Exam 2: Consolidation of Financial Information

REFERENCE: 02-04 On January 1,2018,the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company.To acquire these shares,Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share.Moody paid $20 to lawyers,accountants,and brokers for assistance in bringing about this acquisition.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: Moody Osorio Cash \ 180 \ 40 Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts payable (450) (80) Long-term liabilities (1,290) (400) Common stock ( \1 par) (330) Common stock (\ 20 par) (240) Additional paid-in capital (1,080) (340) Retained earnings (1,260) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio,three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10,Land by $40,and Buildings by $60. -Compute the amount of consolidated buildings (net)at date of acquisition.

Describe the accounting for direct costs,indirect costs,and issuance costs under the acquisition method of accounting for a business combination.

REFERENCE: 02-08 Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1,2018.To obtain these shares,Flynn pays $400 cash (in thousands)and issues 10,000 shares of $20 par value common stock on this date.Flynn's stock had a fair value of $36 per share on that date.Flynn also pays $15 (in thousands)to a local investment firm for arranging the acquisition.An additional $10 (in thousands)was paid by Flynn in stock issuance costs. The book values for both Flynn and Macek as of January 1,2018 follow.The fair value of each of Flynn and Macek accounts is also included.In addition,Macek holds a fully amortized trademark that still retains a $40 (in thousands)value.The figures below are in thousands.Any related question also is in thousands. Flynn, Inc. Macek Company Book Value Fair Value Cash \ 900 \ 80 \ 80 Receivables 480 180 160 Inventory 660 260 300 Land 300 120 130 Buildings (net) 1,200 220 280 Equipment 360 100 75 Accounts payable 480 60 60 Long-term liabilities 1,140 340 300 Common stock 1,000 80 Additional paid-in capital 200 0 Retained earnings 1,080 480 -What amount will be reported for goodwill as a result of this acquisition?

On January 1,2018,Chester Inc.acquired 100% of Festus Corp.'s outstanding common stock by exchanging 37,500 shares of Chester's $2 par value common voting stock.On January 1,2018,Chester's voting common stock had a fair value of $40 per share.Festus' voting common shares were selling for $6.50 per share.Festus' balances on the acquisition date,just prior to acquisition are listed below. Book Value Fair Value Cash \ 30,000 Accounts Receivable 120,000 \ 120,000 Inventory 200,000 230,000 Land 230,000 290,000 Building (net) 450,000 600,000 Equipment (net) 175,000 160,000 Accounts Payable (80,000) (80,000) Common Stock, \1 par (500,000) Paid-in Capital (350,000) Retained Earnings, 1/1/18 (275,000) Required: Compute the value of Goodwill on the date of acquisition,1/1/18.

REFERENCE: 02-06 The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets. Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid. -Compute consolidated goodwill at the date of the acquisition.

REFERENCE: 02-05 Carnes has the following account balances as of December 31,2017 before an acquisition transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On December 31,2017,Riley Company issues 30,000 shares of its $10 par value ($25 fair value)common stock in exchange for all of the shares of Carnes' common stock.Riley paid $10,000 for costs to issue the new shares of stock.Before the acquisition,Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. Inventory \ 100,000 Land 400,000 Buildings (net) 500,000 Common stock ( \1 0 par) 600,000 Additional paid-in capital 200,000 Retained Earnings 200,000 Revenues 450,000 Expenses 250,000 -On December 31,2017,assuming that Cames will retain its separate corporate existence,what value is assigned to Riley's investment account?

How are bargain purchases accounted for in an acquisition business transaction?

REFERENCE: 02-06 The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets. Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid. -Compute consolidated equipment (net)at the date of the acquisition.

REFERENCE: 02-10 The financial statements for Jode Inc.and Lakely Corp. ,just prior to their combination,for the year ending December 31,2017,follow.Lakely's buildings were undervalued on its financial records by $60,000. On December 31,2017,Jode issued 54,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Lakely.Jode's shares had a fair value on that date of $35 per share.Jode paid $34,000 to an investment bank for assisting in the arrangements.Jode also paid $24,000 in stock issuance costs to effect the acquisition of Lakely.Lakely will retain its incorporation. -Required: Determine consolidated net income for the year ended December 31,2017.

REFERENCE: 02-08 Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1,2018.To obtain these shares,Flynn pays $400 cash (in thousands)and issues 10,000 shares of $20 par value common stock on this date.Flynn's stock had a fair value of $36 per share on that date.Flynn also pays $15 (in thousands)to a local investment firm for arranging the acquisition.An additional $10 (in thousands)was paid by Flynn in stock issuance costs. The book values for both Flynn and Macek as of January 1,2018 follow.The fair value of each of Flynn and Macek accounts is also included.In addition,Macek holds a fully amortized trademark that still retains a $40 (in thousands)value.The figures below are in thousands.Any related question also is in thousands. Flynn, Inc. Macek Company Book Value Fair Value Cash \ 900 \ 80 \ 80 Receivables 480 180 160 Inventory 660 260 300 Land 300 120 130 Buildings (net) 1,200 220 280 Equipment 360 100 75 Accounts payable 480 60 60 Long-term liabilities 1,140 340 300 Common stock 1,000 80 Additional paid-in capital 200 0 Retained earnings 1,080 480 -Assuming the combination occurred prior to 2009 and was accounted for under the purchase method,what amount will be reported for consolidated retained earnings?

Direct combination costs and amounts incurred to register and issue stock in connection with a business combination.How should those costs be accounted for in a pre-2009 business combination? $\quad$$\text { Direct Combination Costs}$ $\quad$$\text { Stock Issuance Costs}$ A) Increase Investment Decrease Investment B) Increase Investment Decrease Additional Paid-in Capital C) Increase Investment Increase Expenses D) Decrease Additional Paid-in Capital Increase Investment E) Increase Expenses Decrease Investment

REFERENCE: 02-08 Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1,2018.To obtain these shares,Flynn pays $400 cash (in thousands)and issues 10,000 shares of $20 par value common stock on this date.Flynn's stock had a fair value of $36 per share on that date.Flynn also pays $15 (in thousands)to a local investment firm for arranging the acquisition.An additional $10 (in thousands)was paid by Flynn in stock issuance costs. The book values for both Flynn and Macek as of January 1,2018 follow.The fair value of each of Flynn and Macek accounts is also included.In addition,Macek holds a fully amortized trademark that still retains a $40 (in thousands)value.The figures below are in thousands.Any related question also is in thousands. Flynn, Inc. Macek Company Book Value Fair Value Cash \ 900 \ 80 \ 80 Receivables 480 180 160 Inventory 660 260 300 Land 300 120 130 Buildings (net) 1,200 220 280 Equipment 360 100 75 Accounts payable 480 60 60 Long-term liabilities 1,140 340 300 Common stock 1,000 80 Additional paid-in capital 200 0 Retained earnings 1,080 480 -Under the acquisition method,what amount will be reported for consolidated retained earnings?

REFERENCE: 02-04 On January 1,2018,the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company.To acquire these shares,Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share.Moody paid $20 to lawyers,accountants,and brokers for assistance in bringing about this acquisition.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: Moody Osorio Cash \ 180 \ 40 Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts payable (450) (80) Long-term liabilities (1,290) (400) Common stock ( \1 par) (330) Common stock (\ 20 par) (240) Additional paid-in capital (1,080) (340) Retained earnings (1,260) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio,three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10,Land by $40,and Buildings by $60. -What is the amount of goodwill arising from this acquisition?

In an acquisition where 100% control is acquired,how would the land accounts of the parent and the land accounts of the subsidiary be reported on consolidated financial statements? Parent Subsidlary A) Buok Value Baok Value B) Bouk Value Fair Value C) Fair Value Fair Value D) Fair Value Bouk Value E) Cost Cost

REFERENCE: 02-04 On January 1,2018,the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company.To acquire these shares,Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share.Moody paid $20 to lawyers,accountants,and brokers for assistance in bringing about this acquisition.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: Moody Osorio Cash \ 180 \ 40 Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts payable (450) (80) Long-term liabilities (1,290) (400) Common stock ( \1 par) (330) Common stock (\ 20 par) (240) Additional paid-in capital (1,080) (340) Retained earnings (1,260) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio,three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10,Land by $40,and Buildings by $60. -Compute the amount of consolidated common stock at date of acquisition.

REFERENCE: 02-04 On January 1,2018,the Moody Company entered into a transaction for 100% of the outstanding common stock of Osorio Company.To acquire these shares,Moody issued $400 in long-term liabilities and also issued 40 shares of common stock having a par value of $1 per share but a fair value of $10 per share.Moody paid $20 to lawyers,accountants,and brokers for assistance in bringing about this acquisition.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: Moody Osorio Cash \ 180 \ 40 Receivables 810 180 Inventories 1,080 280 Land 600 360 Buildings (net) 1,260 440 Equipment (net) 480 100 Accounts payable (450) (80) Long-term liabilities (1,290) (400) Common stock ( \1 par) (330) Common stock (\ 20 par) (240) Additional paid-in capital (1,080) (340) Retained earnings (1,260) (340) Note: Parentheses indicate a credit balance. In Moody's appraisal of Osorio,three assets were deemed to be undervalued on the subsidiary's books: Inventory by $10,Land by $40,and Buildings by $60. -Compute the amount of consolidated equipment at date of acquisition.

REFERENCE: 02-06 The financial balances for the Atwood Company and the Franz Company as of December 31,2018,are presented below.Also included are the fair values for Franz Company's net assets. Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31,2018.Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid. -Compute consolidated long-term liabilities at the date of the acquisition.

REFERENCE: 02-07 Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31,2017,immediately before Boxwood acquired Tranz.Also included are the fair values for Tranz Company's net assets at that date. Note: Parenthesis indicate a credit balance Assume a business combination took place at December 31,2017.Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz.Stock issuance costs of $15 (in thousands)and direct costs of $10 (in thousands)were paid to effect this acquisition transaction.To settle a difference of opinion regarding Tranz's fair value,Boxwood promises to pay an additional $5.2 (in thousands)to the former owners if Tranz's earnings exceed a certain sum during the next year.Given the probability of the required contingency payment and utilizing a 4% discount rate,the expected present value of the contingency is $5 (in thousands). -Compute consolidated equipment immediately following the acquisition.

REFERENCE: 02-03 The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,2018,prior to the business combination whereby Goodwin acquired Corr,are as follows (in thousands): Revenues \ 2,700 \ 600 Expenses Net income \ 720 \ 200 Retained eamings 1/1 \ 2,400 \ 400 Net income 720 200 Dividends (270) (0) Retained eamings, 12/31 \ 2,850 \ 600 Cash \ 240 \ 220 Receivables and inv entory 1,200 340 Buildings (net) 2,700 600 Equipment (net) 2,100 Total assets \ \ Liabilities \ 1,500 \ 820 Common stock 1,080 400 Additional paid-in capital 810 540 Retained earnings 2,850 Total liabilities \& stockholders' equity \ \ On December 31,2018,Goodwin obtained a loan for $600 and used the proceeds,along with the transfer of 30 shares of its $10 par value common stock,in exchange for all of Corr's common stock.At the time of the transaction,Goodwin's common stock had a fair value of $40 per share. In connection with the business combination,Goodwin paid $25 to a broker for arranging the transaction and $35 in stock issuance costs.At the time of the transaction,Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. -Compute the consolidated expenses for 2018.

REFERENCE: 02-03 The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,2018,prior to the business combination whereby Goodwin acquired Corr,are as follows (in thousands): Revenues \ 2,700 \ 600 Expenses Net income \ 720 \ 200 Retained eamings 1/1 \ 2,400 \ 400 Net income 720 200 Dividends (270) (0) Retained eamings, 12/31 \ 2,850 \ 600 Cash \ 240 \ 220 Receivables and inv entory 1,200 340 Buildings (net) 2,700 600 Equipment (net) 2,100 Total assets \ \ Liabilities \ 1,500 \ 820 Common stock 1,080 400 Additional paid-in capital 810 540 Retained earnings 2,850 Total liabilities \& stockholders' equity \ \ On December 31,2018,Goodwin obtained a loan for $600 and used the proceeds,along with the transfer of 30 shares of its $10 par value common stock,in exchange for all of Corr's common stock.At the time of the transaction,Goodwin's common stock had a fair value of $40 per share. In connection with the business combination,Goodwin paid $25 to a broker for arranging the transaction and $35 in stock issuance costs.At the time of the transaction,Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. -Compute the consolidated buildings (net)account at December 31,2018.