Exam 2: Consolidation of Financial Information

Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 2021. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local investment firm for arranging the acquisition. An additional $10 (in thousands) was paid by Flynn in stock issuance costs.The book values for both Flynn and Macek immediately preceding the acquisition follow. The fair value of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully amortized trademark that still retains a $40 (in thousands) value. The figures below are in thousands. Any related question also is in thousands. What amount will be reported for consolidated additional paid-in capital?

The financial statement amounts for the Atwood Company and the Franz Company as of December 31, 2021, are presented below. Also included are the fair values for Franz Company's net assets (all numbers are in thousands). Note: Parenthesis indicate a credit balanceAssume an acquisition business combination took place at December 31, 2021. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid.Compute the consolidated common stock at the date of acquisition.

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the goodwill arising from this acquisition at December 31, 2021.

Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31, 2020, immediately before Boxwood acquired Tranz. Also included are the fair values for Tranz Company's net assets at that date (all amounts in thousands). Note: Parenthesis indicate a credit balanceAssume a business combination took place at December 31, 2020. Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Tranz's fair value, Boxwood promises to pay an additional $5.2 (in thousands) to the former owners if Tranz's earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands).Compute consolidated inventory immediately following the acquisition.

McCoy has the following account balances as of December 31, 2020 before an acquisition transaction takes place. The fair value of McCoy's Land and Buildings are $650,000 and $600,000, respectively. On December 31, 2020, Ferguson Company issues 30,000 shares of its $10 par value ($30 fair value) common stock in exchange for all of the shares of McCoy's common stock. Ferguson paid $12,000 for costs to issue the new shares of stock. Before the acquisition, Ferguson has $800,000 in its common stock account and $350,000 in its additional paid-in capital account.What will be the consolidated additional paid-in capital as a result of this acquisition?

The financial statement amounts for the Atwood Company and the Franz Company as of December 31, 2021, are presented below. Also included are the fair values for Franz Company's net assets (all numbers are in thousands). Note: Parenthesis indicate a credit balanceAssume an acquisition business combination took place at December 31, 2021. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid.Compute fair value of the net assets acquired at the date of the acquisition.

Wilkins Inc. acquired 100% of the voting common stock of Granger Inc. on January 1, 2021. The book value and fair value of Granger's accounts on that date (prior to creating the combination) are as follows, along with the book value of Wilkins's accounts: Assume that Wilkins issued preferred stock with a par value of $260,000 and a fair value of $500,000 for all of the outstanding shares of Granger in an acquisition business combination. What will be the balance in the consolidated Inventory and Land accounts?

Which of the following examples accurately describes a difference in the types of business combinations?

Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 2021. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local investment firm for arranging the acquisition. An additional $10 (in thousands) was paid by Flynn in stock issuance costs.The book values for both Flynn and Macek immediately preceding the acquisition follow. The fair value of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully amortized trademark that still retains a $40 (in thousands) value. The figures below are in thousands. Any related question also is in thousands. What amount will be reported for goodwill as a result of this acquisition?

What are the two specific criteria essential to determining whether to recognize an intangible asset in a business combination?

On January 1, 2021, the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company. To acquire these shares, Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and brokers for assistance in bringing about this acquisition. Another $15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: Note: Parentheses indicate a credit balance.In Moody's appraisal of Osorio, three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10, Land by $40, and Buildings by $60.Compute the amount of consolidated common stock at date of acquisition.

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated liabilities at December 31, 2021.

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated retained earnings at December 31, 2021.

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method, how should stock issuance costs and direct combination costs be treated?

Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 2021. To obtain these shares, Flynn pays $400 cash (in thousands) and issues 10,000 shares of $20 par value common stock on this date. Flynn's stock had a fair value of $36 per share on that date. Flynn also pays $15 (in thousands) to a local investment firm for arranging the acquisition. An additional $10 (in thousands) was paid by Flynn in stock issuance costs.The book values for both Flynn and Macek immediately preceding the acquisition follow. The fair value of each of Flynn and Macek accounts is also included. In addition, Macek holds a fully amortized trademark that still retains a $40 (in thousands) value. The figures below are in thousands. Any related question also is in thousands. What amount will be reported for consolidated buildings (net)?

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.What total amount of additional paid-in capital will Campbell recognize from this acquisition?

The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): On December 31, 2021, Campbell obtained a loan for $650 and used the proceeds, along with the transfer of 35 shares of its $10 par value common stock, in exchange for all of Newton's common stock. At the time of the transaction, Campbell's common stock had a fair value of $40 per share.In connection with the business combination, Campbell paid $25 to a broker for arranging the transaction and $30 in stock issuance costs. At the time of the transaction, Newton's equipment was actually worth $1,450 but its buildings were only valued at $590.Compute the consolidated common stock account at December 31, 2021.

What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?

Goodwill is often acquired as part of a business combination. Why, when separate incorporation is maintained, does Goodwill not appear on the Parent company's trial balance as a separate account?

What are some reasons that a business combination may take place?