FUNDAMENTALS OF ADVANCED ACCOUNTING >I
6th Edition
ISBN: 9781307007350
Author: Hoyle
Publisher: MCG/CREATE
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Chapter 2, Problem 8Q
To determine
Explain the way in which the payment in excess of fair value is accounted for in the consolidation process.
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Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for $488,900 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:
Book Values
Fair Values
Computer software
$
28,000
$
68,750
Equipment
69,500
59,400
Client contracts
0
112,000
In-process research and development
0
24,500
Notes payable
(72,500
)
(79,000
)
At December 31, 2021, the following financial information is available for consolidation (credit balances in parentheses):
Pratt
Spider
Cash
$
18,700
$
16,000
Receivables
118,500
57,500…
Hobbes Corporation’s purchase of stock of Tiger Company gave Hobbes voting control over Tiger. A portion of the amount Hobbes paid reflects the fact that Tiger's inventories have a market value in excess of their book value.How should this portion of the cost be accounted for by Hobbes Corporation?
Select one:
a. Included in the carrying value of the investment until disposition of the stock
b. Amortized against investment revenue over the remaining useful life of the investment
c. Reported as goodwill on the balance sheet of Hobbes Corporation
d. Added to the inventory cost on Hobbes's consolidated balance sheet
King’s Road recently acquired all of Oxford Corporation’s stock and is now consolidating the financial data of this new subsidiary. King’s Road paid a total of $850,000 for Oxford, which has the following accounts:a. What amount of deferred tax liability arises in the acquisition?b. What amounts will be used to consolidate Oxford with King’s Road at the date of acquisition?c. On a consolidated balance sheet prepared immediately after this takeover, how much goodwill should King’s Road recognize? Assume a 40 percent effective tax rate.
Chapter 2 Solutions
FUNDAMENTALS OF ADVANCED ACCOUNTING >I
Ch. 2 - Prob. 1QCh. 2 - Prob. 2QCh. 2 - What does the term consolidated financial...Ch. 2 - Within the consolidation process, what is the...Ch. 2 - Prob. 5QCh. 2 - Prob. 6QCh. 2 - Prob. 7QCh. 2 - Prob. 8QCh. 2 - Prob. 9QCh. 2 - Prob. 10Q
Ch. 2 - Prob. 11QCh. 2 - Which of the following does not represent a...Ch. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - An acquired entity has a long-term operating lease...Ch. 2 - When does gain recognition accompany a business...Ch. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - On June 1, Cline Co. paid 800,000 cash for all of...Ch. 2 - On May 1, Donovan Company reported the following...Ch. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15PCh. 2 - Prob. 16PCh. 2 - On its acquisition-date consolidated balance...Ch. 2 - On its acquisition-date consolidated balance...Ch. 2 - Prob. 19PCh. 2 - The following book and fair values were available...Ch. 2 - Prob. 21PCh. 2 - Prob. 22PCh. 2 - Prob. 23PCh. 2 - Prob. 24PCh. 2 - Prob. 25PCh. 2 - Prob. 26PCh. 2 - Prob. 27PCh. 2 - Prob. 28PCh. 2 - Prob. 29PCh. 2 - SafeData Corporation has the following account...Ch. 2 - Prob. 31PCh. 2 - Prob. 32PCh. 2 - Prob. 33APCh. 2 - On February 1, Piscina Corporation completed a...Ch. 2 - Prob. 1DYSCh. 2 - Prob. 2DYSCh. 2 - Prob. 3DYS
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- In the business combination of Polka and Spot Select one: a. all of the costs except those of registering and issuing the securities are included in the purchase price of Spot. b. the salaries of Polka's employees assigned to the merger are treated as expenses. c. only the accounting and legal fees are included in the purchase price of Spot d. the costs of registering and issuing the securities are included as part of the purchase price for Spot.arrow_forwardPratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows: Book Values Fair Values Computer software $ 20,000 $ 70,000 Equipment 40,000 30,000 Client contracts –0– 100,000 In-process research and development –0– 40,000 Notes payable (60,000) (65,000) At December 31, 2018, the following financial information is available for consolidation: Pratt Spider Cash $ 36,000 $ 18,000 Receivables…arrow_forwardJones acquires Wilson, in part because the new subsidiary has an unused net operating loss carryforward for tax purposes. How does this carryforward affect the consolidated figures at the acquisition date?arrow_forward
- Several years ago, Bennett, Inc., bought a portion of the outstanding bonds of Smith Corporation, a subsidiary organization. The acquisition was made from an outside party. In the current year, how should these intra-entity bonds be accounted for within the consolidation process?arrow_forwardSummer Company holds assets with a fair value of $122,000 and a book value of $81,000 and liabilities with a book value and fair value of $23,000. Required: Compute the following amounts if Parade Corporation acquires 70 percent ownership of Summer: What amount did Parade pay for the shares if no goodwill and no gain on a bargain purchase are reported? What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Parade pays $86,800 to acquire its ownership and goodwill of $25,000 is reported?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 goodwillarrow_forward
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