Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS
C1-1
35 min.
LO 1-2,
LO 1-5
M
Assignment of Acquisition Costs
Students must research the current authoritative accounting standards as well as
any FASB proposals regarding the treatment of acquisition costs and report their
findings.
C1-2
15 min.
LO 1-1,
LO 1-3
M
Evaluation of a Merger
Students are asked to explain the funding of an acquisition as well as the impact
on receivables and inventory.
C1-3
15 min.
LO 1-4
M
Business Combinations
Students must identify and evaluate tax incentives and other economic factors
associated with the frequency of business combinations since the 1960s.
C1-4
25 min.
LO 1-5
E
Determination of Goodwill Impairment
Students must research the authoritative literature regarding impairment testing
of goodwill. Students must report their findings and explain the type of tests
used to determine whether goodwill has been impaired and provide some
example that would indicate possible goodwill impairment.
C1-5
25 min.
LO 1-1
E
Risks Associated with Acquisitions
Students must discuss the risks that Google sees inherent in potential acquisitions
after researching the information provided by the company to investors about its
motivation for acquiring companies and the possible risks associated with such
acquisitions.
C1-6
20 min.
LO 1-1
E
Numbers Game
Students must read Arthur Levitt’s speech “The Numbers Game” and explain the
motivations and techniques for earnings management, as well as the significance
of the issue.
C1-7
20 min.
LO 1-1,
LO 1-4
M
MCI: A Succession of Mergers
Students are asked to look at the primary business activities and growth strategies
of MCI WorldCom, Inc. They should trace the major acquisitions leading to MCI
WorldCom and indicate the type of consideration used in the acquisitions. Some
specific information is required.
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
C1-8
25 min.
LO 1-4
M
Leveraged Buyouts
Students must explain a leveraged buyout and contrast it with a management
buyout. They must identify authoritative pronouncements and the major issue
involved in determining proper basis for an interest in an LOB acquired company.
E1-1
20 min.
LO 1-1, LO
1-3, LO 1-5
M
Multiple-Choice Questions on Complex Organizations
A set of 5 multiple-choice questions testing students’ understanding of complex
business organizations.
E1-2
20 min.
LO1-2, LO
1-5
E
Multiple-Choice Questions on Recording Business Combinations
[AICPA Adapted] A set of five multiple-choice questions test students’ basic
understanding of recording business combinations.
E1-3
13 min.
LO 1-2,
LO 1-5
M
Multiple-Choice Questions on Reported Balances
[AICPA Adapted] Four multiple-choice questions cover the computation of
stockholders’ equity and asset balances for the combined entity following a
business combination.
E1-4
13 min.
LO 1-2,
LO 1-5
M
Multiple-Choice Questions Involving Account Balances
Five multiple-choice questions cover the computation of account balances and
related journal entries after a business combination.
E1-5
20 min.
LO 1-3
E
Asset Transfer to Subsidiary
Students are asked to show the journal entries made by the parent and subsidiary
for the transfer of assets to the subsidiary.
E1-6
15 min.
LO 1-3
E
Creation of New Subsidiary
Students are asked to show the journal entries made by the parent and the
subsidiary for the transfer of assets to the subsidiary.
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
E1-7
15 min.
LO 1-2,
LO 1-3
E
Balance Sheet Totals of Parent Company
Journal entries are required for transfer of assets and accounts payable between a
parent company and its newly created subsidiary. Both the parent and subsidiary
journal entries must be made.
E1-8
12 min.
LO 1-2,
LO 1-5
M
Acquisition of Net Assets
Students are required to show the journal entries that the parent must make at time
of acquisition.
E1-9
20 min.
LO 1-5
M
Reporting Goodwill
Students must calculate goodwill to be reported under different acquisition prices.
E1-10
10 min.
LO 1-5
E
Stock Acquisition
Students must show the journal entry that the acquiring company must record
when it issues stock for acquiring a subsidiary.
E1-11
20 min.
LO 1-5
M
Balances Reported Following Combination
Students must calculate seven balances for balance sheet accounts immediately
following a business combination.
E1-12
15 min.
LO 1-5
E
Goodwill Recognition
Students must show the journal entry to be made by the acquiring company in
recording a business combination involving goodwill.
E1-13
15 min.
LO 1-5
M
Acquisition Using Debentures
Students must show the journal entry to be made by the acquiring company in
recording a business combination executed using debentures.
E1-14
15 min.
LO 1-5
M
Bargain Purchase
Students must show the journal entry to be made by the acquiring company in
recording a business combination involving gain on bargain purchase.
E1-15
20 min.
LO 1-5
M
Impairment of Goodwill
Students must calculate goodwill and potential impairment of goodwill given
three different fair value amounts.
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
E1-16
15 min.
LO 1-5
M
Assignment of Goodwill
Students must calculate potential impairment of goodwill given three different
fair value amounts.
E1-17
20 min.
LO 1-5
M
Goodwill Assigned to Reporting Units
Students must calculate reported goodwill for a company, based on information
for four different reporting units.
E1-18
15 min.
LO 1-5
E
Goodwill Measurement
Students must calculate goodwill and potential impairment of goodwill given
four different fair value amounts.
E1-19
20 min.
LO 1-5
M
E1-20
20 min.
LO 1-5
M
Computation of Shares Issued and Goodwill
Students must determine the number of shares issued, the par value of the
acquiring company’s stock, and any goodwill arising from the business
combination.
E1-21
15 min.
LO 1-5
M, Ws
Combined Balance Sheet
Students must prepare a balance sheet of the combined company immediately
following the acquisition.
E1-22
20 min.
LO 1-5
M
Recording a Business Combination
Students must show the journal entries made by acquiring company given
financial statement information for both companies and market value of the
acquiring company’s common stock.
E1-23
15 min.
LO 1-5
M
Reporting Income
Students must compute net income and earnings-per-share reported in
comparative income statement for two years.
P1-24
10 min.
LO 1-3
E
Assets and Accounts Payable Transferred to Subsidiary
Students must show journal entries recorded for transfer of assets and liabilities
to the newly established subsidiary.
P1-25
10 min.
LO 1-3
E
Creation of New Subsidiary
Students must show journal entries made for the transfer of assets and liabilities
to a newly created entity.
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
P1-26
25 min.
LO 1-3
M
Incomplete Data on Creation of Subsidiary
Students must calculate book value, reported amounts, reported shares, impact on
balance sheet amounts.
P1-27
20 min.
LO 1-5
M
Acquisition in Multiple Steps
Students must prepare journal entries for the completion of the acquisition of
additional shares of a previously owned company.
P1-28
15 min.
LO 1-5
M
Journal Entries to Record a Business Combination
Students must show the journal entries made to record a business combination in
which the acquiring company issues shares of common stock.
P1-29
15 min.
LO 1-5
M
Recording Business Combinations
Students must show the journal entries made to record a business combination in
which the acquiring company issues shares of common stock.
P1-30
30 min.
LO 1-5
E, Ws
Business Combination with Goodwill
Students must show the journal entry to be recorded by the acquiring company
and the balance sheet following the business combination.
P1-31
15 min.
LO 1-5
M
Bargain Purchase
Students must show the journal entry to be made by the acquiring company in
recording a business combination involving gain on bargain purchase.
P1-32
15 min.
LO 1-5
M
Computation of Account Balances
Calculation of liability balance and fair value is required with simultaneous
consideration of potential goodwill impairment.
P1-33
25 min.
LO 1-5
H
Goodwill Assigned to Multiple Reporting Units
Calculation of goodwill and potential goodwill impairment for multiple reporting
units in a company are required.
P1-34
15 min.
LO 1-5
M
Journal Entries
Students must show journal entries recorded by acquiring company for a business
combination. Costs of combination must be considered.
P1-35
30 min.
LO 1-5
M, Ws
Purchase at More than Book Value
Students must show journal entries to record a business combination and prepare
a balance sheet immediate after the business combination.
P1-36
25 min.
LO 1-5
Business Combination
Journal entries recorded by the acquiring company to record the business
combination. Several account balances must be adjusted.
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
M
P1-37
30 min.
LO 1-5
H
Combined Balance Sheet
The balance sheet following the business combination is required. Stockholders’
equity balances are required assuming three different levels of stock are issued by
the acquiring company in completing the business combination.
P1-38
30 min.
LO 1-5
M
P1-39
30 min.
LO 1-5
M
P1-40
40 min.
LO 1-5
M
Chapter 01 – INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES
OTHER RESOURCES
Chapter 1
Business Combination Illustration
On January 1, 20X9, Aggressive Co. acquired all the common shares of Docile Corp. by issuing
common shares. Aggressive Co. issued shares with a par value of $15,000 and a market value of
$90,000 in completing the acquisition.
COMPUTATION OF GOODWILL
Fair Value of Shares issued by Aggressive Co.
$90,000
Fair Value of Docile Corp. Assets
$150,000
Fair Value of Docile Corp. Liabilities
(72,000)
Fair Value of Docile Corp. Net Assets
(78,000)
Goodwill
$12,000
Combined
Book Fair Book Fair Combined
Value Value Value Value Value
Cash $50,000 $50,000 $20,000 $20,000 $70,000
Inventory 50,000 70,000 40,000 50,000 100,000
Building & Equipment(net) 300,000 350,000 60,000 80,000 380,000
Goodwill 12,000
TOTAL ASSETS $400,000 $120,000 $562,000
Current Liabilities $25,000 $25,000 $40,000 $40,000 $65,000
Bonds Payable 75,000 76,500 30,000 32,000 107,000
Capital Stock 200,000 20,000 215,000
Additional Paid-In Capital 30,000 10,000 105,000
Retained Earnings 70,000 20,000 70,000
TOTAL LIABILITIES AND S.E $400,000 $120,000 $562,000
Balance Sheet Data
of Individual Companies
Aggressive Co.
Docile Corp.