Exam 3: Business Combinations

Great Western Manufacturing Inc. ("GWM") was acquired by Great Eastern Holding Ltd) ("GEH") in2012. The Vice President, Finance of GWM has asked you, the manager in charge of this year's audit, whether or not GWM has to prepare consolidated financial statements for the year ended December 31, 2012. GWM has about fifteen wholly owned subsidiaries and has in the past prepared consolidated financial statements. Prepare a discussion around the need to prepare consolidated financial statements.

Which of the following regarding the preparation of Consolidated Financial Statement is correct?

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. Based on the information provided: a) Calculate the amount of Goodwill arising from this combination. b) Prepare the journal entry to record ABC123's acquisition of DEF456's shares. c) Prepare ABC123's Consolidated Balance Sheet immediately following its acquisition of DEF123's voting shares.

In general, which of the following statements about the income tax implications of the form of a business combination is true?

During an acquisition, when should intangible assets NOT be recognized apart from Goodwill?

Company A wishes to acquire control of Company B as cheaply as possible. For economic reasons, a consultant recommended that if Company A do this through purchase of assets, rather than purchase of shares. Which of the following statements regarding the above scenario is correct?

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 Shareholders' Equity section of the Consolidated Balance Sheet would show what amount?

A Inc. is contemplating a Business combination with B Inc. However, A Inc.'s management is uncertain as to whether it should purchase B's assets or a majority of B's voting shares. The fair market values of B's assets far exceed their book values. A's management should be advised that IN MOST CASES:

Company A makes a hostile take-over bid for control of Company B. In response, Company B makes a counter-offer to purchase shares from Company A's shareholders. Which of the following best describes Company B's response?

Which of the following would NOT be included in the Acquisition Cost?

Company Y purchases a controlling interest in Company Z on January 1, 2012. Which of the following would appear as the Shareholders' Equity amount on Company Y's Consolidated Balance Sheet on the date of acquisition?

Which of the following is closest to IAS 27 definition of control?

XYZ Inc. owns 55% of DEF's 100,000 outstanding voting shares. Another company, GHI Inc., owns 40%, with the remaining shares being held by many individual investors. GHI Inc. also owns $25,000,000 worth of DEF Inc.'s $1,000 par value bonds, each of which is convertible to one voting share of DEF Inc. Which of the following statements regarding the control of DEF Inc. is correct?

Which of the following must be possible in order for a Business Combination to exist?

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: Based on the information provided, answer the following: a) Prepare the journal entry to record the purchases Intron's shares. b) Prepare the required journal entry prior to the preparation of the Consolidated Financial Statements.

Which of the following is required when preparing a consolidated balance sheet on the date of the formation of a subsidiary by its parent company?

On April 1, 2012, the balance sheets of Optimum Inc. and Electra Inc. were as follows: On that date, the fair values of Electra's Assets and Liabilities were as follows: On April 1, 2012, Optimum Inc. decided to purchase all the assets and liabilities of Electra Inc. for $250,000 in cash. a) Calculate the amount of Goodwill arising from this combination. b) Prepare the journal entry to record Optimum's acquisition of Electra's assets. c) Prepare Optimum's Consolidated Balance Sheet immediately following its acquisition of Electra's assets.

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. Parent Company acquires Subsidiary Company's common shares for cash. On the date of acquisition, Subsidiary had Goodwill of $100,000 on its books. Which of the following statements regarding Subsidiary's Goodwill on the date of acquisition is correct?

Under the new-entity method, which of the following statements is TRUE?

George Inc. acquired all of the outstanding shares of Martha Limited by paying $200,000 in cash, issuing a debenture for $300,000 and issuing 10,000 common shares with a fair value of $50 each. George Inc. incurred costs of $60,000 in investigation, accounting and legal fees directly related to the acquisition. In addition, the company incurred costs of $10,000 for the issue of the debenture and another $10,000 for the issue of the additional shares. Prepare the journal entries necessary to record the acquisition and related costs on the books of George Inc.