85.
The balance sheet of Mini Company was as follows immediately before it was acquired by
Maxi Company:
Mini Company
Balance Sheet
January 1, 2016
Cash
$90,000
Accounts receivable (net)
50,000
Inventory
150,000
Plant and equipment (net)
100,000
Total Assets
$390,000
Accounts payable
$40,000
Notes payable
80,000
Common stock
155,000
Retained earnings
115,000
Total Liabilities and Stockholders’ Equity
$390,000
On January 1, 2016, in a merger transaction, Maxi Company paid $350,000 in cash for 100% of
the outstanding common stock of Mini Company. The fair value of Mini Company’s plant and
equipment was $140,000 on the date of acquisition.
If the fair value and book value are the same for Mini’s remaining assets and liabilities, what
was the amount of goodwill acquired by Maxi Company?
Price paid
86.
The balance sheet of Mini Company was as follows immediately before it was acquired by
Maxi Company:
Mini Company
Balance Sheet
January 1, 2016
Cash
$90,000
Accounts receivable (net)
50,000
Inventory
150,000
Plant and equipment (net)
100,000
Total Assets
$390,000
Accounts payable
$40,000
Notes payable
80,000
Common stock
155,000
Retained earnings
115,000
Total Liabilities and Stockholders’ Equity
$390,000
On January 1, 2016, in a merger transaction, Maxi Company paid $350,000 in cash for 100% of
the outstanding common stock of Mini Company. The fair value of Mini Company’s plant and
equipment was $140,000 on the date of acquisition.
If the fair value and book value are the same for Mini’s remaining assets and liabilities, what
is the net increase in Maxi’s assets only, after paying the cash for Mini?
87.
On April 1, 2017, Paxton Corporation acquired all of the outstanding voting common stock of
Stanley Company and Stanley will remain a separate corporation. Stanley’s year–end is
December 31. How should the assets and liabilities of Stanley be reported on the consolidated
financial statements when Stanley is combined with Paxton on April 1, 2017?
88.
During 2016, Manning Corporation purchased 100% of the outstanding voting common stock
shares of Brady Corporation for $4.0 million. Brady’s assets had a book value of $5.0 million
and fair value of $6.5 million. The book value as well as fair value of Brady’s liabilities equaled
$3.2 million. How much was paid for goodwill?
89.
How is goodwill accounted for subsequent to acquisition?
90.
Which of the following does not properly describe reasons for a retailer of pianos having 30
stores to acquire control of another retailer of pianos having 12 stores?
91.
On January 1, 2016, Red Company purchased Patriot Shop for $400,000 cash in a merger
transaction. Red Company received the assets listed below and assumed accounts payable
owed by Patriot to its suppliers in the amount of $30,000.
Book Value per
Patriot’s Books
Fair
value
Inventory
$300,000
$280,000
Furniture and fixtures
60,000
73,000
Other assets
10,000
32,000
Price paid
What amount of goodwill will be recorded in the transaction?
92.
Which of the following accounts is only created as the result of acquiring a controlling interest
in another company?
93.
Piano Company owns 55% of the voting common stock shares of Keys Corporation. Which of
the following is true?
94.
Miller Corp. purchased $1,000,000 of bonds at 105 when the market yield was 8%. The bonds
pay interest at the rate of 10%. Miller intends to hold these bonds to maturity and will not
need to sell the bonds before that date. Which of the following statements is false?
95.
Trent Corp. purchased $1,000,000 of bonds at 96 when the market yield was 8%. The bonds
pay interest at the rate of 6%. Trent intends to hold these bonds to maturity and will not need
to sell the bonds before that date.
Which of the following statements is not correct?
96.
Trent Corp. purchased $1,000,000 of bonds at 96 when the market yield was 8%. The bonds
pay interest at the rate of 6%. Trent intends to hold these bonds to maturity and will not need
to sell the bonds before that date.
Which of the following statements is correct?
97.
Complete the following matrix by writing a brief explanation in each cell to indicate the
appropriate approach for long-term investments.
Measurement and
Reporting Method
Outstanding
Common Stock
Owned (%)
Level of Ownership:
Degrees of Influence
or Control
A.
Fair value
B.
Equity
C.
Consolidated
statements
Reporting Method
Outstanding
Common Stock
Owned (%)
Level of Ownership:
Degrees of Influence
or Control
A.
Fair value
Less than 20%
B.
Equity
20% or over but no more than 50%
Significant influence but no control
Consolidated statements
More than 50%
Control
98.
Required:
A. Discuss the similarities of accounting for available-for-sale and trading securities
portfolios.
B. Discuss the differences encountered in accounting for available–for-sale and trading
securities portfolios.
99.
On January 1, 2016, Heitzman Company purchased the following shares of stock as a long–
term investment in available–for-sale securities:
Corporation
Shares
Percent
Outstanding
Cost
per
Share
Maars
10,000
common (no
par)
5%
$25
Nassif
2,000
preferred
(par $10)
2%
$50
The fair value of the stocks subsequently were as follows:
Dec. 31,
2016
Dec. 31,
2017
Maars Corporation
common stock
$24.00
$27.50
Nassif Corporation
preferred stock
51.00
50.50
Required:
Calculate the “Net unrealized gains/losses,” at both December 31, 2016 and December 31,
2017.
100.
On January 1, 2016, as a long-term investment in available–for-sale securities, John Company
purchased 1,000 of the 10,000 outstanding voting common shares of Wayne Corporation at $9
per share. Wayne reported 2016 net income of $30,000 and declared and paid cash dividends
of $20,000. The market price of the Wayne stock at the end of 2016 was $10 per share.
Calculate the carrying value of John’s investment at the end of 2016.
101.
On January 31, 2016, McBurger Corporation purchased the following shares of voting common
stock as long-term investments in available-for–sale securities. None of these holdings
amounted to more than 5% of the respective company’s outstanding voting shares. The
accounting period ends December 31.
Stock
Cost
Market
Dec. 31,
2016
Market
Dec. 31,
2017
Orange
Corporation
$15,000
$12,000
$14,000
Bailey
Corporation
$13,000
$12,000
$13,000
All of the Bailey Corporation stock was sold for $13,500 on January 12, 2018.
Required:
Prepare the required journal entries at the following dates: January 31, 2016, December 31,
2016, December 31, 2017 and January 12, 2018.
