Question
Conglomerate P Inc. purchased 80% shares of S Inc. for $800,000. As consideration P Inc. issued 10,000 shares new shares. Professional fees included: Appraisal costs
Conglomerate P Inc. purchased 80% shares of S Inc. for $800,000. As consideration P Inc. issued 10,000 shares new shares.
Professional fees included:
- Appraisal costs of S $50,000
- Legal fees to issue new shares of P for consideration $20,000
- Due diligence accounting work $40,000
- Should these costs be added to the acquisition cost? Explain
- Where would these costs appear in the Parent's books? Explain
- If P intends to close a division of S within 6 months of acquisition and pay $50,000 severance pay to employees, should this cost be recognized as a liability at the time of acquisition? Would it affect the Goodwill calculation at the time of acquisition?
A Subsidiary has issued to public bonds with a total face-value of $200,000. The carrying value for the bonds at year end is $230,000. Parent purchased these bonds from market for $190,000.
- Should a gain/loss be recognized on acquisition of these bonds in consolidated financial statement? Explain
- What is the conceptually superior way to allocate any gain/loss to Subsidiary and/or Parent? Explain.
- Assume Parent sold inventory to Subsidiary for $100,000 selling price. This sale resulted in a profit of $30,000 for Parent. Assume parents effective tax rate is 30%. Should the $30,000 "profit" be removed from the consolidated statement of earnings in the year? Explain in detail.
Conglomerate P Inc. purchased 76% of the voting shares of S Inc for $800,000 cash on January 1, Year 2.
The Balance Sheet of P Inc. & S Inc. for year 5 showed the following balances
P Inc. S Inc.
Common Share $241,499 $199,048
What is the amount for Common Shares on Consolidated Balance Sheet of P Inc. for Year 5?
Conglomerate P Inc. acquired 74% voting shares of S Inc. on January 1, Year 2.
During year 4, S sold inventory to P and earned a profit of $30,698. 77% of the merchandise had not been resold to outside parties in Year 4 and were eventually sold during January Year 5.
The Statement of Earnings of P Inc. & S Inc. for Year 5 showed the following balances
P Inc. S Inc.
COGS $178,260 $166,209
What is the amount for Cost of Goods Sold on Consolidated Statement of Earnings of P Inc. for year ended Year 5.
Conglomerate P Inc. purchased 69% of the voting shares of S Inc for $804,284 cash on January 1, Year 2. On that date, Ss Common Stock and Retained Earnings were valued at $ 100,000 and $236,169 respectively.
Ss fair values approximated its carrying values with the following exceptions:
- The building had a fair value which was $93,700 higher than its carrying value.
- S's bonds payable has a fair value $98,978 higher than its carrying value.
At the time of aquisition S's balance sheet had a goodwill of $20,000.
For Consolidation P Co. uses the Fair Value Enterprise method.
What is the Goodwill amount at the time of acquisition?
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