D.
$1,765.
E.
$1,800.
$600 Cash + ($40 × 30 Stock) = $1,800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
39.
The financial statements for Goodwin, Inc. and Corr Company for the year ended
December 31, 2013, prior to Goodwin’s acquisition business combination transaction
regarding Corr, follow (in thousands):
On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value
common stock to the owners of Corr to acquire all of the outstanding shares of that
company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock
issuance costs. Corr’s equipment was actually worth $1,400 but its buildings were only
valued at $560.
Compute the goodwill arising from this acquisition at December 31, 2013.
A.
$0.
B.
$100.
C.
$125.
D.
$160.
E.
$400 CS + $540 APIC + $600 R/E = $1,540 + $200 Equipt – $40 Blgs = $1,700 Total
Equity
$600 Cash + ($40 × 30 Stock) = $1,800 Consideration – $1,700 = $100 Goodwill
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
40.
The financial statements for Goodwin, Inc. and Corr Company for the year ended
December 31, 2013, prior to Goodwin’s acquisition business combination transaction
regarding Corr, follow (in thousands):
On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value
common stock to the owners of Corr to acquire all of the outstanding shares of that
company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock
issuance costs. Corr’s equipment was actually worth $1,400 but its buildings were only
valued at $560.
Compute the consolidated common stock account at December 31, 2013.
A.
$1,080.
B.
$1,480.
C.
$1,380.
D.
$2,280.
E.
$2,680.
$1,080 + ($10 × 30 shares) = $1,380
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
41.
The financial statements for Goodwin, Inc. and Corr Company for the year ended
December 31, 2013, prior to Goodwin’s acquisition business combination transaction
regarding Corr, follow (in thousands):
On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value
common stock to the owners of Corr to acquire all of the outstanding shares of that
company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock
issuance costs. Corr’s equipment was actually worth $1,400 but its buildings were only
valued at $560.
Compute the consolidated additional paid-in capital at December 31, 2013.
A.
$810.
B.
$1,350.
C.
$1,675.
D.
$1,910.
E.
$1,875.
$810 + ($30 × 30 shares) – $35 Issuance Costs = $1,675
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
42.
The financial statements for Goodwin, Inc. and Corr Company for the year ended
December 31, 2013, prior to Goodwin’s acquisition business combination transaction
regarding Corr, follow (in thousands):
On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value
common stock to the owners of Corr to acquire all of the outstanding shares of that
company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock
issuance costs. Corr’s equipment was actually worth $1,400 but its buildings were only
valued at $560.
Compute the consolidated liabilities at December 31, 2013.
A.
$1,500.
B.
$2,100.
C.
$2,320.
D.
$2,920.
E.
$2,885.
$1,500 Parent’s + $820 Sub’s + $600 Parent’s New = $2,920
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
43.
The financial statements for Goodwin, Inc. and Corr Company for the year ended
December 31, 2013, prior to Goodwin’s acquisition business combination transaction
regarding Corr, follow (in thousands):
On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value
common stock to the owners of Corr to acquire all of the outstanding shares of that
company. Goodwin shares had a fair value of $40 per share.
Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock
issuance costs. Corr’s equipment was actually worth $1,400 but its buildings were only
valued at $560.
Compute the consolidated retained earnings at December 31, 2013.
A.
$2,800.
B.
$2,825.
C.
$2,850.
D.
$3,425.
E.
$3,450.
$2,850 – $25 Broker Expense = $2,825
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-04 Describe the valuation principles of the acquisition method.
Learning Objective: 02-05 Determine the total fair value of the consideration transferred for an acquisition and allocate
that fair value to specific subsidiary assets acquired (including goodwill); and liabilities assumed; or a gain on bargain
purchase.
Learning Objective: 02-06 Prepare the journal entry to consolidate the accounts of a subsidiary if dissolution takes place.
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
44.
On January 1, 2013, the Moody Company entered into a transaction for 100% of the
outstanding common stock of Osorio Company. To acquire these shares, Moody issued
$400 in long-term liabilities and 40 shares of common stock having a par value of $1 per
share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and
brokers for assistance in bringing about this acquisition. Another $15 was paid in
connection with stock issuance costs. Prior to these transactions, the balance sheets for
the two companies were as follows:
Note: Parentheses indicate a credit balance.
In Moody’s appraisal of Osorio, three assets were deemed to be undervalued on the
subsidiary’s books: Inventory by $10, Land by $40, and Buildings by $60.
What amount was recorded as the investment in Osorio?
A.
$930.
B.
$820.
C.
$800.
D.
$835.
E.
$815.
$400 Cash + ($1.00 × 40 shares) CS + ($9 × 40 shares) APIC = $800
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-07 Prepare a worksheet to consolidate the accounts of two companies that form a business
combination if dissolution does not take place.
45.
On January 1, 2013, the Moody Company entered into a transaction for 100% of the
outstanding common stock of Osorio Company. To acquire these shares, Moody issued
$400 in long-term liabilities and 40 shares of common stock having a par value of $1 per
share but a fair value of $10 per share. Moody paid $20 to lawyers, accountants, and
brokers for assistance in bringing about this acquisition. Another $15 was paid in
connection with stock issuance costs. Prior to these transactions, the balance sheets for
the two companies were as follows:
Note: Parentheses indicate a credit balance.
In Moody’s appraisal of Osorio, three assets were deemed to be undervalued on the
subsidiary’s books: Inventory by $10, Land by $40, and Buildings by $60.
What amount was recorded as goodwill arising from this acquisition?
A.
$230.
B.
$120.
C.
$520.
D.
None. There is a gain on bargain purchase of $230.
E.
None. There is a gain on bargain purchase of $265.
$800 Consideration Given
$240 CS + $340 APIC + $340 R/E = $920 + $10 Inv FV + $40 Land FV + $60 Blgs FV =