advance homework
Question Description
Q1. How are direct combination costs, contingent consideration, and a bargain purchase reflected in recording an acquisition transaction?
Q2. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement, the companies reported the following data:
Balance Sheet |
Zaid Ltd |
Zafar Ltd |
||
Book Value |
Fair Value |
Book Value |
Fair Value |
|
Cas & Receivables |
80,000 |
80,000 |
10,000 |
10,000 |
Inventory |
110,000 |
160,000 |
40,000 |
52,000 |
Machinery |
120,000 |
150,000 |
50,000 |
75,000 |
Land & Building |
480,000 |
350,000 |
250,000 |
200,000 |
Accumulated Depreciation |
(130,000) |
(50,000) |
||
Total Assets |
660,000 |
740,000 |
300,000 |
337,000 |
Current Liabilities |
100,000 |
120,000 |
75,000 |
75,000 |
Common Stock |
300,000 |
50,000 |
||
Capital in excess of Par Value |
40,000 |
10,000 |
||
Retained Earnings |
220,000 |
165,000 |
||
Total Liabilities |
660,000 |
300,000 |
Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a balance sheet for the combined entity immediately following the merger.
Q3. On January 1, 2016, ATM Corporation acquired all of the common stock of ZED Company for $300,000. On that date, ZED’s identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of ZED are considered to be a separate reporting unit of ATM Corporation. The carrying value of ZED’s investment at December 31, 2016, is $310,000. The fair value of the net assets (excluding goodwill) at that date is $220,000 and the fair value of the reporting unit is determined to be 260,000.
Required:
1) Explain how goodwill is tested for impairment for a reporting unit.
2) Determine the amount, if any, of impairment loss to be recognized at December 31, 2016.
Q4. Gant Company purchased 20 percent of the outstanding shares of Temp Company for $70,000 on January 1, 20X6. The following results are reported for Temp Company:
Required
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming Gant uses the following methods in accounting for its investment in Temp:
a.Cost method.
b.Equity method
c.Fair value method.
Q5. Acquisition at Other than Fair Value of Net Assets
Mason Corporation acquired 100 percent ownership of Best Company on February 12, 20X9. At the date of acquisition, Best Company reported assets and liabilities with book values of $420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earnings of $175,000. The book values and fair values of Best’s assets and liabilities were identical except for land which had increased in value by $20,000 and inventories which had decreased by $7,000. The estimated fair value of Best as a whole at the date of acquisition was $295,000.
Required:
Give the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Mason acquired its ownership of Best for $280,000.Q1. How are direct combination costs, contingent consideration, and a bargain purchase reflected in recording an acquisition transaction?
Q2. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement, the companies reported the following data:
Balance Sheet |
Zaid Ltd |
Zafar Ltd |
||
Book Value |
Fair Value |
Book Value |
Fair Value |
|
Cas & Receivables |
80,000 |
80,000 |
10,000 |
10,000 |
Inventory |
110,000 |
160,000 |
40,000 |
52,000 |
Machinery |
120,000 |
150,000 |
50,000 |
75,000 |
Land & Building |
480,000 |
350,000 |
250,000 |
200,000 |
Accumulated Depreciation |
(130,000) |
(50,000) |
||
Total Assets |
660,000 |
740,000 |
300,000 |
337,000 |
Current Liabilities |
100,000 |
120,000 |
75,000 |
75,000 |
Common Stock |
300,000 |
50,000 |
||
Capital in excess of Par Value |
40,000 |
10,000 |
||
Retained Earnings |
220,000 |
165,000 |
||
Total Liabilities |
660,000 |
300,000 |
Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a balance sheet for the combined entity immediately following the merger.
Q3. On January 1, 2016, ATM Corporation acquired all of the common stock of ZED Company for $300,000. On that date, ZED’s identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of ZED are considered to be a separate reporting unit of ATM Corporation. The carrying value of ZED’s investment at December 31, 2016, is $310,000. The fair value of the net assets (excluding goodwill) at that date is $220,000 and the fair value of the reporting unit is determined to be 260,000.
Required:
1) Explain how goodwill is tested for impairment for a reporting unit.
2) Determine the amount, if any, of impairment loss to be recognized at December 31, 2016.
Q4. Gant Company purchased 20 percent of the outstanding shares of Temp Company for $70,000 on January 1, 20X6. The following results are reported for Temp Company:
Required
Determine the amounts reported by Gant as income from its investment in Temp for each year and the balance in Gant’s investment in Temp at the end of each year assuming Gant uses the following methods in accounting for its investment in Temp:
a.Cost method.
b.Equity method
c.Fair value method.
Q5. Acquisition at Other than Fair Value of Net Assets
Mason Corporation acquired 100 percent ownership of Best Company on February 12, 20X9. At the date of acquisition, Best Company reported assets and liabilities with book values of $420,000 and $165,000, respectively, common stock outstanding of $80,000, and retained earnings of $175,000. The book values and fair values of Best’s assets and liabilities were identical except for land which had increased in value by $20,000 and inventories which had decreased by $7,000. The estimated fair value of Best as a whole at the date of acquisition was $295,000.
Required:
Give the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination assuming Mason acquired its ownership of Best for $280,000.