Exam 3: Business Combinations

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

One company is considering entering into a business combination with another. The potential acquirer wishes to acquire the subsidiary's assets and liabilities but wishes to prepare Consolidated Financial Statements using the fair market values of its own assets and liabilities as well of those of its potential subsidiary. Can this be accomplished? (Assume that each of the methods is allowable)

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?

Which of the following pertaining to Consolidated Financial Statements is correct?

Company A makes an offer to purchase all of the shares of Company B from Company B's shareholders. The board of directors of Company B 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 as:

Which of the following is closest to IFRS 3 Business Combinations definition of control?

Parent and Sub Inc. had the following balance sheets on December 31, 2018: Parent Sub Current Assets \ 60,000 \ 10,000 Fixed Assets (net) \ 100,000 \ 60,000 Total Assets \ 160,000 \ 70,000 Current Liabilities \ 42,000 \ 35,000 Bonds Payable \ 20,000 \ 12,000 Common Shares \ 90,000 \ 12,000 Retained Earnings \ 8,000 \ 11,000 Total Liabilities and Equity \ 160,000 \7 0,000 On January 1, 2019 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?

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

IFRS 10 Consolidated Financial Statements outlines the requirements for identifying the company that is the acquirer in a business combination when it's not clear who that is. Which is NOT a consideration in determining which company is the acquirer?

A Corporation had net income of $50,000 in 2018 and $60,000 in 2019, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2018 and $40,000 in 2019. On January 1, 2019, 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 2019 in its comparative consolidated financial statements at the end of 2019?

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 for $400,000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: ABC123 Inc DEF 456 Inc Cash and Short-Term Securities \ 900,000 \ 200,000 Inventory \ 50,000 \ 120,000 Plant and Equipment (net) \ 350,000 \ 150,000 Goodwill \ - \ 80,000 Total Assets \ 1,300,000 \ 550,000 Current Liabilities \ 180,000 \ 160,000 Bonds Pay able \ 400,000 \ 100,000 Common Shares \ 500,000 \ 200,000 Retained Earnings \ 220,000 \ 90,000 Total Liabilities and Equity \ 1,300,000 \ 550,000 On that date, the fair values of DEF456 Assets and Liabilities were as follows: Cash and Short-Term Securities \ 200,000 Inventory \ 90,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 160,000 Bonds Pay able \ 88,000 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. Prepare any disclosure required for ABC123 Inc. under IFRS. Assume DEF456 produces high-end loudspeakers for touring musicians.

How should the acquisition cost of a Business Combination be allocated prior to preparing Consolidated Financial Statements?

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

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?

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

Telecom Inc has decided to purchase the shares of Intron Inc. for $300, 000 in Cash on July 1, 2018. On the date, the balance sheets of each of these companies were as follows: Telecom Inc Intron Inc Cash and Short-Term Securities \ 920,000 \ 200,000 Inuentory \ 150,000 \ 20,000 Plant and Equipment (net) \ 330,000 \ 180,000 Total Assets \ 1,400,000 \ 400,000 Current Liabilities \ 420,000 \ 90,000 Bonds Payable \ 700,000 \ 200,000 Common Shares \ 180,000 \ 60,000 Retained Earnings \ 100,000 \ 50,000 Total Labilities and Equiby \ 1,400,000 \ 400,000 On that date, the fair values of Intron's assets and liabilities were as follows: CashiShort-Term Securities \ 200,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 90,000 Bonds Payable \ 210,000 Required: Assume that Intron's assets and liabilities were purchased instead of its shares for $300,000. Prepare the journal entry to record this purchase.

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?

Zen Inc. owns 35% of Sun Inc.'s voting shares. Zen is by far the largest single shareholder of Sun Inc.'s shares, with the rest of Sun's shares being very widely held by individual investors. There was a very poor turnout at Sun Inc.'s recent annual meeting, enabling Zen Inc. to elect the majority of Sun's Board of Directors. Does Zen control Sun under IFRS?

How should intangible assets which are readily identifiable but not accurately measured be accounted for?

Which of the following statements is correct?