Exam 2: Consolidation of Financial Information

Describe the accounting for direct costs,indirect costs,and issuance costs under: (1)The pooling-of-interests method; (2)The purchase method;and (3)The acquisition method.

REFERENCE: Ref.02_05 Carnes has the following account balances as of May 1,2000 before a pooling of interests transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On May 1,2000,Riley Company issues 30,000 shares of its $10 par value ($25 fair value)common stock in exchange for all of the shares of Carnes' common stock. -Assume Riley issues 70,000 shares instead of 30,000 at date of pooling.Assume Riley has no additional paid-in capital on its books.By how much will Riley's retained earnings increase or decrease as a result of the combination?

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 land at the date of the business combination.

REFERENCE: Ref.02_05 Carnes has the following account balances as of May 1,2000 before a pooling of interests transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On May 1,2000,Riley Company issues 30,000 shares of its $10 par value ($25 fair value)common stock in exchange for all of the shares of Carnes' common stock. -At the date of pooling,by how much does Riley's retained earnings increase or decrease?

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 long-term liabilities?

REFERENCE: Ref.02_05 Carnes has the following account balances as of May 1,2000 before a pooling of interests transaction takes place. The fair value of Carnes' Land and Buildings are $650,000 and $550,000,respectively.On May 1,2000,Riley Company issues 30,000 shares of its $10 par value ($25 fair value)common stock in exchange for all of the shares of Carnes' common stock. -On May 1,2000,what value is assigned to the investment account?

What are the three departures from SFAS 141 according to SFAS 141(R)Business Combinations?

How are direct and indirect costs accounted for when applying the acquisition method?

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 common stock at date of acquisition.

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 -Assuming the combination is accounted for as an acquisition,what amount will be reported for goodwill?

Fine Co.issued its common stock in exchange for the common stock of Dandy Corp.in a business combination that was neither a pooling of interests nor a bargain purchase.At the date of the combination,Fine had land with a book value of $480,000 and a fair value of $620,000.Dandy had land with a book value of $170,000 and a fair value of $190,000. Required: If a consolidated balance sheet was prepared at the date of the combination,what was the consolidated balance for Land?

In a transaction accounted for using the purchase method where cost is less than fair value,which statement 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. -Compute the consolidated equipment (net)account 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 consolidated expenses at date of acquisition.

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 goodwill account at December 31,20X1.

REFERENCE: Ref.02_02 Prior to being united in a business combination,Botkins Inc.and Volkerson Corp.had the following stockholders' equity figures: Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson. -Assume that Botkins acquired Volkerson as a purchase combination.Immediately afterwards,what are consolidated Additional Paid-In Capital and Retained Earnings,respectively?

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 consolidated cash upon completion of the acquisition.

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

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 -Assuming the combination is accounted for as a purchase,what amount will be reported for consolidated retained earnings?

The following are preliminary financial statements for Black Co.and Blue Co.for the year ending December 31,2008. On December 31,2008 (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 31,2008 assuming the transaction is treated as a purchase combination.