Exam 1: Business Combinations: New Rules for a Long-Standing Business Practice

Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks? $\quad$ Plant and Equipment $\quad$ Long-Term Debt

A(n) ________________ occurs when the management of the target company purchases a controlling interest in that company and the company incurs a significant amount of debt as a result.​

On January 1, 16 Brown Inc.acquired Larson Company's net assets in exchange for Brown's common stock with a par value of $100,000 and a fair value of $800,000.Brown also paid $10,000 in direct acquisition costs and $15,000 in stock issuance costs. ? On this date, Larson's condensed account balances showed the following: ? ? Book Value Fair Value Current Assets \ 280,000 \ 370,000 Plant and Equipment 440,000 480,000 Accumul ated Depreciation (100,000) Intangibles - Patents 80,000 120,000 Current Liabilities (140,000) (140,000) Long-Term Debt (100,000) (110,000) Common Stock (200,000) Other Paid-in Capital (120,000) Retained Earnings (140,000) Required: ? Record Brown's purchase of Larson Company's net assets. ?

On January 1, 2016 the fair values of Pink Coral's net assets were as follows: ? ? Current Assets 100,000 Equipment 150,000 Land 50,000 B uildings 300,000 Liabilities 80,000 On January 1, 2016, Blue Reef Company purchased the net assets of the Pink Coral Company by issuing 100,000 shares of its $1 par value stock when the fair value of the stock was $6.20.It was further agreed that Blue Reef would pay an additional amount on January 1, 2018, if the average income during the 2-year period of 2016-2017 exceeded $80,000 per year.The expected value of this consideration was calculated as $184,000; the measurement period is one year.Blue Reef paid $15,000 in professional fees to negotiate the purchase and construct the acquisition agreement and $10,000 in stock issuance costs. ? Required: Prepare Blue Reef's entries: a) on January 1, 2016 to record the acquisition b) on August 1, 2016 to revise the contingent consideration to $170,000 c) on January 1, 2016 to settle the contingent consideration clause of the agreement for $175,000 ?

Diamond acquired Heart's net assets.At the time of the acquisition Heart's Balance sheet was as follows: ? Accounts Receivable \ 130,000 Inventory 70,000 Equipment, Net 50,000 Building, Net 250,000 Land \ 100,000 Total Assets \ 600,000 Bonds Payable \ 100,000 Common Stock 50,000 Retained Earnings 450,000 Total Liabilities and Stockholders' Equity \ 600,000 Fair values on the date of acquisition: ? ? Inventory \ 100,000 Equipment 30,000 B uilding 350,000 Land 120,000 B rand Name 50,000 B onds payable 120,000 Acquisition costs: \ 5,000 Required: ? Record the entry for the purchase of the net assets of Heart by Diamond at the following cash prices: ? a.$700,000 b.$300,000 ?

While acquisitions are often friendly, there are numerous occasions when a party does not want to be acquired.Discuss possible defensive strategies that firms can implement to fend off a hostile takeover attempt.​

The Blue Reef Company purchased the net assets of the Pink Coral Company on January 1, 2016, and made the following entry to record the purchase: ? ? Current Assets 100,000 Equipment 150,000 Land 50,000 Buildings 300,000 Goodwill 100,000 Liabilities 80,000 Common Stock, \ 1 Par 100,000 Paid-in Capital in Excess of Par 520,000 Required: ? Make the required entry on January 1, 2018, assuming that additional shares would be issued on that date to compensate for any fall in the value of Blue Reef common stock below $16 per share.The settlement would be to cure the deficiency by issuing added shares based on their fair value on January 1, 2018.The fair price of the shares on January 1, 2018 was $10. ?

The Chan Corporation purchased the net assets (existing liabilities were assumed) of the Don Company for $900,000 cash.The balance sheet for the Don Company on the date of acquisition showed the following: ? ? Required: ? The equipment has a fair value of $300,000, and the plant assets have a fair value of $500,000.Assume that the Chan Corporation has an effective tax rate of 40%.Prepare the entry to record the purchase of the Don Company for each of the following separate cases with specific added information: ? a.The sale is a nontaxable exchange to the seller that limits the buyer to depreciation and amortization on only book value for tax purposes.? ? b.The bonds have a current fair value of $190,000.The transaction is a taxable exchange.? ? c.There are $100,000 of prior-year losses that can be used to claim a tax refund.The transaction is a taxable exchange.? ? d.There are $150,000 of past losses that can be carried forward to future years to offset taxes that will be due.The transaction is a taxable exchange.?