Concept explainers
Computation of Account Balances
Saspro Division is considered to be an individual reporting unit of Pabor Company. Pabor acquiredthe division by issuing 100,000 shares of its common stock with a market price of S7.60 each.Pabor’s management was able to identify assets with fair values of $810,000 and liabilities of $190,000 at the acquisition date. At the end of the first year, the fair value of the reporting entitywas estimated to be $930,000. On this date, Pabor’s accountants concluded that it must recognizea
Required
a. Determine the initial amount of goodwill recorded on the acquisition date. Show your computation.
b. If the carrying value of the reporting unit’s liabilities at the end of the period were $70,000,
what is the maximum carrying value of the reporting unit’s assets that would allow Paborto avoid recognizing a goodwill impairment? Show your computation.
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ADVANCED FINANCIAL ACCT.(LL)-W/CONNECT
- Parent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after the acquisition are presented below: Parent Subsidiary Cash $740,000 $420,000 Accounts Receivable 900,000 625,000 Inventory 440,000 750,000 Equity Investment 2,500,000 Property, plant and equipment (net) 3,190,000 1,205,000 $7,770,000 $3,000,000 Accounts payable $125,000 $145,000 Salaries payable 60,000 35,400 Long-Term Notes Payable 700,000 850,000 Common Stock 200,000 150,000 Additional paid-in capital 5,000,000…arrow_forwardCorvus Company has gained control over the operations of Glaive Corporation by acquiring 75% of its outstanding capital stock for P4,650,000. This amount includes a control premium of P225,000. Data from the balance sheets of the two entities included the following amounts as of the date of acquisition: Corvus Company Glaive Corporation Cash 1,012,500 800,000 Accounts Receivable, net 2,770,000 675,000 Inventory 1,600,000 1,200,000 Land 3,000,000 2,400,000 Building 6,750,000 3,400,000 Accumulated Depreciation - Building (1,687,500) (1,700,000) Equipment 800,000 250,000 Accumulated Depreciation…arrow_forwardCorvus Company has gained control over the operations of Glaive Corporation by acquiring 75% of its outstanding capital stock for P4,650,000. This amount includes a control premium of P225,000. Data from the balance sheets of the two entities included the following amounts as of the date of acquisition: Corvus Company Glaive Corporation Cash 1,012,500 800,000 Accounts Receivable, net 2,770,000 675,000 Inventory 1,600,000 1,200,000 Land 3,000,000 2,400,000 Building 6,750,000 3,400,000 Accumulated Depreciation - Building (1,687,500) (1,700,000) Equipment 800,000 250,000 Accumulated Depreciation…arrow_forward
- Corvus Company has gained control over the operations of Glaive Corporation by acquiring 75% of its outstanding capital stock for P4,650,000. This amount includes a control premium of P225,000. Data from the balance sheets of the two entities included the following amounts as of the date of acquisition: Corvus Company Glaive Corporation Cash 1,012,500 800,000 Accounts Receivable, net 2,770,000 675,000 Inventory 1,600,000 1,200,000 Land 3,000,000 2,400,000 Building 6,750,000 3,400,000 Accumulated Depreciation - Building (1,687,500) (1,700,000) Equipment 800,000 250,000 Accumulated Depreciation…arrow_forwardCorvus Company has gained control over the operations of Glaive Corporation by acquiring 75% of its outstanding capital stock for P4,650,000. This amount includes a control premium of P225,000. Data from the balance sheets of the two entities included the following amounts as of the date of acquisition: Corvus Company Glaive Corporation Cash 1,012,500 800,000 Accounts Receivable, net 2,770,000 675,000 Inventory 1,600,000 1,200,000 Land 3,000,000 2,400,000 Building 6,750,000 3,400,000 Accumulated Depreciation - Building (1,687,500) (1,700,000) Equipment 800,000 250,000 Accumulated Depreciation…arrow_forwardCompute for the consolidated expenses to be reported for the year. On January 1, ABC Acquired 60 percent of the outstanding voting stock of XYZ for P301,500 cash consideration. The remaining 40 percent of XYZ had an acquisition date fair value of P138,500. On January 1, XYZ possessed equipment (5-year life) that was undervalued on its books P25,000.XYZ also had developed several secret formulas that ABC assessed at P50,000. Theses formulas, although not recorded on XYZ's financial records, were estimated to have a 20-year future life. ABC also determined that the inventory of XYZ is overvalued by P10,000. 80% of these inventories remain unsold by the end of the year. As of December 31, the financial statements appeared as follows:arrow_forward
- Business Combination - Accounting for an acquirer) On 1 July 2020, B Ltd acquired all the assets and liabilities of P Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100,000 shares that at date of issue had a fair value of $4.50 per share. Costs of issuing these shares amounted to $2,000. Legal costs associated with the acquisition of Pitt Ltd amounted to $3,200. The asset and liabilities of P Ltd at 1 July 2020 were as follows (Extract): Assets Carrying Amount Fair Value Cash $ 3 000 - Account Receivable 12 000 $ 12 000 Inventories 63 000 69 000 Plant and equipment 330 000 225 000 Accumulated Depreciation – plant and Equipment (100 000) - Land 200 000 280 000 Liabilities Accounts payable 22 000 22 000 Debentures 68 000 68 000 Required: prepare the journal entries in the records of B Ltd at 1 July 2020.arrow_forwardBusiness Combination - Accounting for an acquirer) On 1 July 2020, B Ltd acquired all the assets and liabilities of P Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100,000 shares that at date of issue had a fair value of $4.50 per share. Costs of issuing these shares amounted to $2,000. Legal costs associated with the acquisition of Pitt Ltd amounted to $3,200. The asset and liabilities of P Ltd at 1 July 2020 were as follows (Extract): Assets Carrying Amount Fair Value Cash $ 3 000 - Account Receivable 12 000 $ 12 000 Inventories 63 000 69 000 Plant and equipment 330 000 225 000 Accumulated Depreciation – plant and Equipment (100 000) - Land 200 000 280 000 Liabilities Accounts payable 22 000 22 000 Debentures 68 000 68 000 Required: a) Prepare the acquisition analysis at 1 July 2020 for the acquisition of P Ltd by B Ltd. Assume…arrow_forwardBP (SME A) and BTS (SME B) each acquired 30% of the outstanding shares of Big Hit Corporation for P202.000, including the transaction cost of P2.000. BP and BTS agreed to a joint control over Big Hit. During the year. Big Hit reported the following: . Profit for the year - P20,000 • Dividends declared - P4.000 It was determined after a thorough test that due to economic changes, there was an adverse effect to Big Hit during the year. Hence, there appears to be impairment of the investment in the said entity. Assuming that BP elected to carry the 1 point investment in Big Hit using the Cost Method and the Fair Value of Big Hit at year end P196,000 and cost to sell amounts to P1,800, How much is the impairment loss to be recognized by BP in its investment in Bighit? A. 0 B. 2,000 C. 7,800 D. 5,800 Assuming that BP elected to use the Fair Value method and the fair value of Bighit at yearend is P196,000 and cost to sell amounts to P1,800. How much is the net…arrow_forward
- (TCO A) Adelman Company owns 45% of the outstanding voting common stock of Craig Corp. and has the ability to significantly influence the investee's operations. On January 3, 20X1, the balance in the Investment in Craig Corp. account was $462,000. Amortization associated with this acquisition is $10,000 per year. During 20X1, Craig earned a net income of $105,000 and paid cash dividends of $20,000. Previously in 20X0, Craig had sold inventory costing $28,000 to Adelman for $40,000. All but 20% of that inventory had been sold to outsiders by Adelman during 20X0. Additional sales were made to Adelman in 20X1 at a transfer price of $60,000 that had cost Craig $45,000. Only 10% of the 20X1 purchases had not been sold to outsiders by the end of 20X1.Required:(A) What amount of unrealized intra-entity inventory profit should be deferred by Adelman at December 31, 20X0?(B) What amount of unrealized intra-entity profit should be deferred by Adelman at December 31, 20X1?(C) What amount of…arrow_forwardSD acquired the net assets of both GM and SR. Paying cash in the amount of P185,000 and by issuing 198,500 shares to GM. Paying cash in the amount of P 72,000 and by issuing 54,350 shares to SR. The par value of these shares is P35 per share and market value of P40 per share as of January 01, 2018. SD’s retained earnings has a balance of P 10,750,000 on January 01, 2018 immediately before the acquisition. what is the Retained Earnings after the merger?arrow_forwardIf PROMDI Co., a new company would acquire the net assets of CARDO Co and SYANO Co. PROMDI Co will be issuing 30,000 shares to CARDO and 12,000 shares to SYANO. The following is the balance sheet of PROMDI Co, followed by the fair values and additional unpaid costs incurred by PROMDI in the acquisition: compute for the consolidated total assets at the date of acquisitionarrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning