AKL 2 E 1-2

(KELAS ABCX) [Based on AICPA] General problems

E 1-1 1. Pat Corporation paid $100,000 cash for the net assets of Sag Company, which consisted
General questions of the following:
1. A business combination in which a new corporation is formed to take over the assets and Book Value Fair Value
operations of two or more separate business entities, with the previously separate entities Current assets $ 40,000 $ 56,000
being dissolved, is a/an: Plant and equipment 160,000 220,000
Liabilities assumed (40,000) (36,000)
a Consolidation
$160,000 $240,000
b Merger
Assume Sag Company is dissolved. The plant and equipment acquired in this business
c Pooling of interests
combination should be recorded at:
d Acquisition
a $220,000
2. In a business combination, the direct costs of registering and issuing equity securities
b $200,000
are:
c $183,332
a Added to the parent/investor company’s investment account
d $180,000
b Charged against other paid-in capital of the combined entity
c Deducted from income in the period of combination 2. On April 1, Par Company paid $1,600,000 for all the issued and outstanding common
d None of the above stock of Son Corporation in a transaction properly accounted for as an acquisition. Son
3. An excess of the fair value of net assets acquired in a business combination over the Corporation is dissolved. The recorded assets and liabilities of Son Corporation on April 1
price paid is: follow:
Cash $160,000
a Reported as a gain from a bargain purchase
Inventory 480,000
b Applied to a reduction of noncash assets before negative goodwill may be
Property and equipment (net of accumulated depreciation of $640,000) 960,000
reported
Liabilities (360,000)
c Applied to reduce noncurrent assets other than marketable securities to zero
before negative goodwill may be reported On April 1, it was determined that the inventory of Son had a fair value of $380,000 and
d Applied to reduce goodwill to zero before negative goodwill may be reported the property and equipment (net) had a fair value of $1,120,000. What is the amount of
4. Cork Corporation acquires Dart Corporation in a business combination. Which of the goodwill resulting from the acquisition?
following would be excluded from the process of assigning fair values to assets and a0
liabilities for purposes of recording the acquisition? (Assume Dart Corporation is b $100,000
dissolved.) c $300,000
a Patents developed by Dart because the costs were expensed under GAAP d $360,000
b Dart’s mortgage payable because it is fully secured by land that has a market
value far in excess of the mortgage E 1-3
c An asset or liability amount for over- or underfunding of Dart’s defined-benefit Prepare stockholders’ equity section
pension plan The stockholders’ equities of Pal Corporation and Sip Corporation at January 1 were as
d None of the above follows (in thousands):
 Corporation is dissolved. Summary balance sheet information for the companies immediately
Pal Sip before the merger is as follows (in thousands):
Capital stock, $10 par $3,000 $1,600
Pan Book Sis Book Sis Fair
Other paid-in capital 400 800
Value Value Value
Retained earnings 1,200 600
Cash $ 700 $ 80 $ 80
Stockholders’ equity $4,600 $3,000
Inventories 240 160 200
On January 2, Pal issued 300,000 of its shares with a market value of $20 per share for all
Other current assets 60 40 40
of Sip’s shares, and Sip was dissolved. On the same day, Pal paid $10,000 to register and
Plant assets—net 520 360 560
issue the shares and $20,000 for other direct costs of combination.
Total assets $ 1,520 $ 640 $ 880
REQUIRED: Prepare the stockholders’ equity section of Pal Corporation’s balance Current liabilities $ 320 $ 60 $ 60
sheet immediately after the acquisition on January 2. (Hint: Prepare the journal Other liabilities 160 100 80
entry.) Common stock, $10 par 840 400
Retained earnings 200 80
E 1-4 Total liabilities and owners’ equity $ 1,520 $ 640
Journal entries to record an acquisition
Pan Company issued 480,000 shares of $10 par common stock with a fair value of REQUIRED: Prepare all journal entries on Pan’s books to account for the acquisition.
$10,200,000 for all the voting common stock of Set Company. In addition, Pan incurred the
following costs:
P R O B L E M S
Legal fees to arrange the business combination $100,000 P 1-1
Cost of SEC registration, including accounting and legal fees 48,000
Cost of printing and issuing net stock certificates 12,000
Prepare balance sheet after acquisition
Indirect costs of combining, including allocated overhead and executive salaries 80,000 Comparative balance sheets for Pin and San Corporations at December 31, 2010,
Immediately before the acquisition in which Set Company was dissolved, Set’s assets and are as follows (in thousands):
equities were as follows (in thousands): Pin San
Book Value Fair Value Current assets $ 520 $ 240
Current assets $4,000 $4,400 Land 200 400
Plant assets 6.000 8,800 Buildings—net 1,200 400
Liabilities 1,200 1,200 Equipment—net 880 960
Common stock 8,000 Total assets $2,800 $2,000
Retained earnings 800 Current liabilities $ 200 $ 240
Capital stock, $10 par 2,000 800
REQUIRED: Prepare all journal entries on Pan’s books to record the acquisition. Additional paid-in capital 200 560
Retained earnings 400 400
E 1-5 Total equities $2,800 $2,000
Journal entries to record an acquisition with direct costs and fair
value/book value differences On January 2, 2011, Pin issues 60,000 shares of its stock with a market value of
$40 per share for all the outstanding shares of San Corporation in an acquisition.
On January 1, Pan Corporation pays $400,000 cash and also issues 36,000 shares of $10 San is dissolved. The recorded book values reflect fair values, except for the
par common stock with a market value of $660,000 for all the outstanding common shares
buildings of Pin, which have a fair value of $1,600,000, and the current assets of
of Sis Corporation. In addition, Pan pays $60,000 for registering and issuing the 36,000
San, which have a fair value of $400,000.
shares and $140,000 for the other direct costs of the business combination, in which Sis
Pin pays the following expenses in connection with the business combination: P 1-3
Costs of registering and issuing securities $60,000
Journal entries and balance sheet for an acquisition
Other direct costs of combination 100,000
On January 2, 2011, Par Corporation issues its own $10 par common stock for all
REQUIRED: Prepare the balance sheet of Pin Corporation immediately after the the outstanding stock of Sin Corporation in an acquisition. Sin is dissolved. In
acquisition. addition, Par pays $40,000 for registering and issuing securities and $60,000 for
other costs of combination. The market price of Par’s stock on January 2, 2011, is
Prepare balance sheet after an acquisition $60 per share. Relevant balance sheet information for Par and Sin Corporations on
On January 2, 2011, Pet Corporation enters into a business combination with Sea December 31, 2010, just before the combination, is as follows (in thousands):
Corporation in which Sea is dissolved. Pet pays $1,650,000 for Sea, the
Par Sin Sin
consideration consisting of 66,000 shares of Pet $10 par common stock with a Historical Cost Historical Cost Fair Value
market value of $25 per share. In addition, Pet pays the following expenses in Cash $ 240 $ 20 $ 20
cash at the time of the merger: Inventories 100 60 60
Finders’ fee $ 70,000 Other current assets 200 180 200
Accounting and legal fees 130,000 Land 160 40 200
Registration and issuance costs of securities 80,000 $280,000 Plant and equipment—net 1.300 400 700
Total assets $ 2,000 $ 700 $ 1.240
Balance sheet and fair value information for the two companies on December 31,
Liabilities $ 400 $ 100 $ 100
2010, immediately before the merger, is as follows (in thousands):
Capital stock, $10 par 1.000 200
Pet Book Value Sea Book Value Sea Fair Value Additional paid-in capital 400 100
Cash $ 300 $ 60 $ 60 Retained earnings 200 80 200 300
Accounts receivable—net 460 100 80 Total liabilities and owners’ equity $ 2,000 $ 700
Inventories 1,040 160 240
Land 800 200 300 REQUIRED
Buildings—net 2,000 400 600 1. Assume that Par issues 25,000 shares of its stock for all of Sin’s outstanding
Equipment—net 1,000 600 500 shares.
Total assets $5,600 $1,520 $1,780 a. Prepare journal entries to record the acquisition of Sin.
Accounts payable $ 600 $ 80 $ 80 b. Prepare a balance sheet for Par Corporation immediately after the acquisition.
Note payable 1,200 400 360 2. Assume that Par issues 15,000 shares of its stock for all of Sin’s outstanding
Capital stock, $10 par 1,600 600 shares.
Other paid-in capital 1,200 100 a. Prepare journal entries to record the acquisition of Sin.
Retained earnings 1,000 340 b. Prepare a balance sheet for Par Corporation immediately after the acquisition.
Total liabilities and owners’ equity $5,600 $1,520

R E Q U I R E D : Prepare a balance sheet for Pet Corporation as of January 2,

2011, immediately after the merger, assuming the merger is treated as an acquisition.
P 1-4 P 1-5
Allocation schedule and balance sheet Journal entries and balance sheet for an acquisition
The balance sheets of Pub Corporation and Sun Corporation at December 31, 2010, Pat Corporation paid $5,000,000 for Saw Corporation’s voting common stock on
are summarized with fair value information as follows (in thousands): January 2, 2011, and Saw was dissolved. The purchase price consisted of 100,000
shares of Pat’s common stock with a market value of $4,000,000, plus $1,000,000
Pub Corporation Sun Corporation cash. In addition, Pat paid $100,000 for registering and issuing the 100,000
Book Value Fair Value Book Value Fair Value
shares of common stock and $200,000 for other costs of combination. Balance
Assets
sheet information for the companies immediately before the acquisition is
Cash $115 $115 $ 10 $ 10
summarized as follows (in thousands):
Receivables—net 40 40 20 20
Inventories 120 150 50 30 Pat Saw
Land 45 100 30 100 Book Value Book Value Fair Value
Buildings—net 200 300 100 150 Cash $ 6,000 $ 480 $ 480
Equipment—net 180 245 90 150 Accounts receivable—net 2.600 720 720
Total assets 700 950 300 460 Notes receivable—net 3.000 600 600
Equities Inventories 5.000 840 1.000
Accounts payable 90 90 30 30 Other current assets 1.400 360 400
Other liabilities 100 90 60 70 Land 4.000 200 400
Capital stock, $10 par 300 100 Buildings—net 18.000 1.200 2.400
Other paid-in capital 100 80 Equipment—net 20.000 1.600 1.200
Retained earnings 110 30 Total assets 60.000 6.000 7.200
Total liabilities and owners’ equity 700 300 Accounts payable 2.000 600 600
Mortgage payable—10% 10.000 1.400 1.200
On January 1, 2011, Pub Corporation acquired all of Sun’s outstanding stock for Capital stock, $10 par 20.000 2.000
$300,000. Pub paid $100,000 cash and issued a five-year, 12 percent note for the Other paid-in capital 16.000 1.200
balance. Sun was dissolved. Retained earnings 12.000 800
REQUIRED Total liabilities and owners’ equity 60.000 6.000
1. Prepare a schedule to show how the investment cost is allocated to identifiable
assets and liabilities. REQUIRED
2. Prepare a balance sheet for Pub Corporation on January 1, 2011, immediately after 1. Prepare journal entries for Pat Corporation to record its acquisition of Saw
the acquisition. Corporation, including all allocations to individual asset and liability accounts.
2. Prepare a balance sheet for Pat Corporation on January 2, 2011, immediately after
the acquisition and dissolution of Saw.