Exam 2: Consolidation of Financial Information

REFERENCE: Ref.02_07 Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31,2009,immediately before Atwood acquired Franz.Also included are the fair values for Franz Company's net assets at that date. Note: Parenthesis indicate a credit balance Assume a business combination took place at December 31,2009.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.Atwood is applying the acquisition method in accounting for Franz.To settle a difference of opinion regarding Franz's fair value,Atwood promises to pay an additional $5.2 (in thousands)to the former owners if Franz'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 inventory at date of acquisition.

Which one of the following is a characteristic of a business combination that should be accounted for as a purchase?

Which of the following statements is true regarding a statutory merger?

REFERENCE: Ref.02_04 On January 1,20X1,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 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 purchase.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: 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 combination.

REFERENCE: Ref.02_08 Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1,20X1.To obtain these shares,Flynn pays $400 (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 transaction.An additional $10 (in thousands)was paid by Flynn in stock issuance costs. The book values for both Flynn and Macek as of January 1,20X1 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. SHAPE \* MERGEFORMAT -What amount will be reported for consolidated buildings (net)?

For each of the following situations,select the best answer concerning accounting for combinations: (A)Pooling-of-interests method only. (B)Purchase method only. (C)Acquisition method only. (D)Pooling-of-interests method and purchase method,but not acquisition method. (E)Purchase method and acquisition method,but not pooling-of-interests method. (F)Pooling-of-interests method and acquisition method,but not purchase method. (G)All methods (pooling-of-interests,purchase,and acquisition. ) (H)None of the methods (neither pooling-of-interests,purchase,nor acquisition. ) _____1.Direct costs are expensed. _____2.Indirect costs are expensed. _____3.Direct costs reduce the additional paid-in capital of the acquirer. _____4.Both direct costs and indirect costs increase the investment account. _____5.Direct costs increase the investment account,and stock issue costs reduce the acquirer's additional paid-in capital account. _____6.Contingent consideration increases the investment account at date of acquisition. _____7.Contingent consideration increases the investment account at a date subsequent to the acquisition date. _____ 8.A bargain purchase reduces the fair value of long-term assets. _____9.A bargain purchase is ignored or not applicable. _____10.A bargain purchase is recorded at date of acquisition as a gain (not extraordinary). _____11.The combination clearly defines an acquired company and an acquiring company. _____12.Method(s)appropriate to combinations prior to June 30,2001.

Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company.How should those costs be accounted for in an Acquisition transaction? I can't edit picture.Need to change item D so first text box is "Increase Expenses" and second text box is "Decrease Paid-In Capital"

The following are preliminary financial statements for Black Co.and Blue Co.for the year ending December 31,2009. On December 31,2009 (subsequent to the preceding statements),Black exchanged 10,000 shares of its $10 par value common stock for all of the outstanding shares of Blue.Black's stock on that date has a fair value of $60 per share.Black was willing to issue 10,000 shares of stock because Blue's land was appraised at $204,000.Black also paid $14,000 to several 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 31,2009 assuming the transaction is treated as an acquisition combination.

Goodwill is often created,or purchased,during a business combination.Why doesn't Goodwill show up on the Parent company's trial balance as a separate account?

Which of the following statements is true?

REFERENCE: Ref.02_03 The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,20X1,prior to Goodwin's business combination transaction regarding Corr,follow (in thousands): On December 31,20X1,Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to purchase all of the outstanding shares of that company.Goodwin shares had a fair value of $40 per share. Goodwin paid $25 to a broker for arranging the transaction.Goodwin paid $35 in stock issuance costs.Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. -If the combination is accounted for as an acquisition,at what amount is the investment recorded on Goodwin's books?

What term is used to refer to a business combination in which only one of the original companies continues to exist?

REFERENCE: Ref.02_04 On January 1,20X1,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 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 purchase.Another $15 was paid in connection with stock issuance costs.Prior to these transactions,the balance sheets for the two companies were as follows: 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 the transaction is accounted for as a purchase,what amount was recorded as the investment in Osorio?

REFERENCE: Ref.02_03 The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,20X1,prior to Goodwin's business combination transaction regarding Corr,follow (in thousands): On December 31,20X1,Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to purchase all of the outstanding shares of that company.Goodwin shares had a fair value of $40 per share. Goodwin paid $25 to a broker for arranging the transaction.Goodwin paid $35 in stock issuance costs.Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. -If the combination is accounted for as a purchase,at what amount is the investment recorded on Goodwin's books?

REFERENCE: Ref.02_06 The financial balances for the Atwood Company and the Franz Company as of December 31,20X1,are presented below.Also included are the fair values for Franz Company's net assets. Note: Parenthesis indicate a credit balance Assume a business combination took place at December 31,20X1.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. -Assuming Atwood accounts for the combination as a purchase,compute the investment to be recorded at date of acquisition.

How would you account for in-process research and development acquired in a business combination accounted for as an acquisition?

How are direct combination costs accounted for in an acquisition transaction?

REFERENCE: Ref.02_07 Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31,2009,immediately before Atwood acquired Franz.Also included are the fair values for Franz Company's net assets at that date. Note: Parenthesis indicate a credit balance Assume a business combination took place at December 31,2009.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.Atwood is applying the acquisition method in accounting for Franz.To settle a difference of opinion regarding Franz's fair value,Atwood promises to pay an additional $5.2 (in thousands)to the former owners if Franz'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 at date of acquisition.

On January 1,2010,Chester Inc.acquires 100% of Festus Corp.'s outstanding common stock by exchanging 37,500 shares of Chester's $2 par value common voting stock.On January 1,2010,Chester's voting common stock had a fair value of $40 per share.Festus' voting common shares were selling for $6.50 per share.Festus' balances on the acquisition date,just prior to acquisition are listed below.Chester is accounting for the investment in Festus using the acquisition method. SHAPE \* MERGEFORMAT Required: Compute the value of the Goodwill account on the date of acquisition,1/1/10.

REFERENCE: Ref.02_03 The financial statements for Goodwin,Inc. ,and Corr Company for the year ended December 31,20X1,prior to Goodwin's business combination transaction regarding Corr,follow (in thousands): On December 31,20X1,Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to purchase all of the outstanding shares of that company.Goodwin shares had a fair value of $40 per share. Goodwin paid $25 to a broker for arranging the transaction.Goodwin paid $35 in stock issuance costs.Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. -Assuming the combination is accounted for as a purchase,compute the consolidated expenses for 20X1.