Gleim Sections 16.1/1.2 – Flashcards

Rolan Corporation issued 10,000 shares of common stock in exchange for all of Sandin Corporation's outstanding stock on September 1. Rolan's common stock had a market price of $60 per share on September 1. The market price of Sandin's stock was not readily ascertainable. Condensed balance sheets of Rolan and Sandin immediately prior to the combination are indicated below. Rolan Sandin Total assets $1,000,000 $500,000 Liabilities $ 300,000 $150,000 Common stock ($10 par) 200,000 100,000 Retained earnings 500,000 250,000 Total liabilities and shareholders' equities $1,000,000 $500,000 Rolan's investment in Sandin's stock will be stated in Rolan's parent-only balance sheet immediately after the combination in the amount of

Acquirer Co. and Acquiree Co. are in negotiations for a business combination. Acquirer suggested to Acquiree that it reach agreements with certain key executives to make payments with a total amount of $5,000,000 if negotiations succeed. Acquiree already had a contract with its chief executive to make a $10,000,000 payment if the company was acquired. This contract was agreed to several years before any acquisition was contemplated. What amount, if any, of these payments most likely is part of the exchange for the acquiree?

Costs incurred in completing a business combination are listed below. General administrative costs $240,000 Consulting fees 120,000 Direct cost to register and issue equity securities 80,000

Acquirer Corporation acquired for cash at $10 per share 100,000 shares of the outstanding common stock of Acquiree Company. The total fair value of the identifiable assets acquired minus liabilities assumed of Acquiree was $1.4 million on the acquisition date, including the fair value of its property, plant, and equipment (its only noncurrent asset) of $250,000. The consolidated financial statements of Acquirer Corporation and its wholly owned subsidiary must reflect

On August 31 of the current year, Pine Corp. issued 100,000 shares of its $20 par value common stock for all of the net assets of Sap, Inc., in a business combination. The fair value of Pine's common stock on the acquisition date was $36 per share. Pine paid a fee of $160,000 to the consultant who arranged this acquisition. Costs of registering and issuing the equity securities amounted to $80,000. No goodwill or gain on a bargain purchase was involved. What amount should Pine record for the net assets acquired?

On November 30, Pindar Co. purchased for cash at $30 per share all 250,000 shares of the outstanding common stock of Shimoda Co., a business entity. Shimoda reported net assets on that date with a carrying amount of $6 million. This amount reflected acquisition-date fair value except for property, plant, and equipment, which had a fair value that exceeded its carrying amount by $800,000. In its November 30 consolidated balance sheet, what amount should Pindar report as goodwill?

Acquirer and Acquiree are the combining entities in a business combination. As part of the bargain, Acquirer assumed a contingent liability based on a suit brought against Acquiree because of a defect in one of its products. However, the former owner of Acquiree has agreed to pay the amount of any damages in excess of $5,000,000. In the consolidated balance sheet issued on the acquisition date, the contingent liability is reported at acquisition-date fair value. Accordingly,

IFRS and U.S. GAAP provide accounting guidance for business combinations and the presentation of consolidated financial statements. Which of the following policies is not required by both IFRS and U.S. GAAP?

Consolidated financial statements are typically prepared when one entity has a majority voting interest in another unless

Company J acquired all of the outstanding common stock of Company K in exchange for cash. The consideration transferred exceeds the acquisition-date fair value of the net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?

How should the acquirer recognize a bargain purchase in a business acquisition?

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of

Bale Co. incurred $100,000 of acquisition costs related to the purchase of the net assets of Dixon Co. The $100,000 should be

When a business is acquired, the acquirer may recognize goodwill. This amount is the excess of the sum of the acquisition-date fair values (with some exceptions) of (1) the consideration transferred, (2) any noncontrolling interest in the acquiree, and (3) a previously held equity interest in the acquiree over the

Pellew Corp. paid $600,000 for all of the outstanding common stock of Samos Co. in a business combination initiated and completed in December. At that time, Samos had the following condensed balance sheet: Carrying Amounts Current assets $ 80,000 Plant and equipment, net 760,000 Liabilities 400,000 Equity 440,000 The acquisition-date fair value of the plant and equipment was $120,000 more than its carrying amount. The acquisition-date fair values and carrying amounts were equal for all other assets and liabilities. What amount of goodwill, related to Samos's acquisition, must Pellew report in its December 31 consolidated balance sheet?

Noncontrolling interests (NCIs) (if any) must be measured by the acquirer on the acquisition date of a business combination. According to IFRS, which of the following statements is false?

Alton Corporation purchased 100% of the shares of Jones Corporation for $600,000. Financial information for Jones Corporation is provided below. Jones Corporation ($000) Carrying Amount Fair Value Cash $ 50 $ 50 Accounts receivable 100 100 Inventory 150 100 Total current assets 300 250 Property, plant, and equipment (net) 500 600 Total assets $800 $850 Current liabilities $150 $150 Long-term debt 200 200 Total liabilities 350 350 Common stock 150 150 Paid-in capital 80 80 Retained earnings 220 Total shareholders' equity 450 Total liabilities and shareholders' equity $800 The amount of goodwill resulting from this purchase, if any, would be

The acquirer in a business combination transfers cash consideration for 100% of the voting interests of the acquiree. The acquisition-date fair value of liabilities assumed exceeds the acquisition-date fair value of the identifiable assets acquired. This excess is calculated without regard to the fair value the acquirer attributes to the acquiree's assembled workforce and certain contracts it is negotiating. Thus, goodwill must

Pendragon Co. issues 200,000 shares of $5 par value common stock to acquire Squire Co. in a business combination. The market value of Pendragon's common stock is $12. Legal and consulting fees incurred in relationship to the combination are $110,000. Direct registration and issuance costs for the common stock are $35,000. What should be recorded in Pendragon's additional paid-in capital (APIC) for this business combination?

A business combination must be accounted for as an acquisition. Which of the following expenses related to the business combination should be included, in total, in the determination of net income of the combined entity for the period in which the expenses are incurred?

On August 31, Planar Corp. exchanged 100,000 shares of its $40 par value common stock for all of the net assets of Sistrock Co. The fair value of Planar's common stock on August 31 was $72 per share. Planar paid a fee of $320,000 to the consultant who arranged this acquisition. Direct costs of registering and issuing the equity securities amounted to $160,000. No goodwill or bargain purchase was involved in the acquisition. At what amount should Planar record the acquisition of Sistrock's net assets?

A business combination occurred on December 31, Year 1, the end of the acquirer's fiscal year. Which of the following should be subtracted in determining the consolidated net income for Year 1?

On January 1, Year 2, Neal Co. issued 100,000 shares of its $10 par value common stock in exchange for all of Frey, Inc.'s outstanding stock. The fair value of Neal's common stock on that date was $19 per share. The carrying amounts and fair values of Frey's assets and liabilities on January 1, Year 2, were as follows: Carrying Amount Fair Value Cash $ 240,000 $ 240,000 Receivables 270,000 270,000 Inventory 435,000 405,000 Property, plant, and equipment 1,305,000 1,440,000 Liabilities (525,000) (525,000) Net assets $1,725,000 $1,830,000 What is the amount of goodwill resulting from the business combination?

On April 1, Dart Co. paid $620,000 for all the issued and outstanding common stock of Wall Corp. The recorded assets and liabilities of Wall Corp. on April 1 follow: Cash $ 60,000 Inventory 180,000 Property and equipment (net of accumulated depreciation of $220,000) 320,000 Goodwill 100,000 Liabilities (at fair value) (120,000) Net assets $ 540,000 On April 1, Wall's inventory had a fair value of $150,000, and the property and equipment (net) had a fair value of $380,000. What is the amount of goodwill resulting from the business combination?

Damon Co. purchased 100% of the outstanding common stock of Smith Co. in an acquisition by issuing 20,000 shares of its $1 par common stock that had a fair value of $10 per share and providing contingent consideration that had a fair value of $10,000 on the acquisition date. Damon also incurred $15,000 in direct acquisition costs. On the acquisition date, Smith had assets with a book value of $200,000, a fair value of $350,000, and related liabilities with a book and fair value of $70,000. What amount of gain should Damon report related to this transaction?

Primor, a manufacturer, owns 75% of the voting interests of Sublette, an investment firm. Sublette owns 60% of the voting interests of Minos, an insurer. In Primor's consolidated financial statements, should consolidation accounting or equity method accounting be used for Sublette and Minos?

According to GAAP, a business must