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 2.10.1P
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 date 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:
Determination and distribution of excess schedule
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Chapter 2 Solutions
EBK ADVANCED ACCOUNTING
- Hamilton Companys balance sheet on January 1, 2019, was as follows: Korbel Company is considering purchasing Hamilton (a privately held company) and discovers the following about Hamilton: a. No allowance for doubtful accounts has been established. A 10,000 allowance is considered appropriate. b. Marketable securities are valued at cost. The current market value is 60,000. c. The LIFO inventory method is used. The FIFO inventory of 140,000 would be used if the company is acquired. d. Land, included in property, plant, and equipment, which is recorded at its cost of 50,000, is worth 120,000. The remaining property, plant, and equipment is worth 10% more than its depreciated cost. e. The company has an unrecorded trademark that is worth 70,000. f. The companys bonds are currently trading for 130,000. g. The pension liability is understated by 40,000. Required: 1. Compute the amount of goodwill if Korbel agrees to pay 500,000 cash for Hamilton. 2. Next Level What are the reasons that the book value of Hamiltons net identifiable assets differ from their market value? 3. Prepare the journal entry to record the acquisition on the books of Korbel assuming Hamilton is liquidated. 4. If Korbel agrees to pay only 400,000 cash, how much goodwill exists? 5. If Korbel pays only 400,000 cash, prepare the journal entry to record the acquisition on its books, assuming Hamilton is liquidated.arrow_forwardOn May 1, 2015, Zoe Inc. purchased Branta Corp. for $15,000,000 in cash. They only received $12,000,000 in net assets. In 2016, the market value of the goodwill obtained from Branta Corp. was valued at $4,000,000, but in 2017 it dropped to $2,000,000. Prepare the journal entry for the creation of goodwill and the entry to record any impairments to it in subsequent years.arrow_forward
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