Exam 1: Business Combinations

Under the provisions of FASB Statement No.141R, in a business combination, when the fair value of identifiable net assets acquired exceeds the investment cost, which of the following statements is correct?

Which of the following methods does the FASB consider the best indicator of fair values in the evaluation of goodwill impairment?

Following the accounting concept of a business combination, a business combination occurs when a company acquires an equity interest in another entity and has

Picasso Co.issued 5,000 shares of its $1 par common stock, valued at $100,000, to acquire shares of Seurat Company in an all-stock transaction.Picasso paid the investment bankers $35,000 and will treat the investment banker fee as

Historically, much of the controversy concerning accounting requirements for business combinations involved the ________ method.

On January 2, 2011 Piron Corporation issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of Seana Corporation's outstanding common shares.Piron paid $15,000 to register and issue shares.Piron also paid $20,000 for the direct combination costs of the accountants.The fair value and book value of Seana's identifiable assets and liabilities were the same.Summarized balance sheet information for both companies just before the acquisition on January 2, 2011 is as follows: Required: 1.Prepare Piron's general journal entry for the acquisition of Seana, assuming that Seana survives as a separate legal entity. 2.Prepare Piron's general journal entry for the acquisition of Seana, assuming that Seana will dissolve as a separate legal entity.

On June 30, 2011, Stampol Company ceased operations and all of their assets and liabilities were purchased by Postoli Incorporated.Postoli paid $40,000 in cash to the owner of Stampol, and signed a five-year note payable to the owners of Stampol in the amount of $200,000.Their closing balance sheets as of June 30, 2011 are shown below.In the purchase agreement, both parties noted that Inventory was undervalued on the books by $10,000, and Pistoli would also take possession of a customer list with a fair value of $18,000.Pistoli paid all legal costs of the acquisition, which amounted to $7,000. Required: 1.Prepare the journal entry Postoli would record at the date of acquisition. 2.Prepare the journal entry Stampol would record at the date of acquisition.

On January 2, 2011 Palta Company issued 80,000 new shares of its $5 par value common stock valued at $12 a share for all of Sudina Corporation's outstanding common shares.Palta paid $5,000 for the direct combination costs of the accountants.Palta paid $18,000 to register and issue shares.The fair value and book value of Sudina's identifiable assets and liabilities were the same.Summarized balance sheet information for both companies just before the acquisition on January 2, 2011 is as follows: Required: 1.Prepare Palta's general journal entry for the acquisition of Sudina assuming that Sudina survives as a separate legal entity. 2.Prepare Palta's general journal entry for the acquisition of Sudina assuming that Sudina will dissolve as a separate legal entity.

In reference to the FASB disclosure requirements about a business combination in the period in which the combination occurs, which of the following is correct?

On January 2, 2011, Pilates Inc.paid $900,000 for all of the outstanding common stock of Spinning Company, and dissolved Spinning Company.The carrying values for Spinning Company's assets and liabilities are recorded below. On January 2, 2011, Spinning anticipated collecting $185,000 of the recorded Accounts Receivable.Pilates entered into the acquisition because Spinning had Copyrights that Pilates wished to own, and also unrecorded patents with a fair value of $100,000. Required: Calculate the amount of goodwill that will be recorded on Pilate's balance sheet as of the date of acquisition.

Durer Inc.acquired Sea Corporation in a business combination and Sea Corp went out of existence.Sea Corp developed a patent listed as an asset on Sea Corp's books at the patent office filing cost.In recording the combination,

Saveed Corporation purchased the net assets of Penny Inc.on January 2, 2011 for $1,690,000 cash and also paid $15,000 in direct acquisition costs.Penny dissolved as of the date of the acquisition.Penny'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 $640,000, $140,000 and $230,000, respectively.Penny has customer contracts valued at $20,000. Required: Prepare Saveed's general journal entry for the cash purchase of Penny's net assets.

On December 31, 2010, Peris Company acquired Shanta Company's outstanding stock by paying $400,000 cash and issuing 10,000 shares of its own $30 par value common stock, when the market price was $32 per share.Peris paid legal and accounting fees amounting to $35,000 in addition to stock issuance costs of $8,000.Shanta is dissolved on the date of the acquisition.Balance sheet information for Peris and Shanta immediately preceding the acquisition is shown below, including fair values for Shanta's assets and liabilities. Required: Determine the consolidated balances which Peris would present on their consolidated balance sheet for the following accounts. Cash Inventory Construction Permits Goodwill Notes Payable Common Stock Additional Paid in Capital Retained Earnings

Pepper Company paid $2,500,000 for the net assets of Salt Corporation and Salt was then dissolved.Salt had no liabilities.The fair values of Salt's assets were $3,750,000.Salt's only non-current assets were land and buildings with book values of $100,000 and $520,000, respectively, and fair values of $180,000 and $730,000, respectively.At what value will the buildings be recorded by Pepper?

On January 2, 2011, Pilates Inc.paid $700,000 for all of the outstanding common stock of Spinning Company, and dissolved Spinning Company.The carrying values for Spinning Company's assets and liabilities are recorded below. On January 2, 2011, Spinning anticipated collecting $185,000 of the recorded Accounts Receivable.Pilates entered into the acquisition because Spinning had Copyrights that Pilates wished to own, and also unrecorded patents with a fair value of $100,000. Required: Calculate the amount of goodwill that will be recorded on Pilate's balance sheet as of the date of acquisition.Then record the journal entry Pilates would record on their books to record the acquisition.

With respect to goodwill, an impairment