share (the current market value of the shares). In response to Company’s A offer, the shareholders of Company B were given rights to purchase additional shares at ₱8 per share. Which of the following tactics was employed by Company B to prevent Company A from acquiring control of Company B. Response: Poison Pill 6. Able Ltd. Offers to buy shares from the existing shareholders of Wei Co. at a premium price. The current management and board of directors of Wei have let Wei shareholders know that they do not approve of this. This is an example of a (n). Response: Hostile Takeover 7. Which of the following statements is incorrect regarding the consideration transferred in a business. Response: It includes those that are retained in the combined entity. 8. According to PFRS 3, the acquisition date is normally the Response: Closing Date 9. The defensive maneuver where a company bus stock from a potential acquirer at a premium over the market price is called which of the following? Response: Shark repellant 10. The entity that obtains control over another business in the business combination is called the Response: Acquirer
PROBLEM SOLVING
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