On January 1, Year 1, Polk Corp. and Strass Corp.

had condensed balance sheets as

follows:
  Polk Strass
Current assets $ 70,000 $20,000
Noncurrent assets 90,000 40,000
Total assets $160,000 $60,000
Current liabilities 30,000 10,000
Long-term debt 50,000 --
Stockholders’ equity 80,000 50,000
Total liabilities and stockholders’ 160,000 60,000
equity
 
On January 2, Year 1, Polk borrowed $60,000 and used the proceeds to purchase 90%
of the outstanding common shares of Strass. This debt is payable in ten equal annual
principal payments, plus interest, beginning December 30, Year 1. The excess cost of
the investment over Strass’ book value of acquired net assets should be allocated 60%
to inventory and 40% to goodwill. On January 1, Year 1, the fair
value of Polk shares held by noncontrolling parties was $10,000.
 
On Polk’s January 2, Year 1 consolidated balance sheet
Stockholders’ equity including noncontrolling interests should be

$ 90,000
Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then
dissolved. Paris had no liabilities. The fair values of Paris’ assets were $2,500,000. Paris’s only
non-current assets were land and equipment with fair values of $160,000 and $640,000,
respectively. At what value will the equipment be recorded by Raphael?
$640,000
Michangelo Co. paid $100,000 in fees to its accountants and lawyers in acquiring Florence
Company. Michangelo will treat the $100,000 as
an expense for the current year. 
On November 30, Year 1, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of
the outstanding common stock of Shaw Co. At November 30, Year 1, Shaw’s balance sheet
showed a carrying amount of net assets of $3,000,000. At that date, the fair value of Shaw’s
property, plant and equipment exceeded its carrying amount by $400,000. In its November 30,
Year 1 consolidated balance sheet, what amount should Parlor report as goodwill? 
$350,000

On January 1, Year 1, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common

stock for 160,000 cash. The fair value of the non-controlling interest at that date was determined
to be 40,000. Data from the balance sheets of the two companies included the following amounts
as of the date of acquisition:
  Jonathan Sea-Gull
 Corporatio Corporation
n
Cash 60,000 20,000
Accounts Receivable 80,000 30,000
Inventory 90,000 40,000
Land 100,000 40,000
Buildings and Equipment 200,000 150,000
Less: Accumulated Depreciation (80,000) (50,000)
Investment in Sea-Gull Corporation 160,000  
Stock
Total Assets 610,000 230,000
     
Accounts Payable 100,000 30,000
Bonds Payable 95,000 40,000
Common Stock 200,000 40,000
Retained Earnings 205,000 120,000
Total Liabilities and Stockholders’ 600,000 230,000
Equity
 
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities
approximated fair value except for inventory, which had a fair value of 45,000, and land, which
had a fair value of 60,000.

Based on the preceding information, what amount of goodwill will be reported in the
consolidated balance sheet prepared immediately after the business combination?

15,000

Patrick Company acquired the assets (except for cash) and assumed the liabilities of
Steve Company on January 2, Year 1 and Steve Company is dissolved. As
compensation, Patrick Company gave 24,000 shares of its common stock, 12,000
shares of its 8% preferred stock, and cash of 240,000 to the stockholders of Steve
Company. On the date of acquisition, Patrick Company had the following
characteristics:
 
Common , par value P5; fair value, P20
Preferred, par value P100; fair value, P 100
 
Immediately prior to acquisition, Steve Company’s balance sheet was as follows:
Cash 132,000 Current Liabilities 228,000
Accounts 170,000 Bonds payable, 400,000
Receivable (net of 10%
P4,000 allowance)
Inventory – LIFO 200,000 Common Stock, 600,000
cost P5 Par value
 Land 384,000 Additional Paid-in 380,000
Capital
Buildings and 1,032,00 Retained Earnings 310,000
Equipment (net) 0
Total 1,918,00 Total 1,918,000
0
 
An appraisal of Steve Company showed that the fair values of its assets and
liabilities were equal to their book values except for the following, which had fair
values as indicated:
Accounts 158,000 Land 540,000
receivable
Inventory 412,000 Bonds 448,000
payable
 
How much must be the goodwill recognized as a result of this business
combination?

454,000

On April 1, Year 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, Year 1, follow:
Cash $ 60,000
Inventory 180,000
Property and equipment (net of accumulated depreciation of 320,000
$220,000)
Goodwill 100,000
Liabilities (120,000)
Net assets $ 540,000
On April 1, Year 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?
$150,000 

Are the following statements about an acquisition true or false, according to IFRS3
(2008) Business combinations?
a. The acquirer should recognise the acquiree's contingent liabilities if certain
conditions are met.
a. The acquirer should recognise the acquiree's contingent assets if certain
conditions are met.
  Statement Statement
(1) (2)
 True False

On January 1, Year 1, Gulliver Corporation acquired 80 percent of Sea-Gull Company's

common stock for 160,000 cash. The fair value of the non-controlling interest at that
date was determined to be 40,000. Data from the balance sheets of the two companies
included the following amounts as of the date of acquisition:
  Jonathan Sea-Gull
Corporatio Corporatio
n n
Cash 60,000 20,000
Accounts Receivable 80,000 30,000
Inventory 90,000 40,000
Land 100,000 40,000
Buildings and Equipment 200,000 150,000
Less: Accumulated Depreciation (80,000) (50,000)
Investment in Sea-Gull Corporation 160,000  
Stock
Total Assets 610,000 230,000
     
Accounts Payable 100,000 30,000
Bonds Payable 95,000 40,000
Common Stock 200,000 40,000
Retained Earnings 205,000 120,000
Total Liabilities and Stockholders’ 600,000 230,000
Equity
 
At the date of the business combination, the book values of Sea-Gull's net assets and
liabilities approximated fair value except for inventory, which had a fair value of 45,000,
and land, which had a fair value of 60,000.
Based on the preceding information, what amount will be reported as total stockholders'
equity in the consolidated balance sheet prepared immediately after the business
combination? 

445,000

Mountain Inc. acquired on January 1, Year 1 all the issued and outstanding common shares of
Racer Inc. for 310,000. On this day, the net assets of Racer Inc., amounts to 270,000 including
goodwill of 50,000. Per appraisal, plant and equipment and merchandise inventory were
undervalued by 30,000 and overvalued by 15,000, respectively. What is the amount of goodwill
resulting from this transaction?
75,000