Chapter 1 HW

1-9 Reporting Goodwill Samper Company reported the book value of its net assets at $160,000 when Public Corpora-tion acquired 100 percent of its voting stock for cash. The fair value of Samper's net assets was determined to be $190,000 on that date. Required Determine the amount of goodwill to be reported in consolidated financial statements presented immediately following the combination and the amount at which Public will record its investment in Samper if the amount paid by Public is c. $150,000.

150000- 190000= 0 GW= 0 the investment would be reported at the fair value of 190000 because 150000 is below the Fair value there is never good will when the purchase price is below the fair value of the net identifiable assets

E1-6 Creation of New Subsidiary Pester Company transferred the following assets to a newly created subsidiary, Shumby Corpora-tion, in exchange for 40,000 shares of its $3 par valuestock: - look at the problem for the numbers b. Give the journal entry in which Shumby recorded the receipt of assets and issuance of common stock to Pester.

Acct rec . 75000 cash . 40000 inventory . 35000 land 160000 equip . 240000 A/D Build . 35000 A/D equip . 60000 Allow for Unco . 7000 c/s . 120000 APIC 378000 APIC = the investment - common stock at par value

E 1-8 Acquisition of Net Assets Pun Corporation concluded the fair value of Slender Company was $60,000 and paid that amount to acquire its net assets. Slender reported assets with a book value of $55,000 and fair value of $71,000 and liabilities with a book value and fair value of $20,000 on the date of combination. Pun also paid $4,000 to a search firm for finder's fees related to the acquisition. Required Give the journal entries to be made by Pun to record its investment in Slender and its payment of the finder's fees. there are 2 journal entries

Assets 71000 Goodwill 9000 Cash 60000 liabilities 20000 Merger Expense 4000 Cash . 4000 this is now external expansion so now you use the assets and liabilities fair values not their book values it is acquisition of net assets GW calculation: PP- net assets - intangibles (60000- (71000-20000) - 0) = 9000

e 1-7 look in the notes for the balance sheet what is Skines journal entry

cash 15000 AR . 24000 Inventory . 9000 land . 3000 Depr As . 65000 A/D . 28000 AP . 22000 C/s . 48000 APIC . 18000

E1-6 Creation of New Subsidiary Pester Company transferred the following assets to a newly created subsidiary, Shumby Corpora-tion, in exchange for 40,000 shares of its $3 par valuestock: - look at the problem for the numbers Required a. Give the journal entry in which Pester recorded the transfer of assets to Shumby Corporation.

invest in S c/s 498000 A/D Build . 35000 A/D equip . 60000 Allow for Unco . 7000 Acct rec . 75000 cash . 40000 inventory . 35000 land 160000 equip . 240000 it is a new subsidiary so it is internal expansion always record the cost for accounts recievables and for depreciable accounts

what is a bargain purchase

it is when assets are acquired for less than the FMV

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet c. land

185000 100000 + 85000

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet b. cash and recievables

190000 150000 + 40000

1-9 Reporting Goodwill Samper Company reported the book value of its net assets at $160,000 when Public Corpora-tion acquired 100 percent of its voting stock for cash. The fair value of Samper's net assets was determined to be $190,000 on that date. Required Determine the amount of goodwill to be reported in consolidated financial statements presented immediately following the combination and the amount at which Public will record its investment in Samper if the amount paid by Public is b. $196,000.

196000- 190000 = 6000 GW= 6000

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet a. common stock

280000 200000 + (10 *8000)

1-9 Reporting Goodwill Samper Company reported the book value of its net assets at $160,000 when Public Corpora-tion acquired 100 percent of its voting stock for cash. The fair value of Samper's net assets was determined to be $190,000 on that date. Required Determine the amount of goodwill to be reported in consolidated financial statements presented immediately following the combination and the amount at which Public will record its investment in Samper if the amount paid by Public is a. $310,000.

310000- 190000= 120000 GW= 120000 formula for Goodwill is Purchase price - net assets - intangibles

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet G. retained earnings

330000

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet f. APIC

340000 20000 + ((50-10) *8000)

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet e. goodwill

45000 (50 * 8000) -355000

E 1-11 look in the question packet for the questions what amount will be reported immediately following the business combination for each of the following items in the combines company's balance sheet d. Buildings + equipment

530000 300000 + 230000

E1-10 Stock Acquisition Permott Corporation has been in the midst of a major expansion program. Much of its growth had been internal, but in 20X1 Permott decided to continue its expansion through the acquisition of other companies. The first company acquired was Sippy Inc., a small manufacturer of inertial guidance systems for aircraft and missiles. On June 10, 20X1, Permott issued 17,000 shares of its $25 par common stock for all 40,000 of Sippy's $10 par common shares. At the date of combina-tion, Sippy reported additional paid-in capital of $100,000 and retained earnings of $350,000. Permott's stock was selling for $58 per share immediately prior to the combination. Subsequent to the combination, Sippy operated as a subsidiary of Permott. Required Present the journal entry or entries that Permott would make to record the business combination with Sippy.

Investment in C/S 986000 C/S . 425000 APIC . 561000 58 * 17000 = 986000 17000 * 25 = 425000

Goodwill represents the excess of the sum of the fair value of the (1) consideration given, (2) shares already owned, and (3) the noncontrolling interest over the a. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed. b. Sum of the fair values assigned to tangible assets acquired less liabilities assumed. c. Sum of the fair values assigned to intangible assets acquired less liabilities assumed. d. Book value of an acquired company.

a. Sum of the fair values assigned to identifiable assets acquired less liabilities assumed. assets only need to be indentifiable they dont have to be tangible like patents are identifiable but they are not tangible (c) Incorrect. Assets considered only have to be identifiable. This includes both tangible and intangible identifiable assets. (d) Incorrect. The calculation of goodwill requires a remeasurement of the assets and liabilities at fair value, not book value. identifiable assets can be both tangible and intangible

E1-19 Computation of Fair Value Prant Company acquired all of Sedford Corporation's assets and liabilities on January 1, 20X2, in a business combination. At that date, Sedford reported assets with a book value of $624,000 and liabilities of $356,000. Prant noted that Sedford had $40,000 of capitalized research and development costs on its books at the acquisition date that did not appear to be of value. Prant also determined that patents developed by Sedford had a fair value of $120,000 but had not been recorded by Sedford. Except for buildings and equipment, Prant determined the fair value of all other assets and liabilities reported by Sedford approximated the recorded amounts. In recording the transfer of assets and liabilities to its books, Prant recorded good-will of $93,000. Prant paid $517,000 to acquire Sedford's assets and liabilities. If the book value of Sedford's buildings and equipment was $341,000 at the date of acquisition, what was their fair value?

amount paid 517000 Book value of assets $624,000 - Book value of liabilities (356,000) = Book value of net assets $268,000 - Adjustment for research and development costs (40,000) =Adjusted book value $228,000 +Fair value of patent rights 120,000 +Goodwill recorded 93,000 =(441,000) 517000-441000= 76000 Fair value increment of buildings and equipment $ 76,000 +Book value of buildings and equipment 341,000 =Fair value of buildings and equipment $417,000 - The FASB concluded that valuable ongoing research and development projects of an acquiree are assets and should be recorded at their acquisition-date fair values, even if they have no alternative use. - These projects should be classified as having indefinite lives and, therefore, should not be amortized until completed or abandoned. - They should be tested for impairment.

4. Pout Company reports assets with a carrying value of $420,000 (including goodwill with a carrying value of $35,000) assigned to an identifiable reporting unit purchased at the end of the prior year. The fair value of the reporting unit is currently $350,000, and the carrying value of the net assets held by the reporting unit is $330,000. At the end of the current period, Pout should report goodwill of a. $45,000. b. $35,000. c. $25,000. d. $10,000.

b. $35,000. for internal expansion assets are always at book value/ carrying value (Book value and carrying value are the same thing) $35,000. Since the carrying value of the reporting unit ($330,000) is lower than the fair value of the reporting unit's net assets ($350,000), the goodwill of the reporting unit is not impaired and will remain at its carrying value of $35,000

3. Salt Company, a newly established subsidiary of Pepper Corporation, received assets with an original cost of $260,000, a fair value of $200,000, and a book value of $140,000 from the parent in exchange for 7,000 shares of Salt's $8 par value common stock. Salt should record a. Additional paid-in capital of $0. b. Additional paid-in capital of $84,000. c. Additional paid-in capital of $144,000. d. Additional paid-in capital of $204,000.

b. Additional paid-in capital of $84,000. because it is internal expansion you use the book value Assets 140000 C/S 56000 APIC . 84000

5. Pill Company has a reporting unit and the fair value of its net identifiable assets of $500,000. The carrying value of the reporting unit's net assets on Pill's books is $575,000, which includes $90,000 of goodwill. The estimated fair value of the reporting unit is $560,000. Pill should report impairment of goodwill of a. $60,000. b. $30,000. c. $15,000. d. $0.

c. $15,000. $15,000. The carrying value of the reporting unit's net assets ($575,000) exceeds the estimated fair value of the reporting unit ($560,000). The goodwill should be impaired by the amount by which the carrying value of the unit's net assets exceeds the estimated fair value of the reporting unit, $15,000 ($575,000 - $560,000).

5. A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. In exchange for 40 percent of its voting stock, A Company acquires 80 percent of the common stock of B Company. This is a "tax-free" stock-for-stock exchange for tax purposes. B Company's identifiable assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000, and the fair value of the noncontrolling interest is $175,000. The goodwill resulting from this acquisition would be a. Zero. b. $60,000. c. $75,000. d. $295,000.

c. $75,000. $875,000 - $800,000 = $75,000. Total consideration given - FV of net assets = Goodwill Purchase Price = FV of consideration transferred + contingent consideration (170000+175000) - 800000

1. Popper Company established a subsidiary and transferred equipment with a fair value of $72,000 to the subsidiary. Popper had purchased the equipment with a 10-year expected life 4 years earlier for $100,000 and has used straight-line depreciation with no expected residual value. At the time of the transfer, the subsidiary should record a. Equipment at $72,000 and no accumulated depreciation. b. Equipment at $60,000 and no accumulated depreciation. c. Equipment at $100,000 and accumulated depreciation of $40,000. d. Equipment at $120,000 and accumulated depreciation of $48,000.

c. Equipment at $100,000 and accumulated depreciation of $40,000. When the parent creates the subsidiary, the equipment is transferred at cost with the accompanying accumulated depreciation (which in effect is the book value). ($100,000/10 = $10,000 per year * 4 = $40,000.) (a) Incorrect . When a subsidiary is created internally, the assets are transferred as they were on the parent's books (carrying value). Fair value is not considered. (b) Incorrect. This is the proper carrying value of the asset, but it should be recorded at cost with the accompanying accumulated depreciation. (d) Incorrect. When a subsidiary is created internally, the assets are transferred as they were on the parent's books (carrying value). you always record depreciable asset at cost and the other asssets at their book values then the depreication is the cost - BV or if using straightine here it is 40000

Pead Corporation established a new subsidiary and transferred to it assets with a cost of $90,000 and a book value of $75,000. The assets had a fair value of $100,000 at the time of transfer. The transfer will result in a. A reduction of net assets reported by Pead Corporation of $90,000. b. A reduction of net assets reported by Pead Corporation of $75,000. c. No change in the reported net assets of Pead Corporation. d. An increase in the net assets reported by Pead Corporation of $25,000.

c. No change in the reported net assets of Pead Corporation. no change because they are transferred at the carrying value on peads books the bv of the net assets will be the purchase price the only accounts not recorded at book value is the land and equipment which is at cost and then (cost- BV) = depreciation

In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n) a. Expense of the combined company for the period in which the costs were incurred. b. Direct addition to stockholders' equity of the combined company. c. Reduction of the recorded value of the securities. d. Addition to goodwill.

c. Reduction of the recorded value of the securities. - "Costs of issuing equity securities used to acquire the acquire are treated in the same manner as stock issue costs are normally treated, as a reduction in the paid-in capital associated with the securities" A reduction to the paid-in capital account results in a reduction in the fair value of the securities issued. (a) Incorrect . Stock issue costs are not expensed but are charged as a reduction in paid-in capital. (b) Incorrect. Stock issue costs result in a reduction of stockholder's equity, not an increase. (d) Incorrect. Stock issue costs result in a reduction of equity, and are not capitalized.They are not added to goodwill. in notes example 2 --> legal fees, sec filing fees, these costs are debited to APIC to reduce it

E-14 Bargain Purchase Using the data presented in E1-13, determine the amount Planter Corporation would record as a gain on bargain purchase and prepare the journal entry Planter would record at the time of the exchange if Planter issued bonds with a par value of $580,000 and a fair value of $564,000 in completing the acquisition of Sorden.

cash AR . 50000 Inventory . 200000 land . 100000 Plant + Equip . 300000 Discount on bond . 16000 AP . 50000 Bonds Pay . 580000 Gain on bargain Purchase of Subsidiary 36000 it is a bargain purchase because the book value is greater than the fair value for the bonds so to find bonds payable of 16000 it is the difference (580000-564000) how to find the gain on the bargain purchase is FV of consideration given - assets acquired less liabilites assumed (net assets) = FV of net assets acquired = Bargain purchase gain so bargain purchase gain is the FV of the consideration given - FV of net assets

1-12 Required Planket acquired Spur Corporation's assets and liabilities for $670,000 cash on December 31, 20X1. Give the entry that Planket made to record the purchase.

cash+ AR 40000 Inventory . 150000 land 30000 plant + Equip 35000 patent 130000 Goodwill 55000 Acct Pay 85000 Cash 670000 report everything at the Fair value to finsd good will 670000 - 485000-130000

3. Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock? a. Historical cost. b. Book value. c. Cost plus any excess of purchase price over book value of assets acquired. d. Fair value.

d. Fair value. When a new company is acquired, the assets and liabilities are recorded at fair value. (a) Incorrect . Historical cost is not always reflective of actual value, thus fair values are used. (b) Incorrect. Book value is often different than fair value, thus fair value is the appropriate basis. (c) Incorrect. This method is also unacceptable. Fair value is the appropriate basis.

In a business combination in which an acquiring company purchases 100 percent of the outstanding common stock of another company, if the fair value of the net identifiable assets acquired exceeds the fair value of the consideration given. The excess should be reported as a a. Deferred credit. b. Reduction of the values assigned to current assets and a deferred credit for any unallocated portion. c. Pro rata reduction of the values assigned to current and noncurrent assets and a deferred credit for any unallocated portion. d. No answer listed is correct.

d. No answer listed is correct. This combination would result in a bargain purchase. (a) Incorrect . Deferred credits do not arise as a result of fair value of identifiable assets exceeding fair value of the consideration. (b) Incorrect. The fair value is not reduced, and deferred credits do not arise in this situation. (c) Incorrect. The fair value is not reduced, and deferred credits do not arise in this situation.

e 1-7 look in the notes for the balance sheet what is phosters journal entry

inv skyne C/S 66000 A/D 28000 AP . 22000 Cash 15000 AR 24000 inventory . 9000 land 3000 depreciable assets 65000 to find the accumulated depreciation do before transfer depreciation and after transfer depreciation (75000-47000) accounts payable is the difference between the before and the after value debit accounts payable because you are decreasing it everything is recorded at the difference between the before and after transfer price

E1-5 Asset Transfer to Subsidiary Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred these assets, cash of $21,000, and inventory costing $37,000 to a newly created subsidiary, Sight Company, in exchange for 10,000 shares of Sight's $6 par value stock. Pale uses straight-line depreciation and useful lives of 40 years and 10 years for the building and equipment, respectively, with no estimated residual values. Required a. Give the journal entry that Pale recorded when it transferred the assets to Sight.

investm in Sight C/S 408000 A/D Build 24000 A/d Equip 36000 land . 80000 building . 240000 equipment . 90000 cash . 21000 inventory . 37000 need to find the book value of building and equipment remember land is not depreciable this is internal expansion to find the purchase price it is common stock +APIC

E1-5 Asset Transfer to Subsidiary Pale Company was established on January 1, 20X1. Along with other assets, it immediately purchased land for $80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred these assets, cash of $21,000, and inventory costing $37,000 to a newly created subsidiary, Sight Company, in exchange for 10,000 shares of Sight's $6 par value stock. Pale uses straight-line depreciation and useful lives of 40 years and 10 years for the building and equipment, respectively, with no estimated residual values. b. Give the journal entry that Sight recorded for the receipt of assets and issuance of common stock to Pale.

land . 80000 building . 240000 equipment . 90000 cash . 21000 inventory . 37000 c/s . 60000 Acc/dep buil 24000 Acc/de equi 36000 APIC . 348000 remember land is not depreciable 240000/40 * 4= 24000 90000/10 *4= 36000 assets= 468000 468000-120000= 348000 this is internal expansion

what does it mean if good will is impaired

when the BV> FV of the net assets GW formula = Purchase price - Net assets - seperstly identified intangibles