Professional Documents
Culture Documents
Ch01 Beams10e TB
Ch01 Beams10e TB
Ch01 Beams10e TB
BUSINESS COMBINATIONS
LO2
2.
3.
merger.
purchase transaction.
pooling-of-interests.
consolidation.
1-1
4.
LO3
LO4
5.
6.
7.
1-2
8.
9.
10.
A production backlog.
A talented employee workforce.
Noncontractual customer relationships.
Employment contracts.
11.
1-3
par
all
and
and
$13,000
14,000
9,000
15,000
11,000
13.
1-4
14.
15.
16.
$640,000
$240,000
$400,000
$0
17.
1-5
18.
19.
20.
1-6
Exercises
LO2
Exercise 1
On January 2, 2005 Bison Corporation issued 100,000 new shares of its
$5 par value common stock valued at $19 a share for all of Deer
Corporations outstanding common shares. Bison paid $15,000 to
register and issue shares. Bison also paid $10,000 for the direct
combination costs of the accountants. The fair value and book value
of Deer's identifiable assets and liabilities were the same.
Summarized balance sheet information for both companies just before
the acquisition on January 2, 2005 is as follows:
Bison
Deer
Cash
Inventories
Other current assets
Land
Plant assets-net
Total Assets
150,000
320,000
500,000
350,000
4,000,000
$5,320,000
120,000
400,000
500,000
250,000
1,500,000
$2,770,000
Accounts payable
Notes payable
Capital stock, $5 par
Paid-in capital
Retained Earnings
Total Liabilities & Equities
$1,000,000
1,300,000
2,000,000
1,000,000
20,000
$5,320,000
300,000
660,000
500,000
100,000
1,210,000
$2,770,000
Required:
1. Prepare Bison's general journal entry for the acquisition of
Deer, assuming that Deer survives as a separate legal entity.
2. Prepare Bison's general journal entry for the acquisition of
Deer, assuming that Deer will dissolve as a separate legal entity.
1-7
LO2
Exercise 2
On January 2, 2005 Altamira Company issued 80,000 new shares of its
$2 par value common stock valued at $12 a share for all of Lascaux
Corporations outstanding common shares. Altamira paid $5,000 for the
direct combination costs of the accountants. Altamira paid $10,000 to
register and issue shares. The fair value and book value of Lascaux's
identifiable assets and liabilities were the same. Summarized balance
sheet information for both companies just before the acquisition on
January 2, 2005 is as follows:
Cash
Inventories
Other current assets
Land
Plant assets-net
Total Assets
Accounts payable
Notes payable
Capital stock, $2 par
Paid-in capital
Retained Earnings
Total Liabilities & Equity
Altamira
$ 75,000
160,000
200,000
175,000
1,500,000
$2,110,000
Lascaux
$ 60,000
200,000
250,000
125,000
750,000
$1,385,000
100,000
700,000
600,000
450,000
260,000
$2,110,000
155,000
330,000
250,000
50,000
600,000
$1,385,000
Required:
1. Prepare Altamira's general journal entry for the acquisition of
Lascaux assuming that Lascaux survives as a separate legal entity.
2. Prepare Altamira's general journal entry for the acquisition of
Lascaux assuming that Lascaux will dissolve as a separate legal
entity.
1-8
Exercise 3
Dolmen Corporation purchased the net assets of Carnac Inc on January
2, 2005 for $280,000 and also paid $10,000 in direct acquisition
costs. Carnac's balance sheet on January 2, 2005 was as follows:
Accounts receivable-net
Inventory
Land
Building-net
Equipment-net
Total assets
$ 90,000
180,000
20,000
30,000
40,000
$360,000
Current liabilities
Long term debt
Common stock ($1 par)
Paid-in capital
Retained earnings
Total liab. & equity
$ 35,000
80,000
10,000
215,000
20,000
$360,000
Fair values agree with book values except for inventory, land, and
equipment, that have fair values of $200,000, $25,000 and $35,000,
respectively. Carnac has patent rights valued at $10,000.
Required:
Prepare Dolmen's general journal entry for the cash purchase of
Carnac's net assets.
1-9
Exercise 4
The balance sheets of Palisade Company and Salisbury Corporation were
as follows on December 31, 2004:
Current Assets
Equipment-net
Buildings-net
Land
Total Assets
Current Liabilities
Common Stock, $5 par
Paid-in Capital
Retained Earnings
Total Liabilities and
Stockholders' equity
Palisade
260,000
440,000
600,000
100,000
$1,400,000
100,000
1,000,000
100,000
200,000
$1,400,000
$
Salisbury
120,000
480,000
200,000
200,000
$1,000,000
120,000
400,000
280,000
200,000
$1,000,000
$
1-10
LO4
Exercise 5
Paradise Inc purchased the net assets of Sublime Company on January
2, 2005 for $320,000 and also paid $5,000 in direct acquisition
costs. Sublime's balance sheet on January 2, 2005 was as follows:
Accounts receivable-net
Inventory
Land
Building-net
Equipment-net
Total assets
$180,000
180,000
30,000
30,000
30,000
$450,000
Current liabilities
Long term debt
Common stock ($1 par)
Paid-in capital
Retained earnings
Total liab. & equity
$ 25,000
90,000
10,000
225,000
100,000
$450,000
Fair values agree with book values except for inventory, land, and
equipment, that have fair values of $200,000, $25,000 and $35,000,
respectively. Solitaire has patent rights valued at $10,000.
Required:
Prepare Paradise's general journal entry for the cash purchase of
Sublime's net assets.
1-11
LO4
Exercise 6
On January 2, 2005 Tennessee Corporation issued 100,000 new shares of
its $5 par value common stock valued at $19 a share for all of Alaska
Companys outstanding common shares in an acquisition. Tennessee paid
$15,000 for registering and issuing securities and $10,000 for other
direct costs of the business combination. The fair value and book
value of Alaska's identifiable assets and liabilities were the same.
Summarized balance sheet information for both companies just before
the acquisition on January 2, 2005 is as follows:
Cash
Inventories
Other current assets
Land
Plant assets-net
Total Assets
Tennessee
$ 150,000
320,000
500,000
350,000
4,000,000
$5,320,000
Accounts payable
Notes payable
Capital stock, $5 par
Paid-in capital
Retained Earnings
Total Liabilities & Equities
$1,000,000
1,300,000
2,000,000
1,000,000
20,000
$5,320,000
Alaska
120,000
400,000
500,000
250,000
1,500,000
$2,770,000
$
300,000
660,000
500,000
100,000
1,210,000
$2,770,000
Required:
Prepare a balance sheet for Tennessee Corporation immediately after
the business combination.
1-12
Exercise 7
Balance sheet information for Sphinx Company at January 1, 2005, is
summarized as follows:
Current assets
Plant assets
230,000
450,000
680,000
Liabilities
$
Capital stock $10 par
Retained earnings
$
300,000
200,000
180,000
680,000
Sphinxs assets and liabilities are fairly valued except for plant
assets that are undervalued by $50,000. On January 2, 2005, Pyramid
Corporation issues 20,000 shares of its $10 par value common stock
for all of Sphinxs net assets and Sphinx is dissolved. Market
quotations for the two stocks on this date are:
Pyramid common:
Sphinx common:
Butler pays the
combination:
$28.00
$19.50
following
fees
and
Finders fee
Legal and accounting fees
costs
in
connection
with
$10,000
6,000
Required:
1. Calculate Pyramids investment cost of Sphinx Corporation.
2. Calculate any goodwill from the business combination.
1-13
the
Solutions:
Multiple Choice Questions
1
6
11
16
D
D
B
A
2
7
12
17
D
B
B
C
3
8
13
18
D
A
C
D
4
9
14
19
B
B
C
D
5
10
15
20
Exercise 1
1.
2.
1,900,000
500,000
1,400,000
10,000
15,000
25,000
120,000
400,000
500,000
250,000
1,500,000
75,000
300,000
660,000
500,000
1,385,000
1-14
C
A
A
C
Exercise 2
1.
Investment in Lascaux
960,000
Common stock
160,000
Paid-in capital
800,000
Investment in Lascaux
5,000
Paid-in capital
10,000
Cash
15,000
2. General journal entry recorded by Altamira for the acquisition of
Lascaux (Lascaux dissolves as a separate legal entity):
Cash
Inventories
Other current assets
Land
Plant assets
Goodwill
Accounts payable
Notes payable
Common stock
Paid-in capital
60,000
200,000
250,000
125,000
750,000
55,000
155,000
330,000
160,000
790,000
Exercise 3
General journal entry for the purchase of Carnac's net assets:
Accounts receivable
Inventory
Land
Building
Equipment
Patent
Goodwill
Current liabilities
Long-term debt
Cash
90,000
200,000
25,000
30,000
35,000
10,000
15,000
35,000
80,000
290,000
1-15
Exercise 4
The stockholders' equity section for Palisade Corporation subsequent
to its acquisition of Salisbury Corporation on January 1, 2005 will
appear as follows:
Palisade Corporation
Balance Sheet
January 1, 2005
Current Assets
Equipment-net
Buildings-net
Land
Goodwill
Total Assets
Current Liabilities
Common Stock, $5 par
Paid-in Capital
Retained Earnings
Total Liabilities and
Stockholders' equity
310,000
920,000
800,000
350,000
320,000
$2,270,000
220,000
1,150,000
1,130,000
200,000
$2,700,000
Exercise 5
General journal entry for the purchase of Sublime's net assets:
Accounts receivable
Inventory
Land
Building-net
Equipment-net
Patent rights
Current liabilities
Long-term debt
Cash
Extraordinary gain
180,000
200,000
25,000
30,000
35,000
10,000
25,000
90,000
325,000
40,000
1-16
Exercise 6
Tennessee Corporation
Balance Sheet
January 1, 2005
Assets:
Cash
$ 245,000
Inventory
720,000
Other current assets 1,000,000
Total current assets 1,965,000
Land
Plant assets-net
Goodwill
Total L.T. assets
Total assets
Liabilities:
Accounts payable
Notes payable
Total liabilities
600,000
5,500,000
100,000
6,200,000
$1,300,000
1,960,000
3,260,000
Equity:
Common stock ($5 par) 2,500,000
Paid-in capital
2,385,000
Retained earnings
20,000
Total equity
4,905,000
Total liab.& eq.
$8,165,000
$8,165,000
Exercise 7
Requirement 1
FMV of shares issued by Pyramid: 20,000 x $28.00=
Finders fees
Legal and accounting fees
Total acquisition cost for Sphinx Corporation:
$
$
560,000
10,000
6,000
576,000
576,000
430,000
146,000
Requirement 2
Investment cost from above:
Less: Fair value of Sphinxs net assets ($680,000 of
total assets plus $50,000 of undervalued plant assets
minus $300,000 of debt)
Equals: Goodwill from investment in Sphinx:
1-17