Exam 2: Consolidation of Financial Information

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 an acquisition,what amount was recorded as the investment in Osorio?

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

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 buildings (net)at date of combination.

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. -Compute the consolidated additional paid-in capital at December 31,20X1.

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 the investment cost at date of acquisition.

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. -Compute consolidated buildings (net)at the date of the business combination.

Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000.Blue Town Inc.had common stock of $700,000 and retained earnings of $980,000.On January 1,2009,Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company's outstanding common stock.This combination was accounted for as an acquisition.Immediately after the combination,what was the consolidated net assets?

Elon Corp.purchased all of the common stock of Finley Co. ,paying slightly less than the fair value of Finley's net assets.How should the difference between the purchase price and the fair value be treated if the transaction is treated as a purchase?

Lisa Co.paid cash for all of the voting common stock of Victoria Corp.Victoria will continue to exist as a separate corporation.Entries for the consolidation of Lisa and Victoria would be recorded in

REFERENCE: Ref.02_10 The financial statements for Jode Inc.and Lakely Corp. ,just prior to their combination,for the year ending December 31,2009,follow.Lakely's buildings were undervalued on its financial records by $60,000. SHAPE \* MERGEFORMAT On December 31,2009,Jode issued 54,000 new shares of its $10 par value stock to the owners of Lakely in exchange for all of the outstanding shares of that company.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.This combination is accounted for as an acquisition. -Required: Determine consolidated Net Income for at December 31,2009.

REFERENCE: Ref.02_01 Bullen Inc.assumed 100% control over Vicker Inc.on January 1,20X1.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)follow,along with the book value of Bullen's accounts: -Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker.In addition,Bullen paid $35,000 to a group of attorneys for their work in arranging the combination to be accounted for as a purchase.What will be the balance in consolidated goodwill?

According to SFAS No.141,the pooling of interest method for business combinations

A company is not required to consolidate a subsidiary in which it holds more than 50% of the voting stock when

How are direct combination costs accounted for in a purchase transaction?

REFERENCE: Ref.02_01 Bullen Inc.assumed 100% control over Vicker Inc.on January 1,20X1.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)follow,along with the book value of Bullen's accounts: -Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding stock of Vicker.What is the consolidated Land as a result of this transaction (which is not a pooling of interests)?

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 an acquisition,compute consolidated goodwill at the date of the combination.

How is contingent consideration accounted for according to SFAS 141(R)Business Combinations?

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 receivables?

REFERENCE: Ref.02_01 Bullen Inc.assumed 100% control over Vicker Inc.on January 1,20X1.The book value and fair value of Vicker's accounts on that date (prior to creating the combination)follow,along with the book value of Bullen's accounts: -Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock.In this transaction (which is not a pooling of interests),how much goodwill should be recognized?

For purchase accounting,why are assets and liabilities of the subsidiary consolidated at fair value?