Question 1

Push-down accounting requires ________.

Accepted Answer

Push-down accounting requires that fair value adjustments be recorded on the subsidiary company's books, reflecting the new basis of accounting due to the acquisition.

Question 2

On September 1,20X7,Spike Limited decided to buy 100% of the outstanding shares of Volley Inc.for $1,200,000 paid for with the issuance of shares.In addition Spike has agreed to pay an additional $250,000 if the revenues of Volley have a 5% growth over the next two years from the date of the acquisition.It has been determined that the fair value of this contingent consideration is $175,000.
The balances showing on the statement of financial position for the two companies at August 31,20X7 are as follows:
  
After a review of the financial assets and liabilities,Spike determines that some of the assets of Volley have fair values different from their carrying values.These items are listed below:
Capital assets - fair value is $1,350,000
Patent - fair value is $255,000
Brand name - fair value is $135,000
Required:
Determine the amount of goodwill that will be recorded on the business combination.
Prepare the consolidated statement of financial position as at September 1,20X7.

Accepted Answer

The answer of On September 1,20X7,Spike Limited decided to buy...

Question 3

On January 1,20X7,Falcon acquired the net assets of Intra for $3,400,000 with the issue of shares.The statement of financial position for Intra at the date of acquisition is shown below together with estimated of the fair values of Intra's recorded assets and liabilities.  
Required:
What is the amount of goodwill to be recorded for this business combination?
Prepare the journal entry that Falcon will use to record the business combination.Prepare the statement of financial position for Intra on January 1,20X7 directly after the transaction is completed.Reconcile the book value of the retained earnings for Intra on December 31,20X6 to its balance on January 1,20X7.Explain any differences.

Accepted Answer

The answer of On January 1,20X7,Falcon acquired the net assets...

Question 4

In Canada,what type of business combination can still use the pooling-of-interests method?

Accepted Answer

The answer of In Canada,what type of business combination can...

Question 5

What does push down accounting refer to?

Accepted Answer

Push down accounting refers to the process of recording fair values on a subsidiary's books after a business combination. This is done when a subsidiary is acquired by a parent company, and the fair value of the subsidiary's assets and liabilities are adjusted to reflect the purchase price paid by the parent company. This can result in a significant increase in the value of the subsidiary's assets, which can have an impact on its financial statements.

Question 6

Which of the following is not a reason why a private enterprise may be acquired as a bargain purchase?

Accepted Answer

The business having only equity financing and no debt financing is not a reason for it to be acquired as a bargain purchase. The other options, such as family succession or owner disinterest, can lead to a potential seller being more motivated to sell at a lower price, making it a bargain purchase for the buyer.

Question 7

On December 31,20X5,CI Co.purchased 100% of the outstanding common shares of SA Ltd.for $1,500,000 in cash;80% of the cash was obtained by issuing a five-year note payable.The statements of financial position of CI and SA immediately before the acquisition and issuance of the notes payable were as follows (in 000s):  
Required:
Prepare the journal entry that CI will post to record the acquisition of CI.Prepare the consolidated statement of financial position for CI immediately following the acquisition of SA.

Accepted Answer

The answer of On December 31,20X5,CI Co.purchased 100% of the...

Question 8

Cheers acquired 100% of Tapp's shares for $150,000.On the acquisition date,the fair value of the current assets and the net capital assets were $104,000 and $216,000 respectively.The fair value of the liabilities equalled their book value.On Cheers' consolidated statement of financial position,what is the total of its shareholders' equity?

Accepted Answer

The answer of 
Cheers acquired 100% of Tapp's shares for...

Question 9

On December 31,20X6,the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)  
Power Company has 100,000 shares of common stock outstanding.Pro Company has 45,000 shares outstanding.On January 1,20X7 Power issued an additional 90,000 shares of common stock in exchange for all the net assets of Pro.All assets and liabilities have book value equal to fair values,except as noted.In addition,Pro has a patent that has an appraised fair value of $450.
Market value of the new shares issued was $95 per share at the date of acquisition.
Required:
a.What is the amount of goodwill to be recorded for this business combination? Prepare the journal entry that Power would record on January 1,20X7 related to this acquisition.In this case,who are the shareholders and their percentage holdings on January 1,20X7? Prepare the statement of financial position for Power as at January 1,20X7.
b.How would your answer differ if Power had purchased the shares rather than the net assets of Pro Company? In this case,who are the shareholders and their percentage holdings on January 1,20X7?

Accepted Answer

The answer of On December 31,20X6,the statements of financial position...

Question 10

There are a number of possible approaches to reporting consolidated financial statements after one company acquires control over another.Which of the following methods reports the consolidated amounts by adding together the carrying values of the assets and liabilities of the parent and the subsidiary?

Accepted Answer

The pooling-of-interests method reports the consolidated amounts by adding together the carrying values of the assets and liabilities of the parent and the subsidiary. This method is no longer allowed under International Financial Reporting Standards (IFRS) and is not commonly used under US Generally Accepted Accounting Principles (GAAP) due to its subjective nature and potential for manipulation.

Question 11

Nashman Ltd.is a private enterprise with five subsidiaries.Which of the
Following statements is true?

Accepted Answer

Nashman should report all subsidiaries on the same basis because it is required by GAAP.

Question 12

On December 31,20X5,CI Co.purchased 100% of the outstanding common shares of SA Ltd.for $1,100,000 in cash;80% of the cash was obtained by issuing a five-year note payable.The statements of financial position of CI and SA immediately before the acquisition and issuance of the notes payable were as follows (in 000s):  
Required:
Prepare the journal entry that CI will post to record the acquisition of CI.Prepare the consolidated statement of financial position for CI immediately following the acquisition of SA.

Accepted Answer

The answer of On December 31,20X5,CI Co.purchased 100% of the...

Question 13

On December 31,20X6,the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)  
Power Company has 100,000 shares of common stock outstanding.Pro Company has 45,000 shares outstanding.On January 1,20X7 Power issued an additional 90,000 shares of common stock in exchange for all the outstanding shares of Pro.All assets and liabilities have book value equal to fair values,except as noted.In addition,Pro has a patent that has an appraised fair value of $450.
Market value of the new shares issued was $95 per share at the date of acquisition.
Required: What is the amount of goodwill to be recorded for this business combination? Prepare the journal entry that Power would record on January 1,20X7 related to this acquisition.Prepare the consolidated statement of financial position as at January 1,20X7.

Accepted Answer

The answer of On December 31,20X6,the statements of financial position...

Question 14

On March 17,20X2,Cho Co.acquired 100% of the shares of Bisset Ltd.for $1,000,000.The net assets of Bisset included 10 acres of land,which was carried on Bisset's books at $100,000 even though its market value was approximately $350,000.Cho did not own any land prior to the acquisition of Bisset's net assets.If push down accounting was applied,what amount would be shown for land on the consolidated the separate-entity balance sheets for Bisset on March 18,20X2?

Accepted Answer

The answer of On March 17,20X2,Cho Co.acquired 100% of the...

Question 15

Hurricane Inc.wants to acquire 100% of the net assets of Flood Inc.using all cash consideration.From the Flood's shareholders' point of view,what are the advantages and disadvantages of Hurricane purchasing shares rather than net assets of Flood?

Accepted Answer

The answer of Hurricane Inc.wants to acquire 100% of the...

Question 16

Ski Ltd.has 500,000 shares outstanding.On July 1,20X7,Ski purchased all of the outstanding shares of Snow Ltd.The consideration paid by Ski was in the form of 500,000 shares,valued at $20 per share,which was premium of 10% over the market value prior to the announcement.It has been decided that the CEO of the combined company will come from Ski,but the CFO and the COO will come from Snow.The Chairman of the Board of Directors will come from Snow.The Board will have six other directors,three from Ski and three from Snow.
Required:
Define what the acquirer is in a business combination.How would you identify the acquirer in the above transaction?

Accepted Answer

The answer of Ski Ltd.has 500,000 shares outstanding.On July 1,20X7,Ski...

Question 17

Which of the following statements about a bargain purchase is true?

Accepted Answer

In a bargain purchase, the fair value of the assets acquired exceeds the cost of acquiring them. This means that the assets and liabilities of the acquired company are reported at their fair value, not at net book value. Therefore, option D is the correct choice. Option A is incorrect because it describes a situation where the cost of the assets acquired exceeds their fair value, which is the opposite of a bargain purchase. Option B is incorrect because negative goodwill is not a recognized accounting term.

Question 18

Dupuis Ltd.acquired Waul Ltd.through a business combination using the direct method.How should Waul record this on its books?

Accepted Answer

The answer of Dupuis Ltd.acquired Waul Ltd.through a business combination...

Question 19

Sugar Corp and Syrup Limited have reached an agreement in principle to combine their operations as of October 1,20X9.However,the Board of directors cannot decide on the best way to accomplish the combination.Below are the alternatives being considered:
1.Sugar acquires the net assets of Syrup for $1,700,000 cash.
2.Sugar acquires only the assets for $2,650,000 cash.
3.Sugar acquires all of the outstanding shares of Syrup by issuing shares with a fair market value of $1,700,000.
Syrup has the following assets and liabilities at October 1,20X9,(in thousands of dollars)
  
The only item that has a fair value different from its carrying value is the property,plant and equipment,which has a fair value of $1,900.
Required:
Explain how each transaction is different from the acquirer's point of view.Prepare the journal entry that would be recorded by Sugar for each these alternatives.

Accepted Answer

The answer of Sugar Corp and Syrup Limited have reached...

Question 20

Slade Co.has 1,000,000 shares outstanding and is traded on the TSX.On October 1,20X6,Slade purchased all of the outstanding shares of Print Co.by issuing 1,200,000 shares at $50 per share.
Required:
Explain the legal form of this transaction.What is the transaction in substance? How will this transaction be accounted for? Why might the transaction have been accomplished in this manner?

Accepted Answer

The answer of Slade Co.has 1,000,000 shares outstanding and is...

Quiz 3: Business Combinations