Exam 1: Business Combinations

On January 2, 2010 Carolina Clothing issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of Dakota Dressing Company's outstanding common shares in an acquisition.Carolina paid $15,000 for registering and issuing securities and $10,000 for other direct costs of the business combination.The fair value and book value of Dakota's identifiable assets and liabilities were the same.Assume Dakota Company is dissolved on the date of the acquisition.Summarized balance sheet information for both companies just before the acquisition on January 2, 2010 is as follows: Required: Prepare a balance sheet for Carolina Clothing immediately after the business combination.

Parrot Incorporated purchased the assets and liabilities of Sparrow Company at the close of business on December 31, 2011.Parrot borrowed $2,000,000 to complete this transaction, in addition to the $640,000 cash that they paid directly.The fair value and book value of Sparrow's recorded assets and liabilities as of the date of acquisition are listed below.In addition, Sparrow had a patent that had a fair value of $50,000. Required: 1.Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow survives as a separate legal entity. 2.Prepare Parrot's general journal entry for the acquisition of Sparrow, assuming that Sparrow will dissolve as a separate legal entity.

According to FASB Statement No.141, liabilities assumed in an acquisition will be valued at the ________.

In reference to international accounting for goodwill, U.S.companies have complained that past U.S.accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners.Why?

Which of the following is not a reason for a company to expand through a combination, rather than by building new facilities?

Pitch Co.paid $50,000 in fees to its accountants and lawyers in acquiring Slope Company.Pitch will treat the $50,000 as

Pony acquired Spur Corporation's assets and liabilities for $500,000 cash on December 31, 2010.Spur dissolved on the date of the acquisition.Spur's balance sheet and related fair values are shown as of that date, below. Required: Prepare the journal entry recorded by Pony as a result of this transaction.

Balance sheet information for Sphinx Company at January 1, 2011, is summarized as follows: Sphinx's assets and liabilities are fairly valued except for plant assets that are undervalued by $50,000.On January 2, 2011, Pyramid Corporation issues 20,000 shares of its $10 par value common stock for all of Sphinx's net assets and Sphinx is dissolved.Market quotations for the two stocks on this date are: Required: 1.Calculate Pyramid's investment cost of Sphinx Corporation. 2.Calculate any goodwill from the business combination.

Pali Corporation exchanges 200,000 shares of newly issued $10 par value common stock with a fair market value of $40 per share for all the outstanding $5 par value common stock of Shingle Incorporated, which continues on as a legal entity.Fair value approximated book value for all assets and liabilities of Shingle.Pali paid the following costs and expenses related to the business combination: Required: Prepare the journal entries relating to the above acquisition and payments incurred by Pali, assuming all costs were paid in cash.

Goodwill arising from a business combination is

In a business combination, which of the following will occur?

Samantha's Sporting Goods had net assets consisting of the following: Pedic Incorporated purchased Samantha's Sporting Goods, and immediately dissolved Samantha's as a separate legal entity. Requirement 1: If Samantha's was purchased for $1,000,000 cash, prepare the entry recorded by Pedic. Requirement 2: If Samantha's was purchased for $1,500,000 cash, prepare the entry recorded by Pedic.

Use the following information to answer the question(s) below. Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc. and Spot is then dissolved. Polka paid the following costs and expenses related to the business combination: -In the business combination of Polka and Spot

At December 31, 2011, Pandora Incorporated issued 40,000 shares of its $20 par common stock for all the outstanding shares of the Sophocles Company.In addition, Pandora agreed to pay the owners of Sophocles an additional $200,000 if a specific contract achieved the profit levels that were targeted by the owners of Sophocles in their sale agreement.The fair value of this amount, with an agreed likelihood of occurrence and discounted to present value, is $160,000.In addition, Pandora paid $10,000 in stock issue costs, $40,000 in legal fees, and $48,000 to employees who were dedicated to this acquisition for the last three months of the year.Summarized balance sheet and fair value information for Sophocles immediately prior to the acquisition follows. Required: 1.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $35 at the date of acquisition and Sophocles dissolves as a separate legal entity. 2.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $35 at the date of acquisition and Sophocles continues as a separate legal entity. 3.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $25 at the date of acquisition and Sophocles dissolves as a separate legal entity. 4.Prepare Pandora's general journal entry for the acquisition of Sophocles assuming that Pandora's stock was trading at $25 at the date of acquisition and Sophocles survives as a separate legal entity.

Bigga Corporation purchased the net assets of Petit, Inc.on January 2, 2011 for $380,000 cash and also paid $15,000 in direct acquisition costs.Petit, Inc.was dissolved on the date of the acquisition.Petit's balance sheet on January 2, 2011 was as follows: Fair values agree with book values except for inventory, land, and equipment, which have fair values of $260,000, $35,000 and $35,000, respectively.Petit has patent rights with a fair value of $20,000. Required: Prepare Bigga's general journal entry for the cash purchase of Petit's net assets.

The balance sheets of Palisade Company and Salisbury Corporation were as follows on December 31, 2010: On January 1, 2011 Palisade issued 30,000 of its shares with a market value of $40 per share in exchange for all of Salisbury's shares, and Salisbury was dissolved.Palisade paid $20,000 to register and issue the new common shares.It cost Palisade $50,000 in direct combination costs.Book values equal market values except that Salisbury's land is worth $250,000. Required: Prepare a Palisade balance sheet after the business combination on January 1, 2011.

Use the following information to answer the question(s) below. Polka Corporation exchanges 100,000 shares of newly issued $1 par value common stock with a fair market value of $20 per share for all of the outstanding $5 par value common stock of Spot Inc. and Spot is then dissolved. Polka paid the following costs and expenses related to the business combination: -In the business combination of Polka and Spot,

According to FASB Statement 141R, which one of the following items may not be accounted for as an intangible asset apart from goodwill?

When considering an acquisition, which of the following is NOT a method by which one company may gain control of another company?

A business merger differs from a business consolidation because