Exam 2: Consolidation of Financial Information

Figure: 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 an acquisition 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 goodwill at the date of the acquisition.

Figure: The financial statements for Jode Inc. and Lakely Corp., just prior to their combination, for the year ending December 31, 2010, follow. Lakely's buildings were undervalued on its financial records by $60,000. On December 31, 2010, Jode issued 54,000 new shares of its $10 par value stock in exchange for all the outstanding shares of Lakely. Jode's shares had a fairvalue 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 to effect the acquisition of Lakely. Lakely will retain its incorporation. -Prepare the journal entries to record (1) the issuance of stock by Jode and (2) the payment of the combination costs.

Figure: 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 an acquisition 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 equipment (net) at the date of the acquisition.

The following are preliminary financial statements for Black Co. and Blue Co. for the year ending December 31, 20X1. On December 31, 20X1 (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 $50 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, 20X1 assuming the transaction is treated as a purchase combination.

Figure: Presented below are the financial balances for the Atwood Company and the Franz Company as of December 31, 2010, 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, 2010. 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 to effect this acquisition transaction. 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.

Figure: Carnes has the following account balances as of May 1, 2010 before an acquisition transaction takes place. Inventory \ 100,000 Land 400,000 Buildings (net) 500,000 Common stock ( \ 10 par) 600,000 Additional paid-in capital 200,000 Retained Earnings 200,000 Revenues 450,000 Expenses 250,000 The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 2010, 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. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. -At the date of acquisition, by how much does Riley's additional paid-in capital increase or decrease?

How are stock issuance costs accounted for in an acquisition business combination?

Figure: 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 an acquisition 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 inventory at the date of the acquisition.

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

Figure: Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 20X1. To obtain these shares, Flynn pays $400 cash (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 acquisition. 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. -What amount will be reported for consolidated buildings (net)?

Fine Co. issued its common stock in exchange for the common stock of Dandy Corp. in an acquisition. 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: What was the consolidated balance for Land in a consolidated balance sheet prepared at the date of the acquisition combination?

Which of the following is a not a reason for a business combination to take place?

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

Figure: Flynn acquires 100 percent of the outstanding voting shares of Macek Company on January 1, 20X1. To obtain these shares, Flynn pays $400 cash (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 acquisition. 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. -What amount will be reported for goodwill as a result of this acquisition?

How are direct combination costs, contingent consideration, and a bargain purchase reflected in recording an acquisition transaction?