Exam 3: Business Combinations

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

Which of the following would NOT be included in the acquisition cost?

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:

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 Fixed Assets of the combined entity should be valued at:

Assume that two companies wish to engage in a Business Combination involving a share exchange. Once the share exchange is consummated, each shareholder group will have an equal number of voting shares. Which of the following statements best describes the course of action that must be taken under these circumstances?

A Inc. purchased 100% of the voting shares of B Inc. on July 1, 2019. Which of the following statements is TRUE?

A Corporation had net income of $50,000 in 2019 and $60,000 in 2020, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2019 and $40,000 in 2020. On January 1, 2020, 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 2020 in its comparative consolidated financial statements at the end of 2020?

On April 1, 2019, the balance sheets of Optimum Inc. and Electra Inc. were as follows: Optimum Inc Electra Inc Cash and Short-Term Securities \ 380,000 \ 20,000 Inventory \ 50,000 \ 10,000 Plant and Equipment (net) \ 320,000 \ 120,000 Total Assets \ 750,000 \ 150,000 Current Liabilities \ 75,000 \ 15,000 Bonds Payable \ 100,000 \ 30,000 Common Shares \ 150,000 \ 55,000 Retained Earnings \ 425,000 \ 50,000 Total Liabilities and Equity \ 750,000 \ 150,000 On that date, the fair values of Electra's Assets and Liabilities were as follows: Short-Term Securities \ 32,000 Inventory \ 5,000 Plant and Equipment (net) \ 150,000 Current Liabilities \ 15,000 Bonds Payable \ 28,000 On April 1, 2019, Optimum issued 5,000 new common shares with a market value of $50.00 per share as consideration for Electra's net assets. Prior to the issue, Optimum had 10,000 outstanding common shares. Required: 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. d) Prepare Electra's Balance Sheet following the acquisition.

Which of the following is considered to be part of the acquisition cost of a subsidiary?

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 Goodwill arising from this Business Combination would be:

Telecom Inc has decided to purchase the net assets 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: Prepare the journal entry to record this purchase.

On January 1, 2019, A Company issued 6,000 new common shares to the shareholders of B Corporation for all of their shares in B Corporation. Prior to the new share issuance by A Company, it had 5,000 common shares issued and outstanding. The former shareholders of B Corporation would now own 55% (6,000/11,000) of the outstanding shares. What is the outcome of this transaction?

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?

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?

The IASB standard (IFRS 3 Business Combinations) issued with respect to the treatment of negative goodwill requires that:

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

ABC123 Inc has decided to purchase 100% the voting shares of DEF456 by issuing common shares with a market value of $400,000 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. 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.

A Inc. purchased 100% of B Inc.'s voting shares for cash. The assets and liabilities reported in the consolidated balance sheet of A Inc. prepared on the date of acquisition will include which of the following?

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?

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. Which of the following is the correct journal entry to record IOU's acquisition of UNI? 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 cash \ 800,000 C. Debit Credit Net Assets \ 800,000 Cash \ 800,000 D. No entry.