Exam 2: Consolidation of Financial Information

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 land immediately following the acquisition.

For acquisition accounting,why are assets and liabilities of the subsidiary consolidated at fair value?

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 retained earnings at December 31,2018.

The following are preliminary financial statements for Green Co.and Gold Co.for the year ending December 31,2018 prior to Black's acquisition of Blue. On December 31,2018 (subsequent to the preceding statements),Green exchanged 10,000 shares of its $10 par value common stock for all of the outstanding shares of Gold.Green's stock on that date has a fair value of $60 per share.Green was willing to issue 10,000 shares of stock because Gold's land was appraised at $204,000.Green also paid $14,000 to attorneys and accountants who assisted in creating this combination. Required: Assuming that these two companies retained their separate legal identities,prepare a consolidation worksheet as of December 31,2018 after the acquisition transaction is completed.

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. -In this acquisition business combination,what total amount of common stock and additional paid-in capital should Goodwin recognize on its consolidated financial statements?

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 be the consolidated additional paid-in capital as a result of this acquisition?

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 cash after the acquisition is completed?

Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000.Blue Town Inc.had common stock of $700,000 and retained earnings of $980,000.On January 1,2018,Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock.This combination was accounted for using the acquisition method.Immediately after the combination,what was the amount of total consolidated net assets?

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 common stock?

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 inventories at date of acquisition.

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 receivables?

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

Peterman Co.owns 55% of Samson Co.Under what circumstances would Peterman not be required to prepare consolidated financial statements?

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. -If Osorio retains a separate corporate existence,what amount was recorded as the investment in Osorio?

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 the consolidated common stock at the 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 retained earnings at the date of 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 goodwill arising from this acquisition at December 31,2018.

What is the difference in consolidated results between a business combination whereby the acquired company is dissolved,and a business combination whereby separate incorporation is maintained?

How is contingent consideration accounted for in an acquisition business combination transaction?

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 issued 12,000 shares of common stock,with a $5 par value and a $47 fair value,to obtain all of Vicker's outstanding stock.In this acquisition transaction,how much goodwill should be recognized?