Exam 3: Business Combinations

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $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. UNI also had patent rights with a fair market value on acquisition date of $20,000 that were not shown on its balance sheet because the rights had been developed internally. How much goodwill would be created by IOU's acquisition of UNI?

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

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

On December 31, 2019, 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, 2020, 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)?

IFRS 3 outlines the accounting requirements for business combinations. Which of the following statements is correct?

Parent and Sub Inc. had the following balance sheets on December 31, 2019: 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 \ 70,000 On January 1, 2020, 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?

Telecom Inc has decided to purchase the shares of Intron Inc. for $300,000 in cash on July 1, 2019. 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 Inventory \ 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 Liabilities and Equity \ 1,400,000 \ 400,000 On that date, the fair values of Intron's assets and liabilities were as follows: Cash/Short-Term Securities \ 200,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 90,000 Bonds Payable \ 210,000 Required: Based on the information provided, answer the following: a) Prepare the journal entry to record the purchases Intron's shares. b) Prepare the consolidation entries (eliminating entries) that are required to prepare the Consolidated Financial Statements.

Parent and Sub Inc. had the following balance sheets on December 31, 2019: 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 \ 70,000 On January 1, 2020, 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:

Company Y purchases a controlling interest in Company Z on January 1, 2019. Which of the following would appear as the Shareholders' Equity amount on Company Y's Consolidated Balance Sheet on the date of acquisition?

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.

IOU Inc. purchased all of the outstanding common shares of UNI Inc. for cash of $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 purchase of the common shares of UNI Inc. was properly recorded at cost, which of the following journal entries is required to prepare Consolidated Financial Statements the day following the acquisition? A) Debit Credit Investment in UNI \ 800,000 Cash \ 800,000 B) Debit Credit Inventory \ 2,000,000 Land \ 170,000 Goodwill \ 30,000 Liabilities \ 1,400,000 Investments in UNI \ 800,000 C) Debit Credit Net Assets \ 800,000 Cash \ 800,000 D) No entry.

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:

Sonic Enterprises Inc has decided to purchase 100% of the voting shares of Jackson Inc. for $300,000 in cash on May 1, 2019. On the date, the balance sheets of each of these companies were as follows: Sonic Inc Jackson Inc Cash and Short-Term Securities \ 750,000 \ 30,000 Inventory \ 60,000 \ 20,000 Plant and Equipment (net) \ 280,000 \ 140,000 Total Assets \ 1,090,000 \ 190,000 Current Liabilities \ 150,000 \ 25,000 Bonds Payable \ 120,000 \ 30,000 Common Shares \ 120,000 \ 70,000 Retained Earnings \ 700,000 \ 65,000 Total Liabilities and Equity \ 1,090,000 \ 190,000 On that date, the fair values of Jackson's assets and liabilities were as follows: Cash and Short-Term Securities \ 40,000 Inventory \ 15,000 Plant and Equipment (net) \ 250,000 Current Liabilities \ 25,000 Bonds Payable \ 25,000 Sonic's Book Values approximated their Fair Values on that date. Required: 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.

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, 2019. On the date, the balance sheets of each of these companies were as follows: ABC123 Inc DEF456 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 Payable \ 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 Payable \ 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. 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.

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

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?

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

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

Which of the following statements is correct?