Exam 3: Business Combinations

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 were employed by Company B to prevent Company A from acquiring control of Company B?

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)

Great Western Manufacturing Inc. ("GWM") was acquired by Great Eastern Holding Ltd) ("GEH") in 2019. 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, 2019. 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.

When are parent companies allowed to comprehensively revalue the assets and liabilities of a subsidiary to their fair values at the acquisition date through the use of push-down accounting, following a business combination?

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

Company A wishes to acquire control of Company B's business. A consultant recommended that Company A can do this through a purchase of assets rather than a purchase of shares. Which of the following statements regarding the above scenario is correct?

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) \ 400,000 Current Liabilities \ 90,000 Bonds Payable \ 210,000 Required: Prepare the Consolidated Balance Sheet on date of acquisition. Calculation and Allocation of Acquisition Differential: Purchase Price: \ 300,000 Less: Net book Value of Net Assets 110,000 Acquired \ 190,000 Allocated: Inventory (15,000-20,000) (5,000) Plant and Equipment (net): (400,000- 180,000) 220,000 Bonds Payable (210,000-200,000) (10,000) Goodwill (\ 15,000)

Company A has decided to purchase 100% of the voting shares of Company B for $100,000 cash on January 1, 2019. 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?

1234567 Inc. is contemplating a Business Combination with 7654321 Inc. One company is incorporated under Federal law, the other under provincial law. Is a statutory amalgamation permissible under these circumstances?

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?

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 2019 in its comparative consolidated financial statements at the end of 2020?

IFRS 10 states that a parent is not required to present consolidated financial statements for external reporting purposes if the parent meets certain conditions. Which of the following conditions is NOT correct?

Company Inc. owns all of the outstanding voting shares of Firm Inc. On January 1st, 2019, Firm Inc. would like to purchase all of the voting shares of its main competitor, N-CORP Inc. Briefly discuss the purported accounting implications of this transaction.

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. How much goodwill would be created by IOU's acquisition of UNI?

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

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

Which of the following must be possible in order for a business combination to exist?

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 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) \ 400,000 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. Calculate the goodwill arising from this business combination and state how it would be shown in the consolidated balance sheet on the acquisition date.

ABC123 Inc has decided to purchase 100% of 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. Prepare any disclosure required for ABC123 Inc. under IFRS. Assume DEF456 has a reliable and specialized workforce that produces high-end loudspeakers for touring musicians and that ABC123 manufactures stage equipment needed for live music performances.

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?