Exam 3: Business Combinations

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

Great Western Manufacturing Inc. ("GWM") was acquired by Great Eastern Holding Ltd) ("GEH") in 2018. 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, 2018. GWM has about fifteen wholly owned subsidiaries and has in the past prepared consolidated financial statements. Required: Prepare a discussion around the need to prepare consolidated financial statements.

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. 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, 2018. The new entity would have10,000 voting shares issued to the current shareholders for a total market value of $1,222,000.

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

Company A has decided to purchase 100% of the voting shares of Company B for $100,000 cash on January 1, 2018. Immediately before the acquisition, A and B reported cash balances of $300,000 and $150,000 respectively. If Consolidated Financial Statements were prepared immediately following the acquisition, how much Cash would be reported on A's consolidated balance sheet?

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 Goodwill arising from this Business Combination would be:

XYZ Inc. owns 55% of DEF Inc.'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 would NOT be included in the acquisition cost?

Company Y purchases a controlling interest in Company Z on January 1, 2018. Which of the following would appear as the Shareholders' Equity amount on Company Y's Consolidated Balance Sheet on the date of acquisition?

Appendix A of IFRS 3provides an extensive list of what must be disclosed for each Business Combination. Which of the following items is NOT included in that list?

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. Assuming that the acquisition was properly recorded at cost, which of the following journal entries is required to prepare Consolidated Financial Statements the day following the acquisition?

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?

On December 31, 2018, A Company has capital assets with a cost of $250,000 and accumulated depreciation of $150,000 and B Company has capital assets with a cost of $180,000 and accumulated depreciation 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, 2019, 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 required when preparing a consolidated balance sheet on the date of the formation of a subsidiary by its parent company?

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

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

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. Required: Prepare the journal entries necessary to record the acquisition and related costs on the books of George Inc.

AInc. purchases 100% of the voting shares of B Inc. on July 1, 2018. On that date, A Inc. would be required to prepare which of the following statements?

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 Current Assets of the combined entity should be valued at: