Exam 1: Business Combinations

Under the provisions of FASB Statement No.141R,in a business combination,when the fair value of identifiable net assets acquired exceeds the investment cost,which of the following statements is correct?

On January 2,2011,Pilates Inc.paid $900,000 for all of the outstanding common stock of Spinning Company,and dissolved Spinning Company.The carrying values for Spinning Company's assets and liabilities are recorded below. On January 2,2011,Spinning anticipated collecting $185,000 of the recorded Accounts Receivable.Pilates entered into the acquisition because Spinning had Copyrights that Pilates wished to own,and also unrecorded patents with a fair value of $100,000. Required: Calculate the amount of goodwill that will be recorded on Pilate's balance sheet as of the date of acquisition.

On January 2,2011,Pilates Inc.paid $700,000 for all of the outstanding common stock of Spinning Company,and dissolved Spinning Company.The carrying values for Spinning Company's assets and liabilities are recorded below. On January 2,2011,Spinning anticipated collecting $185,000 of the recorded Accounts Receivable.Pilates entered into the acquisition because Spinning had Copyrights that Pilates wished to own,and also unrecorded patents with a fair value of $100,000. Required: Calculate the amount of goodwill that will be recorded on Pilate's balance sheet as of the date of acquisition.Then record the journal entry Pilates would record on their books to record the acquisition.

On January 2,2010 Carolina Clothing issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of Dakota Dressing Company's outstanding common shares in an acquisition.Carolina paid $15,000 for registering and issuing securities and $10,000 for other direct costs of the business combination.The fair value and book value of Dakota's identifiable assets and liabilities were the same.Assume Dakota Company is dissolved on the date of the acquisition.Summarized balance sheet information for both companies just before the acquisition on January 2,2010 is as follows: Required: Prepare a balance sheet for Carolina Clothing immediately after the business combination.

Saveed Corporation purchased the net assets of Penny Inc.on January 2,2011 for $1,690,000 cash and also paid $15,000 in direct acquisition costs.Penny dissolved as of the date of the acquisition.Penny's balance sheet on January 2,2011 was as follows: Fair values agree with book values except for inventory,land,and equipment,which have fair values of $640,000,$140,000 and $230,000,respectively.Penny has customer contracts valued at $20,000. Required: Prepare Saveed's general journal entry for the cash purchase of Penny's net assets.

Balance sheet information for Sphinx Company at January 1,2011,is summarized as follows: Sphinx's assets and liabilities are fairly valued except for plant assets that are undervalued by $50,000.On January 2,2011,Pyramid Corporation issues 20,000 shares of its $10 par value common stock for all of Sphinx's net assets and Sphinx is dissolved.Market quotations for the two stocks on this date are: Pyramid pays the following fees and costs in connection with the combination: Required: 1.Calculate Pyramid's investment cost of Sphinx Corporation. 2.Calculate any goodwill from the business combination.

On January 2,2011 Palta Company issued 80,000 new shares of its $5 par value common stock valued at $12 a share for all of Sudina Corporation's outstanding common shares.Palta paid $5,000 for the direct combination costs of the accountants.Palta paid $18,000 to register and issue shares.The fair value and book value of Sudina's identifiable assets and liabilities were the same.Summarized balance sheet information for both companies just before the acquisition on January 2,2011 is as follows: Required: 1.Prepare Palta's general journal entry for the acquisition of Sudina assuming that Sudina survives as a separate legal entity. 2.Prepare Palta's general journal entry for the acquisition of Sudina assuming that Sudina will dissolve as a separate legal entity.

According to FASB Statement 141R,which one of the following items may not be accounted for as an intangible asset apart from goodwill?

Use the following information to answer the question(s)below. Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc.and Spot is then dissolved.Polka paid the following costs and expenses related to the business combination: Costs of special shareholders' meeting -In the business combination of Polka and Spot

Goodwill arising from a business combination is

According to FASB Statement No.141,liabilities assumed in an acquisition will be valued at the ________.

Pony acquired Spur Corporation's assets and liabilities for $500,000 cash on December 31,2010.Spur dissolved on the date of the acquisition.Spur's balance sheet and related fair values are shown as of that date,below. Required: Prepare the journal entry recorded by Pony as a result of this transaction.

Which of the following is not a reason for a company to expand through a combination,rather than by building new facilities?

Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then dissolved.Salt had no liabilities.The fair values of Salt's assets were $3,750,000.Salt's only non-current assets were land and buildings with book values of $100,000 and $520,000,respectively,and fair values of $180,000 and $730,000,respectively.At what value will the buildings be recorded by Pepper?

Samantha's Sporting Goods had net assets consisting of the following: Pedic Incorporated purchased Samantha's Sporting Goods,and immediately dissolved Samantha's as a separate legal entity. Requirement 1: If Samantha's was purchased for $1,000,000 cash,prepare the entry recorded by Pedic. Requirement 2: If Samantha's was purchased for $1,500,000 cash,prepare the entry recorded by Pedic.

On January 2,2011 Piron Corporation issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of Seana Corporation's outstanding common shares.Piron paid $15,000 to register and issue shares.Piron also paid $20,000 for the direct combination costs of the accountants.The fair value and book value of Seana's identifiable assets and liabilities were the same.Summarized balance sheet information for both companies just before the acquisition on January 2,2011 is as follows: Required: 1.Prepare Piron's general journal entry for the acquisition of Seana,assuming that Seana survives as a separate legal entity. 2.Prepare Piron's general journal entry for the acquisition of Seana,assuming that Seana will dissolve as a separate legal entity.

Picasso Co.issued 5,000 shares of its $1 par common stock,valued at $100,000,to acquire shares of Seurat Company in an all-stock transaction.Picasso paid the investment bankers $35,000 and will treat the investment banker fee as

In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs,which of the following is correct?

Historically,much of the controversy concerning accounting requirements for business combinations involved the ________ method.

With respect to goodwill,an impairment