Exam 2: Consolidation of Financial Information

Jernigan Corp.had the following account balances at 12/31/X1: SHAPE \* MERGEFORMAT Several of Jernigan's accounts have fair values that differ from book value: Land - $480,000;Building - $720,000;Inventory - $336,000;and Liabilities - $396,000. Inglewood Inc.obtained all of the outstanding common shares of Jernigan by issuing 20,000 shares of common stock having a $6 par value,but a $66 fair value.Stock issuance costs amounted to $12,000. Required: Prepare a fair value allocation and goodwill schedule at the date of the combination.

Using the purchase method,goodwill is generally defined as:

What is the difference in consolidated results between a business combination whereby the acquired company is dissolved,and a business combination whereby separate incorporation is maintained?

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 cash after the purchase transaction?

Which of the following statements is true regarding the pooling of interests method of accounting for a business combination?

Assume that Bellington paid cash of $2.8 million.No stock is issued.An additional $50,000 is paid in direct combination costs. Required: For Goodwill,determine what balance would be included in a February 1,2008 consolidation.

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 goodwill at date of acquisition.

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 and Volkerson were being joined in a pooling of interests and this occurred on January 1,2000,using the same values given .Immediately afterwards,what is consolidated Additional Paid-In Capital?

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 a Purchase transaction?

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 revenues for 20X1.

Bale Co.acquired Silo Inc.on October 1,20X1,in a business combination transaction.Bale's net income for the year was $1,400,000,while Silo had net income of $400,000 earned evenly during the year.There was no goodwill and there were no other allocations. Required: What is consolidated net income for 20X1?

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 an acquisition,compute the consolidated expenses for 20X1.

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. -Prepare the journal entries to record (1)the issuance of stock by Jode and (2)the payment of the combination costs.

How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?

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 consolidated goodwill at the date of the combination.

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 buildings (net)at date of acquisition.

In a purchase or acquisition where control is achieved,how would the land accounts of the parent and the land accounts of the subsidiary be combined?

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 the investment to be recorded 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 -What amount will be reported for consolidated inventory?

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 equipment (net)?