Part 1) Which of the following statements concerning the accounting for mergers and acquisitions is most accurate? A) IAS rules typically use the pooling method, but U.S. GAAP requires the use of the purchase method. B) IAS rules require the use of the purchase method, but U.S. GAAP rules permit the use of pooling or purchase method. C) IAS rules and U.S. GAAP rules both require the use of the pooling method. D) IAS rules and U.S. GAAP rules typically require the use of the purchase method.
The correct answer was D) IAS rules and U.S. GAAP rules typically require the use of the purchase method. While both pooling and purchase methods were both allowed in the past, U.S. GAAP (since 2001) and IAS (since 2003) rules both require the use of the purchase method of accounting for mergers and acquisitions. The one exception under IAS is that the pooling method is allowed if the acquirer cannot be identified. This question tested from Session 5, Reading 22, LOS b Part 2) Concerning Tamco’s reported financial results, had the acquisition of Fairwool been accounted for using the purchase method, the values for assets and net income would have been: Assets Net Income A) Higher Higher B) Higher Lower C) Lower Higher D) Lower Lower The correct answer was B) Higher Lower Since both firms are profitable, and the market value of the assets exceeded book value, using the purchase method would have resulted in higher values for assets and lower values for net income than the firm is currently reporting under the pooling method. This question tested from Session 5, Reading 22, LOS b Part 3) Concerning Tamco’s reported financial results, had the acquisition of Fairwool been accounted for using the purchase method, the values for equity and net profit margin would have been: Equity Net Profit Margin A) Higher Lower B) Higher Higher C) Lower Higher D) Lower Lower The correct answer was A) Higher Lower Since both firms are profitable, and the market value of the assets exceeded book value, using the purchase method would have resulted in higher values for equity and lower values for net profit margin than the firm is currently reporting under the pooling method. This question tested from Session 5, Reading 22, LOS b Part 4) Concerning Tamco’s reported financial results, had the acquisition of Fairwool been accounted for using the purchase method, the values for return on assets and return on equity would have been: Return on Assets (ROA) Return on Equity (ROE) A) Higher Lower B) Higher Higher C) Lower Lower D) Lower Higher Your answer: C was correct! Since both firms are profitable, and the market value of the assets exceeded book value, using the purchase method would have resulted in lower ROA and lower ROE than the firm is currently reporting under the pooling method. This question tested from Session 5, Reading 22, LOS b Part 5) Ignoring incremental changes in taxes, if the acquisition had been accounted for as a purchase, Tamco’s net income last year would have been: A) $20.25 million. B) $25.75 million. C) $16.40 million. D) $14.75 million. The correct answer was D) $14.75 million. Ignoring any incremental change in taxes, if the acquisition had been accounted for as a purchase, assets would have been written up by $55 million. This would have resulted in an increase in depreciation expense of $5.5 million per year during the 10 years following the acquisition. Thus, the reported net income would have been $20.25 – 5.5 = $14.75 million during the past year. This question tested from Session 5, Reading 22, LOS b Part 6) Using the relevant year-end data and ignoring any incremental change in taxes, what is Tamco’s ROA under pooling, and what would it have been under the purchase method? Pooling Purchase A) 8.1% 9.7% B) 7.6% 5.9% C) 8.1% 5.5% D) 7.6% 10.3% The correct answer was C) 8.1% 5.5% Under pooling, ROA = (20.25 / 250) = 8.1%. Under the purchase method, ignoring any incremental change in taxes, depreciation expense would have been $5.5 million greater during the 10 years following the acquisition. Thus, the reported net income would have been $20.25 − 5.5 = $14.75 million during the past year, and ROA = (14.75 / 266.5) = 5.5%.
This question tested from Session 5, Reading 22, LOS b | 
发表于 2008-5-26 18:08
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