Advanced Accounting
Exercise 1-1 1. A business business combination combination in which which a new new corporation corporation is formed formed to take over over the assets and operations of two or more separate business entities, with the previously previously separate entities being dissolved is a/an a. Cons Consol olid idat atio ion n b. erger !occurs !occurs when when one corp corp takes takes over all the operations operations of another another business entity and that entity is dissolved c. "ooli ooling ng of of #nte #nterrests ests d. Ac Ac$u $uis isit itio ion n
%. #n a business business combination, combination, the the direct costs of registering registering and issuing securities are& a. Added Added to the parent/in parent/investo vestorr company's company's investmen investmentt account account b. Charged against other paid-in-capi paid-in-capital tal combined combined entity entity c. (educted (educted from from incom income e in the period period of combin combinatio ation n d. )one )one of the the abo above ve
*. An excess excess of of the fair value of net assets ac$uired in a business combination over the price paid is& a. Reported Reported as a gain gain from a barga bargain in purchas purchase e b. Applied to to a reduction reduction of noncash noncash assets before negative goodwill goodwill may may be reported c. Applied to to reduce reduce noncurren noncurrentt assets other than than marketable marketable securities securities to +ero before negative goodwill may be reported d. Applied to to reduce reduce goodwill goodwill to +ero before negative goodwill may be reported
. ork orporation orporation ac$uires ac$uires (art (art orporation orporation in a business combination. hich of the following would be excluded from the process of assigning fair values to assets and liabilities for purposes of recording the ac$uisition 0Assume (art orporation is dissolved a. "atents developed by by (art because the costs were expensed under 2AA" b. (art's mortgage mortgage payable because it is fully secured by land that has a market value far in excess of the mortgage c. An asset asset or liability liability amount amount for overover- or underfundi underfunding ng of Dart’s Dart’s dened-benet pension plan d. )one )one of the the abo above ve
Advanced Accounting
Exercise 1-% 1. "at orporation orporation paid 3144,444 3144,444 cash for the net net assets of 5ag ompany, ompany, which which consisted of the following& 6ook 8air 7alue 7alue 39:,44 urrent Assets 34,444 4 "lant and %%4,44 1:4,444 E$uipment 4 ;iabilities -4,444 -*:,444 assumed 3%4,4 31:4,444 44 Assume 5ag ompany is dissolved.
%. >n April 1, "ar "ar ompany paid 31,:44,444 31,:44,444 for all the issued issued and outstanding common stock of 5on orporation in a transaction properly accounted for as an ac$uisition. 5on orporation is dissolved.
3 1:4,444.44 3 =4,444.44
3 ?:4,444.44 30*:4,444.44
>n April 1, it was determined that the inventory of 5on had a fair value of 3*=4,444, and the property and e$uipment 0net had a fair value of 31,1%4,444. hat is the amount of goodwill resulting from the ac$uisition
a. 4
Advanced Accounting b. 3144,444 c. #$0 #$00000 000 d. 3* 3*:4 :4,4 ,44 44
Exercise 1-* ther paid in 3 3 capital =44.44 1,:44.44 etained 3 3 Earnings %,44.44 1,%44.44 5tockholders 3 3 E$uity ?,%44.44 :,444.44 >n @anuary %, "al issued :44,444 of it's shares with a market value of 3%4 per share for all of 5ip's shares and 5ip was dissolved. >n the same day, "al paid 3%4,444 to register and issue shares and 34,444 for other direct costs combination. Prepare the stockholder’s equity section of Pal Corporation’s balance sheet immediately after the acquisition on January 2 (Hint. Prepare the journal entry) ANSWER
%nvestment in &ip !'A" shares Common &toc) !'&*" shares Additional paid-in capital !'&*"
(2000000
%nvestment e,pense !* -&*" direct costs Additional %C !-&*" 0register and issue Cash !or other net assets" !-A" 014ps x :44k shares
0000
0%4ps x :44k
+000000 014ps x :44k +000000
0other
20000 +0000
stockholder’s stockholder’s equity section of Pal Corporation Cap tk! "#$ par! par! #.2 mil shares %ther P&C
"#2!$$$!$$$ "#2!$$$!$$ $ "'.$.$$$
Advanced Accounting *etained +arnin,s otal + +quity
2!-'$!$$$ 2#!#/$!$$$
Exercise 1- "an ompany issued ?:4,444 shares of 314 par common stock with a fair value of 3%4,44,444 for all the voting common stock of 5et ompany. #n addition, "an incurred the following costs&
;egal fees to arrange the business combination ost of 5E registration, registration, including accounting and legal fees ost of printing and issuing stock certiBcates #ndirect costs of combining, including allocated overhead and executive salaries
3 %44,444.4 4 3 ?:,444.44 3 %,444.44 3 1:4,444.4 4
#mmediately before the ac$uisition in which 5et ompany was dissolved, 5et's assets and e$uities were as follows& 6ook 6ook 7alue lue 8air 7alu alue 3 3 urrent assets =444.44 =,=44.44 3 3 "lant assets 1%,444.44 1C,:44.44 3 3 ;iabilities %,44.44 %,44.44 3 ommon 5tock 1:,444.44 3 etained Earnings 1,:44.44 "repare all Dournal entries on "an's books to record the ac$uisition ANSWER
%nvestment in &et !'A" 0given
2000
Advanced Accounting
Common &toc) !'&*" x?:4k shares Additional paid-in capital !'&*"
%nvestment e,pense !* -&*" costs Additional %C !-&*" issue Cash !or other net assets" !-A"
/+00
014ps
(000
(+0000
0other direct
$20000
0register and
0000
Current Assets 00 lant Assets (1+00 iabilities 200 %nvestment in &et 2000 above 3ain from bargain purchase $+00 !di4erence"
087 087 087 0given
Exercise 1-9 >n @anuary 1, "an orporation pays 344,444 cash and also issues *:,444 shares of 314 par common stock with a market value of 3::4,444 for all the outstanding common shares of 5is orporation. #n addition, "an says 3:4,444 for registering and issuing the *:,444 shares and 314,444 for the other direct costs of the business combination, in which 5is orporation is dissolved. 5ummary balance sheet information for the companies immediately before the merger as follows 0in thousands&
ash #nventories >ther urrent Assets "lant assets - net
"an 6ook 7alue 3 C44.44 3 %4.44 3 :4.44 3 9%4.44 3 1,9%4.44
5is 6ook 7alue
5is 8air 7alue
3
=4.44
3 =4.44
3
1:4.44
3 %44.44
3
4.44
3 4.44
3 3
*:4.44 :4.44
3 9:4.44 3 ==4.44
Advanced Accounting
urrent liabilities >ther liabilities ommon 5tock, 314 par etained earnings
"an 6ook 7alue 3 *%4. *% 4.44 44 3 1:4. 1: 4.44 44 3 =4.44 3 %44.44 3
5is 6ook 7alue
1,9%4.44
5is 8air 7alue
3
:4.4 4.44
3 :4 :4..44
3
144 14 4.44 .44
3 =4 =4..44
3
44.44
3
=4.44
3
:4.44
Prepare all journal entries on Pan’s books to account for the acquisition acquisition ANSWER
%nvestment in &et !'A" stock Common &toc) !'&*" shares Additional paid-in capital !'&*" 0diGerence
(0+0000
%nvestment e,pense !* -&*" costs Additional %C !-&*" 0register and issue Cash !or other net assets" !-A"
(0000
Cash Cash %nventory 5ther Current Asset lant Assets 3ood7ill Current liabilities 5ther liabilities %nvestment in &is
0cash F
$+0000 014ps x*:4k 1000000
0other direct
+0000 200000
00 0000 00 200000 0000 6+0000 $20000 +0 000 0000 (0+0000
"roblems 1-* >n @anuary %, %411, "ar orporation issues its own 314 par common stock for all the outstanding stock of 5in orporation in an ac$uisition. ac$uisition. 5in is dissolved. #n addition, "ar pays 34,444 for registering and issuing securities and 3:4,444 for other costs of combination.
Advanced Accounting elevant balance sheet information for "ar and 5in orporation on (ecember *1, %414, Dust before the combination, is as follows 0in thousands& "ar Historical 5in Historical ost ost 5in 8air 7alue 3 ash %4.44 3 %4.44 3 %4.44 3 #nventories 144.44 3 :4.44 3 1%4.44 3 >ther urrent Assets %44.44 3 1=4.44 3 %44.44 3 ;and 1:4.44 3 4.44 3 %44.44 "lant and E$uipment 3 net 1,*44.44 3 44.44 3 C44.44 3
%nvestment in &et !'A" stock :4x%9 Common &toc) !'&*" shares Additional paid-in capital !'&*" 0diGerence
%nvestment e,pense !* -&*" direct costs Additional %C !-&*" 0register and issue Cash !or other net assets" !-A"
(600000
0cash F
26000 014ps x%9k (16000
+0000
0other
0000 (00000
Advanced Accounting
Cash Cash
200 20000 00
%nventory 5ther Current Asset and lant 8 *9uipment Assets 3ood7ill Current liabilities %nvestment in &is
(20000 200000 200000 100000 $+0000 (00000 (600000
%. Assume that that "ar issues 19,444 19,444 shares shares of its stock for all of 5in's 5in's outstanding shares. a. "repare "repare Dournal Dournal entries entries to record record the ac$uisitions ac$uisitions of 5in b. "repare "repare a balance balance sheet sheet for "ar orporation immediately after the the ac$uisition
ANSWER
%nvestment in &et !'A" stock :4x19 Common &toc) !'&*" shares Additional paid-in capital !'&*" 0diGerence
/00000
%nvestment e,pense !* -&*" direct costs Additional %C !-&*" 0register and issue Cash !or other net assets" !-A"
+0000
Cash Cash
0cash F
(6000 014ps x19k 6000
0other
0000 (00000
200 20000 00
%nventory (20000 5ther Current Asset 200000 and 200000 lant 8 *9uipment Assets 100000 Current liabilities (00000 %nvestment in &is /00000 3ain from bargain purchase 20000
Advanced Accounting
"roblems 1-9 "at orporation orporation paid 39,444,444 for 5aw orporations voting common stock on @anuary %, %411, %411, and 5aw was was dissolved. ther current assets 1,44.44 3 *:4.44 3 44.44 3 ;and ,444.44 3 %44.44 3 44.44 3 6uildings - net 1=,444.44 3 1,%44.44 3 %,44.44 3 E$uipment - net %4,444.44 3 1,:44.44 3 1,%44.44 3
Accounts payable ortgage "ayable - 14I apital stock, 314 par >ther paid in capital
3 %,444.44 3 14,444.44 3 %4,444.44 3 1:,444.44
3
:44.44
3 1,44.44 3 %,444.44 3 1,%44.44
3
:44.44
3 1,%44.44
Advanced Accounting 3 etained Earnings 1%,444.44 3 =44.44 3
%nvestment in &et !'A" stock 144kx94 Common &toc) !'&*" shares Additional paid-in capital !'&*" 0diGerence
6000000
%nvestment e,pense !* -&*" costs Additional %C !-&*" issue Cash !or other net assets" !-A"
200000
0other direct
(00000
0register and
Cash Cash Accounts receivable :net ;otes Recv :net %nventories 5ther curr assets and tg ayable %nvestment in &a7 Corporation 3ain from bargain purchase =otal
0cash F
600000 014ps x144k 600000
$00000
0 000 000 0 120000 +00000 (000000 00000 00000 200000 (200000 1200000 +00000 (200000 6000000 00000 1200000
Advanced Accounting %. "repare "repare a balance balance sheet for "at orporation orporation on @anuary %, %411, immediately immediately after the ac$uisition and dissolution of 5aw 5aw
Cash +0000 Accounts receivable :net $$20000 ;otes Recv :net %nventories 5ther curr assets (00000 and tg ayable ((00000 Common &toc) Retained *arnings =otal *9uities
"at 0000
ombined
+000000
120000
2+00000
+00000 $000000 $+00000 (000000 6000000 +000000 00000 (00000 00000 000000 00000 200000 (200000 (200000 20000000 2(200000 1200000 +0000000
+00000
2 2000000
(00000 (0000000
