Reference no: EM132893729

Questions -

Q1. In 20X6, Vines Inc. (Vines) purchased 40% of the common shares of Bottles Inc. (Bottles). At the time, there were no fair value differentials. In 20X7, Vines sold inventory to Bottles for $80,000. $25,000 of this remained at year end. This inventory was sold by Bottles in 20X8. Also during 20X8, Vines sold additional inventory to Bottles for $60,000 of which $30,000 remains in inventory. Vines earns a gross profit of 30% on sales of its inventory. Both companies pay income taxes at 25%. During 20X8, Bottles earned net income of $200,000. What is the amount of equity income reported by Vines in 20X8?

A. $79,400

B. $79,550

C. $80,000

D. $80,450

Q2. How should acquisition related costs such as due diligence and legal costs be accounted for?

A. expensed as incurred

B. As part of the total consideration

C. As a reduction in equity

D. As a deferred asset

Q3. A bargain purchase arises when the price paid to acquire a controlling interest in another company is less than the acquirer's share of the fair value of net assets of the company being acquired. At the end of your preliminary analysis, you believe that a business combination results in a bargain purchase. What is your next step?

A. Recognize an immediate gain in the consolidated statement of profit and loss without further analysis.

B. Recognize a liability in the consolidated balance sheet.

C. Contact the acquiree to confirm its intention.

D. Reassess each step of your analysis to confirm your preliminary findings.