Exam 2: Consolidation of Financial Information

Assume that Bellington paid cash of $2.8 million.No stock is issued.An additional $50,000 is paid in direct combination costs. Required: For Goodwill,determine what balance would be included in a December 1,2017 consolidation.

REFERENCE: 02-09 Salem Co.had the following account balances as of December 1,2017: Inventory \ 720,000 Land 600,000 Buildings - net (valued at \ 1,200,000) 1,080,000 Common stock ( \1 0 par value) 960,000 Retained earnings, December 1, 2017 1,320,000 Revenues 720,000 Expenses 600,000 Bellington Inc.transferred $1.7 million in cash and 12,000 shares of its newly issued $30 par value common stock (valued at $90 per share)to acquire all of Salem's outstanding common stock. -Determine the balance for Goodwill that would be included in a December 1,2017,consolidation.

According to GAAP,which of the following is true with respect to the pooling of interest method of accounting for business combinations?

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 common stock account at December 31,2018.

REFERENCE: 02-01 Bullen Inc.acquired 100% of the voting common stock of Vicker Inc.on January 1,2018.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)are as follows,along with the book value of Bullen's accounts: Bullen Vicker Vickei Book Book Fair Value Value Value Retained earnings, 1/1/20 \ 250,000 \ 240,000 Cash and receivables 170,000 70,000 \ 70,000 Inventory 230,000 170,000 210,000 Land 280,000 220,000 240,000 Buildings (net) 480,000 240,000 270,00 Equipment (net) 120,000 90,000 90,00 Liabilities 650,000 430,000 420,000 Common stock 360,000 80,000 Additional paid-in capital 20,000 40,000 -Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker.In addition,Bullen paid $35,000 for secretarial and management time allocated to the acquisition transaction.What will be the balance in consolidated goodwill?

In a business combination where a subsidiary retains its incorporation and which is accounted for under the acquisition method,how should stock issuance costs and direct combination costs be treated?

Jernigan Corp.had the following account balances at 12/1/17: Receivables \ 96,000 Inventory 240,000 Land 720,000 Building 600,000 Liabilities 480,000 Common stock 120,000 Additional paid-in capital 120,000 Retained earnings, 12/1/1Z 840,000 Revenues 360,000 Expenses 264,000 Several of Jernigan's accounts have fair values that differ from book value.The fair values are: Land - $480,000;Building - $720,000;Inventory - $336,000;and Liabilities - $396,000. Inglewood Inc.acquired all of the outstanding common shares of Jernigan by issuing 20,000 shares of common stock having a $6 par value per share,but a $66 fair value per share.Stock issuance costs amounted to $12,000. Required: Prepare a fair value allocation and goodwill schedule at the date of the acquisition.

Which of the following statements is true regarding the acquisition method of accounting for a business combination?

In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company,which statement is true for the acquiring company with regard to its investment?

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 revenues immediately following 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 -What will the consolidated common stock account be as a result of this acquisition?

Acquired in-process research and development is considered as

What term is used to refer to a business combination in which only one of the original companies continues to exist?

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 equipment (net)account at December 31,2018.

REFERENCE: 02-02 Prior to being united in a business combination,Botkins Inc.and Volkerson Corp.had the following stockholders' equity figures: Botkins Volkerson Common stock ( \1 par value) \ 220,000 \ 54,000 Additional paid-in capital 110,000 25,000 Retained earnings 360,000 130,000 Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. -Assume that Botkins acquired Volkerson on January 1,2017.Immediately afterwards,what is the value of the consolidated Common Stock?

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 consolidated long-term liabilities?

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 retained earnings as a result of this acquisition.

How are direct combination costs accounted for in an acquisition transaction?

Bale Co.acquired Silo Inc.on December 31,2018,in an acquisition business combination transaction.Bale's net income for the year was $1,400,000,while Silo had net income of $400,000 earned evenly during the year.Bale paid $100,000 in direct combination costs,$50,000 in indirect costs,and $30,000 in stock issuance costs to effect the combination. Required: What is consolidated net income for 2018?

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 expenses immediately following the acquisition.