Introduction: Acquisition is a corporate term used to represent purchase of another company and gaining the ownership of the company.
To prepare: Value Analysis as well as Determination and distribution of excess schedule.
Answer to Problem 2.1.2P
Acquisition cost
Determination and distribution of excess schedule
Explanation of Solution
Acquisition is a corporate term to define buying all of another company and gain the ownership of the company.
Identify the acquirer: for acquisition it is very important for acquiree’s to know the acquirer.
Following things should be kept in mind voting rights, large minority interest, governing body of combined entity and terms of exchange.
Determine the acquisition of the company.
Measures the fair value of acquiree: the fair value of the aquiree as an entity is assumed to be paid by the acquirer. The price includes the contingent consideration, the costs of acquisition are not included in the price of the company acquired and expended.
Record acquiree’s assets and liabilities that are assumed: the fair value of all identifiable assets and liabilities of the acquire are determined and recorded.
Contingent consideration: contingent consideration is consideration given on the happening or non-happening of event. It is generally added in purchase consideration and increase goodwill.
Calculation:
Acquisition cost
Company Fair Value | $810,000 | $810,000 |
(-) Book Value of Interest Acquired | ||
Common Stock ($1 par) | $20,000 | |
Paid-in capital in excess of par | $180,000 | |
$140,000 | ||
Total Equity | $340,000 | $340,000 |
Interest Acquired | 100% | |
Book Value | $340,000 | |
Excess of Fair Value over Book Value | $470,000 |
Want to see more full solutions like this?
Chapter 2 Solutions
Advanced Accounting
- sub parts to be solved a) Liala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactions occurred between the two entities: On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12,000, this inventory previously costed Liala Ltd $10,000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to other entities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000. During the 2016–17 period, Jordan Ltd sold inventory to Liala Ltd for $6,000, this being at cost plus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. The tax rate is 30%. b) On 1 July 2016, Liala ltd sold an item of plant to Jordan Ltd Ltd for $150,000 when its carrying value in Liala Ltd book was $200,000 (costs $300,000, accumulated depreciation $100,000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs…arrow_forwardSUBSEQUENT TO DATE OF ACQUISITION CHAPTER 3: CONSOLIDATION- 21. Patriotism Company purchased 70% of Strength Company on January 2, 2022 for P420,000. At that date Strength had inventory and plant assets with market values greater than book values in the amount of P50,000 and P90,000, respectively. The inventory and plant assets were assigned to have a remaining life of six months and five years, respectively. Strength Company has 2022 income and dividends of P160,000 and P60,000, respectively and 2023 income and dividends of P210,000 and P80,000, respectively. The balance of non-controlling interest account on December 31. 180,000 NU beg (420K 787. x30%.) 2023 must be: a. P223,200 b. P276,000 P169,200 с. d. P136,800 22. Jenny Company acquired 80% of the equity share capital of Smitharrow_forwardCompany X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31, 2008. The fair value of the net assets of Company X at the date of acquisition was $300,000. This is an example of a(n): Select one: a. extraordinary loss b. revaluation adjustment c. bargain purchase d. positive differentialarrow_forward
- Please help me solve questions 1 2 & 3. Thank you! Placid Lake Corporation acquired 70 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $440,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $7,000 per year. Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $340,000. Scenic reported net income of $150,000. Placid Lake declared $140,000 in dividends during this period; Scenic paid $44,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows: Placid Lake Scenic Inventory $ 180,000 $ 94,000 Land 640,000 240,000 Equipment (net) 440,000 340,000 During 2017, intra-entity sales of $95,000 (original cost of $50,000) were made. Only 10 percent of this inventory was still held within the consolidated entity at the end of…arrow_forwardPCn reported the book value of its net assets at $200,000 when Z Co acquired 100 % ownership The fair value of P's net assets was determined to be $255,000 on that date, what amount of goodwil will be reported in consolidated financial statements presented immediately following the combination if 2 paid $330,000 for the acquisition Select one 25,000 Ob 20.000 €75,000arrow_forward(i) On 01 January 2013, Gordon Plc acquired 75% of Brown Ltd for $300,000 when Brown`s share capital and reserves were $252,000. Prior to the acquisition, the net book value of Brown`s non-current assets was $90,000. Brown revalued its non-current assets immediately prior to the acquisition to fair value and included the revaluation in its statement of financial position. (ii) On 01 January 2015, Gordon acquired 20% of Boris Ltd for $72,000 when the fair value of Boris`s net assets were $42,000. (iii) Goodwill has been impaired in Brown by $77,700 and in Boris by $31,800 (iv) At the year end, Gordon Plc has inventory acquired from Brown and Boris. Brown had invoiced the inventory to Garden for $6,000 – the cost to Brown had been $1,200 and Boris had invoiced Gordon for $3,000 – the cost to Boris had been $1,800. REQUIRED (a) Prepare Gordon Plc`s Consolidated Statement of Financial Position as at 31 December 2019.arrow_forward
- Assume the Chapman Company acquired Abernethy's common stock for $490,000 in cash. As of January 1, 2017, Abernethy's land had a fair value of $90,000, its buildings were valued at $160,000, and its equipment was appraised at $180,000. Chapman uses the equity method for this investment. Prepare consolidation worksheet entries for December 31, 2017, and December 31, 2018.arrow_forwardSey PROBLEM 2-3 Condensed Statements of Financial Position of Love Corp. and You Corp. as of December 31, 2021 are as follows: Current assets Noncurrent assets Liabilities Ordinary shares, P20 par Share premium Retained earnings Love P175,000 725,000 65,000 550,000 35,000 250,000 You P65,000 425,000 35,000 300,000 25,000 130,000 On January 1, 2022, Love Corp. issued 35,000 shares with a market value of P25/share for the assets and liabilities of You Corp.arrow_forwarddocs.google.com a P Company acquired the net assets of S Company of fair value of $2,700,000 on January 1, 2011, paying $2,600,000 cash, P Company agreed to pay S Company's former stockholders $300,000 cash in 2012 if post- combination earnings of the combined company reached $1,000,000 during 2011. The acquisition entry will include: O Gain on acquisition of $200,000 Liability for Contingent Consideration of $200,000 Goodwill of $200,000 O None of the answers P Corporation issued 10,000 shares of common stock with a fair value of $25 per share for all the outstanding common stock of S Company in a business combination properlyarrow_forward
- Computing the amount of goodwill in an acquisition On July 1, 2022 an investor paid $3,330,000 for 100% of the voting common stock of an investee. The transaction qualifies as a business combination. At that time, investee had the following summarized balance sheet information: July 1, 2022 $450,000 Current assets Plant and equipment, net 2,520,000 Liabilities 1.260,000 Equity 1,710,000 On July 1, 2022, the fair value of the plant and equipment was $630,000 more than its carrying amount. The acquisition-date fair values approximated their recorded book values for all of the remaining individual net assets of the investee. Related to this transaction, what amount of goodwill must the investor report in its post-acquisition consolidated balance sheet on July 1, 20227 $630,000 O$1,620,000 O$990,000 O$2,250,000arrow_forwardPreparing the [I] consolidation entries for sale of depreciable assets-Equity method Assume that on January 1, 2016, a parent sells to its wholly owned subsidiary, for a sale price of $243,000, equipment that originally cost $276,000. The parent originally purchased the equipment on January 1, 2012, and depreciated the equipment assuming a 10-year useful life (straight-line with no salvage value). The subsidiary has adopted the parent's depreciation policy and depreciates the equipment over the remaining useful life of 6 years. The parent uses the equity method to account for its Equity Investment. a. Compute the annual pre-consolidation depreciation expense for the subsidiary (postintercompany sale) and the parent (pre-intercompany sale). Subsidiary-depreciation $ 0 Parent depreciation $ 0 b. Compute the pre-consolidation Gain on Sale recognized by the parent during 2016. $ 0 c. Prepare the required [I] consolidation entry in 2016 (assume a full year of depreciation). Description…arrow_forwardOn January 1, 2010 Hand acquires 100% of Finger in a statutory merger. At acquisition date the following were the book values and fair values of fixed assets of these two companies: Book Value. Fair Value Hand 900,000 800,000 Finger 200,000 300,000 a. What is consolidated fixed assets under the acquisition method b. What is consolidated fixed assets under the purchase method c.What is consolidated fixed assets under the pooling of interests method thank youarrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning