Assignment: Business Combinations
Question 1
A business combination in which new corporation is formed to take over the assets and operations of two or more separate business entities, with the previously separate entities being dissolved is
a. Consolidation
b. Merger
c. Pooling of interests
d. Acquisition
Question 2
In a business combination, the direct costs of registering and issuing equity securities are:
a. Added to the parent/investor company's investment account.
b. Charge against the share capital of the combined entity.
c. Deducted from income in the period of combination.
d. None of the above.
Question 3
An excess of the fair value of net assets acquired in a business combination over the price paid is:
a. Reported as a gain from a bargain purchase
b. Applied to a reduction of noncash assets before negative goodwill may be reported.
c. Applied to reduce non-current assets other than marketable securities to zero before negative goodwill.
d. Applied to reduce goodwill to zero before negative goodwill may be reported.
Question 4
Pat Corporation paid $100 000 cash for the net assets of Sag Company which consisted of the following:
|
|
Book value
|
Fair value
|
|
Current assets
|
$40 000
|
$56 000
|
|
Plant and equipment
|
160 000
|
220 000
|
|
Liabilities assumed
|
(40 000)
|
(36 000)
|
|
|
$160 000
|
$240 000
|
Assume Sag Company is dissolved. The plant and equipment acquired in this business should be recorded at:
a. $220 000
b. $200 000
c. $183 332
d. $180 000
Question 5
On April 1, Par Company paid $1 600 000 for all the issued and outstanding share capital of Son Corporation in a transaction properly accounted for as an acquisition. Son Corporation is dissolved. The recorded assets and liabilities of Son Corporation on April 1 follow:
Cash $160 000
Inventory 480 000
Property and equipment (net of accumulated depreciation of of $640 000) 960 000
Liabilities (360 000)
On April 1, it was determined that the inventory of Son had a fair value of $330 000, and the property and equipment (net) had a fair value of $1 120 000. What is the amount of goodwill
resulting from the acquisition?
a. 0
b. $100 000
c. $300 000
d. $360 000
Question 6
On January 2, 2017, Par Corporation issues its own shares to a acquire all the outstanding shares of Sin Corporation in an acquisition. Sin is dissolved. In addition, Par pays $40 000 for registering and issuing securities and $60 000 for other costs of combination. The market price of Par's shares on January 2, 2017 is $60 per share. Relevant balance sheet information for Par and Sin Corporations on December 31, 2016, just before the combination, is as follows (in thousands of dollars) (P1-4)
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|
Par Historical Cost
|
Sin Historical Cost
|
Fair Value
|
Sin
|
|
Cash
|
$240 |
$20
|
|
$20
|
|
Inventories
|
100 |
60
|
|
120
|
|
Other current assets
|
200 |
180
|
|
200
|
|
Land
|
160 |
40
|
|
200
|
|
Plant and equipment
|
1300 |
400
|
|
700
|
|
Total assets
|
2000 |
700
|
|
1240
|
|
Liabilities
|
400 |
100
|
|
100
|
|
Share capital
|
1400 |
300
|
|
|
|
Retained earnings
|
200 |
300
|
|
|
|
Total liabilities and equity
|
2000 |
700
|
|
|
Required
1. Assume Par issues 25 000 shares for all the shares of Sin's outstanding shares
a. Prepare journal entries to record the acquisition of Sin
b. Prepare a balance sheet for Par Corporation immediately after acquisition
2. Assume that Par issues 15 000 of its own shares for all of Sin's outstanding shares
a. Prepare journal entries to record the acquisition of Sin
b. Prepare a balance sheet for Par Corporation immediately after acquisition
Question 7
PBL Ltd acquires the net assets of TZE Ltd for cash consideration of $175 000 on 30 June 20x2. The identifiable net assets acquired, value at fair value at this date, comprise the following:
Assets acquired
Debtors 15 000
Inventory 31 000
Plant & Equipment 130 000 176 000 Liabilities acquired
Bank overdraft 10 500
Creditors 20 500 31 000 Net assets acquired (fair value) 145 000
Required
Prepared the journal entry to record PBL's acquisition of the net assets of TZE Ltd.