Exam 2: Consolidation of Financial Information

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 buildings (net)at the date of the acquisition.

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 for all of the outstanding shares of Vicker.What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1,2018 balances)as a result of this acquisition transaction?

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. -Determine consolidated Additional Paid-In Capital at December 31,2017.

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 amount of the consideration transferred by Atwood to acquire Franz.

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 land at date of acquisition.

Which of the following examples accurately describes a difference in the types of 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 additional paid-in capital at December 31,2018.

At the date of an acquisition which is not a bargain purchase,the acquisition method

How would you account for in-process research and development acquired in a business combination accounted for as an 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 goodwill immediately following the 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 inventory?

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 additional paid-in capital?

A statutory merger is a(n)

Fine Co.issued its common stock in exchange for the common stock of Dandy Corp.in an acquisition.At the date of the combination,Fine had land with a book value of $480,000 and a fair value of $620,000.Dandy had land with a book value of $170,000 and a fair value of $190,000. Required: What was the consolidated balance for Land in a consolidated balance sheet prepared at the date of the acquisition 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 consolidated buildings (net)?

Elon Corp.obtained all of the common stock of Finley Co. ,paying slightly less than the fair value of Finley's net assets acquired.How should the difference between the consideration transferred and the fair value of the net assets be treated if the transaction is accounted for as an 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 cash at the completion of the acquisition.

What is the primary difference between recording an acquisition when the subsidiary is dissolved and when separate incorporation is maintained?

Using the acquisition method for a business combination,goodwill is generally calculated as the:

What is the primary difference between: (i)accounting for a business combination when the subsidiary is dissolved;and (ii)accounting for a business combination when the subsidiary retains its incorporation?