Exam 3: Business Combinations

The new IASB standard issued with respect to the treatment of negative goodwill requires that:

One common criticism of the Purchase Method is that:

Sonic Enterprises Inc has decided to purchase 100% of the voting shares of Jackson Inc. for $300,000 in Cash on May 1, 2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of Jackson's Assets and Liabilities were as follows: Sonic's Book Values approximated their Fair Values on that date. a) Calculate the amount of Goodwill arising from this combination. b) Prepare the journal entry to record Sonic's acquisition of Jackson's Shares. c) Prepare Sonic's Consolidated Balance Sheet immediately following its acquisition of Jackson's assets.

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of DEF456 Assets and Liabilities were as follows: In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Assume that both companies would be wound up and a new company called ABCDEF Inc. was created in its place. Prepare the Balance Sheet to reflect this occurrence as at July 1, 2012. The new entity would have10,000 voting shares issued to the current shareholders for a total market value of $1,222,000.

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for $800,000. On the date of acquisition, UNI's assets included $2,000,000 of Inventory and Land with a Book value of $120,000.UNI also had $1,400,000 in Liabilities on that date. UNI's book values were equal to their fair market values, with the exception of the company's Land, which was estimated to have a fair market value which was $50,000 higher than its book value. How much goodwill would be created by IOU's acquisition of UNI?

On December 31, 2012, A Company has capital assets with a cost of $250,000 and accumulated amortization of $150,000 and B Company has capital assets with a cost of $180,000 and accumulated amortization of $80,000. B Company's capital assets have a fair value of $200,000 on that date. If Company A acquires Company B on January 1, 2013, and prepares a consolidated balance sheet on that date, at what values should the capital assets appear on that balance sheet (using the net method)?

Which of the following is NOT required for an investor to have control over an investee?

Parent and Sub Inc. had the following balance sheets on December 31, 2012: On January 1, 2013 Parent purchased all of Sub Inc.'s Common Shares for $40,000 in cash. On that date, Sub's Current Assets and Fixed Assets were worth $26,000 and $54,000, respectively. Assuming that Consolidated Financial Statements were prepared on that date, answer the following: The Current Assets of the combined entity should be valued at:

Which of the following conditions need NOT be met before a parent company is not required to present consolidated financial statements for external reporting purposes?

Company A makes an offer to purchase all of the shares of Company B from Company B's shareholders. The board of directors of B Company does not feel that the offer is adequate and seeks out another purchaser who might offer more for the shares. This defence to the takeover is referred to as:

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1,2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of Intron's Assets and Liabilities were as follows: Assume that Intron's Assets and Liabilities were purchased instead of its shares for $300,000. Prepare the journal entry to record this purchase.

1234567 Inc. is contemplating a Business Combination with 7654321 Inc. One company is incorporated under Federal law, the other under provincial law. Is a statutory amalgamation permissible under these circumstances?

A Corporation had net income of $50,000 in 2012 and $60,000 in 2013, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2012 and $40,000 in 2013. On January 1, 2013, A Corporation acquired all of the outstanding common shares of B Company for a cash payment of $300,000. Assume that there was no acquisition differential on this business combination. What net income would A Corporation report for 2013 in its comparative consolidated financial statements at the end of 2013?

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1,2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of Intron's Assets and Liabilities were as follows: Assume that two days after the acquisition, the Goodwill was put to an impairment test, after which it was decided that its true value was $70,000. Prepare the necessary journal entry to write-down the goodwill as well as another Consolidated Balance Sheet to reflect the new Goodwill amount.

The process of preparing Consolidated Financial Statements involves the elimination of inter-company transactions between a Parent Company and its subsidiary. Where would these entries be recorded?

Which of the following is NOT considered to be part of the acquisition cost of a subsidiary?

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2012. On the date, the balance sheets of each of these companies were as follows: On that date, the fair values of DEF456 Assets and Liabilities were as follows: In addition to the above, an independent appraiser deemed that DEF456 Inc. had trademarks with a fair market value of $100,000 which had not been accounted for. In turn, ABC123's fair market values were equal to their book values with the exception of the Company's Inventory and Plant and Equipment, which were said to have Fair Market Values of $30,000 and $480,000, respectively. Assuming that DEF456's Plant and Equipment was worth $400,000. Calculate the goodwill arising from this business combination and state how it would be shown in the consolidated balance sheet on the acquisition date.

Which of the following statements is correct?

How is negative goodwill treated under the acquisition method?

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 A's 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?