I need help with this midterm. Can you take a look at # 5 on Chapter 1.

Name: Steven Bridgeman ACC 400 Mid-term Exam Chapter 1. Multiple choice - 4pts. ea. 1. A controlling interest in a company implies that the parent company; A. Owns all of the subsidiary's stock B. Has acquired a majority of the subsidiary's common stock C. Has paid cash for a majority of the subsidiary's stock. D. Has transferred common stock for a majority of the subsidiary's outstanding bonds and debentures. 2. Goodwill represents the excess cost of an acquisition over the: A. Sum of the fair values assigned to intangible assets less liabilities assumed. B. Sum of the fair values assigned to tangible and identifiable intangible assets acquired less liabilities assumed. C. Sum of the fair values assigned to intangibles acquired less liabilities assumed. D. Book value of an acquired company. 3. While performing a goodwill impairment test, the company had the following information: Estimated implied fair value of reporting unit (without goodwill) $420,000 Existing book value of reporting unit (without goodwill) $380,000 Book value of goodwill $ 60,000 Based upon this information the proper conclusion is: A. The existing net book value plus goodwill is in excess of the implied fair value; therefore, no adjustment is required. B. The existing net book value plus goodwill is less than the implied fair value plus goodwill; therefore no adjustment is required. C. The existing net book value plus goodwill is in excess of the implied fair value; therefore goodwill needs to be decreased. D. The existing net book value is less than the estimated implied fair value; therefore goodwill needs to be decreased. 4. Acquisition costs such as the fees of accountants and lawyers that were necessary to negotiate and consummate the purchase are: A. Recorded as a deferred asset and amortized over a period not to exceed 15 years. B. Expensed if immaterial but capitalized and amortized if over 2% of the acquisition price. C. Expensed in the period of purchase. D. Included as part of the price paid for the company purchased. 5. ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value $50,000 50,000 Building 80,000 100,000 Equipment 30,000 50,000 Liabilities 30,000 30,000 Current assets What is the amount recorded by ACME for the acquisition of the assets of Comb Corp? A. $170,000 B. $140,000 C. $230,000 D. $110,000 Computational problems - 15 pts. ea. Be sure to label all accounts in your answer. 1. On January 1, 20X5, Brown Inc. acquired Larson Company's net assets in exchange for Brown's common stock with a par value of $100,000 and a fair value of $800,000. Brown also paid $10,000 in direct acquisition costs and $15,000 in stock issuance costs. On this date, Larson's condensed account balances showed the following: Current Assets Plant and Equipment Accumulated Depreciation Book Value Fair Value $280,000 $370,000 440,000 480,000 (100,000) Intangibles - Patents 80,000 120,000 Current Liabilities (140,000) (140,000) Long-Term Debt (100,000) (110,000) Common Stock (200,000) Other Paid-in Capital (120,000) Retained Earnings (140,000) Required: Record Brown's purchase of Larson Company's net assets. 2. On January 1, 20X5, Zebb and Nottle Companies had condensed balance sheets as shown below: Current Assets Plant and Equipment Current Liabilities Long-Term Debt Common Stock, $10 par Paid-in Capital in Excess of Par Retained Earnings Zebb Nottle Company Company $1,000,000 $ 600,000 1,500,000 800,000 $2,500,000 $1,400,000 $ 200,000 $ 100,000 300,000 300,000 1,400,000 400,000 0 100,000 600,000 500,000 $2,500,000 $1,400,000 Required: Record the acquisition of Nottle's net assets, the issuance of the stock and/or payment of cash, and payment of the related costs. Assume that Zebb issued 30,000 shares of new common stock with a fair value of $25 per share and paid $500,000 cash for all of the net assets of Nottle. Acquisition costs of $50,000 and stock issuance costs of $20,000 were paid in cash. Current assets had a fair value of $650,000, plant and equipment had a fair value of $900,000, and long-term debt had a fair value of $330,000. Page intentionally left blank for calculations. Chapter 2. Multiple choice - 4 pts. ea 1. Parr Company purchased 100% of the voting common stock of Super Company for $2,000,000. There are no liabilities. The following book and fair values are available: Book Value Fair Value $300,000 $600,000 Land and building 600,000 900,000 Machinery 500,000 600,000 Goodwill 100,000 Current assets ? The machinery will appear on the consolidated balance sheet at: A. $560,000 B. $860,000 C. $600,000 D. $900,000 2. The investment in a subsidiary should be recorded on the parent's books at the: A. Underlying book value of the subsidiary's net assets. B. Fair value of the subsidiary's net identifiable assets. C. Fair value of the consideration given. D. Fair value of the consideration given plus an estimated value for goodwill. 3. Which of the following costs of a business combination can be included in the value charged to paid-in-capital in excess of par? A. Direct and indirect acquisition costs. B. Direct acquisition costs. C. Direct acquisition costs and stock issue costs if stock is issued as consideration. D. Stock issue costs if stock is issued as consideration. 4. Judd Company issued nonvoting preferred stock with a fair value of $1,500,000 in exchange for all of the outstanding common stock of Bath Corporation. On the date of the exchange, Bath had tangible net assets with a book value of $900,000 and a fair value of $1,400,000. In addition, Judd issued preferred stock valued at $100,000 to an individual as a finder's fee for arranging the transaction. As a result of these transactions, Judd should report an increase in net assets of: A. $900,000 B. $1,400,000 C. $1,500,000 D. $1,600,000 5. In an 80% purchase accounted for as a tax-free exchange, the excess of cost over book value is $200,000. The equipment's book value for tax purposes is $100,000, and its fair value is $150,000. All other identifiable assets and liabilities have fair values equal to their book values. The tax rate is 30%. What is the total deferred tax liability that should be recognized on the consolidated balance sheet on the date of purchase? A. $12,000 B. $60,000 C. $72,857 D. $85,714 Computational problems - 15 pts. ea. Be sure to label all accounts in your answer. 1. December 31, 20X1, Parent Company purchased 80% of the common stock of Subsidiary Company for $280,000. On this date, Subsidiary had total owners' equity of $250,000 (common stock $20,000; other paid-in capital, $80,000; and retained earnings, $150,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Inventory is undervalued $5,000. Land is undervalued $20,000. Buildings and equipment have a fair value which exceeds book value by $30,000. Bonds payable are overvalued $5,000. The remaining excess, if any, is due to goodwill. Required: a. Prepare a value analysis schedule for this business combination. b. Prepare the determination and distribution schedule for this business combination c. Prepare the necessary elimination entries in general journal form. a) Value analysis schedule Company Implied Fair Value Parent Price NCI Value Company fair value Fair value identifiable net assets Goodwill b) Determination and distribution schedule: Company Implied Fair Value Fair value of subsidiary Less book value: Parent Price NCI Value C Stk APIC R/E Total S/E Interest Acquired Book value Excess of fair over book Adjust identifiable accounts: Inventory Land Bldgs & Equip Bond Pay Discount Goodwill Total c) Elimination entries: ELIMINATION ENTRY 'EL' C Stk-Sub APIC-Sub R/E-Sub Investment in Sub 200,000 ELIMINATION ENTRY 'D' Inventory Land Bldgs & Equip Bond Pay Discount Goodwill 200,000 Investment in Sub R/E-Sub (NCI) 100,000 Page intentionally left blank for computations. 100,000 2. On January 1, 20X1, Parent Company purchased 100% of the common stock of Subsidiary Company for $280,000. On this date, Subsidiary had total owners' equity of $240,000. On January 1, 20X1, the excess of cost over book value is due to a $15,000 undervaluation of inventory, to a $5,000 overvaluation of Bonds Payable, and to an undervaluation of land, building and equipment. The fair value of land is $50,000. The fair value of building and equipment is $200,000. The book value of the land is $30,000. The book value of the building and equipment is $180,000. The fair value of identifiable net assets is $300,000 as determined from the worksheet as presented below: Trial Balance Parent Sub. Eliminations and Adjustments Account Titles Company Company Assets: Inventory 50,000 30,000 Other Current Assets 239,000 165,000 Investment in Subsidiary 280,000 Land Buildings Accumulated Other Intangibles 120,000 350,000 (100,000) 40,000 30,000 230,000 (50,000) 979,000 405,000 Liabilities and Equity: Current Liabilities Bonds Payable 191,000 65,000 100,000 Common Stock - P Co. Addn'l Pd-In Capt - P Retained Earnings - P 100,000 150,000 538,000 Total Common Stock - S Co. Addn'l Pd-In Capt - S Retained Earnings - S NCI Total Debit Credit 50,000 70,000 120,000 979,000 405,000 Required: a. Using the information above and on the separate worksheet, complete a value analysis schedule b. Complete schedule for determination and distribution of the excess of cost over book value. c. Complete the Figure 2-5 worksheet for a consolidated balance sheet as of January 1, 20X1. a. Value analysis schedule: Company Implied Fair Value Parent Price Company fair value Fair value identifiable net assets Gain on acquisition b. Determination and Distribution Schedule: Company Implied Fair Value Fair value of subsidiary Less book value: C Stk APIC R/E Total S/E Interest Acquired Book value Excess of fair over book Adjust identifiable accounts: Inventory Land Bldgs & Equip Bond Pay Discount Gain on acquisition Parent Price Total Account Titles Assets: Inventory Other Current Assets Investment in Subsidiary Trial Balance Parent Sub. Company Company 50,000 239,000 280,000 30,000 165,000 120,000 350,000 (100,000) 40,000 30,000 230,000 (50,000) 979,000 405,000 Liabilities and Equity: Current Liabilities Bonds Payable 191,000 65,000 100,000 Common Stock - P Co. Addn'l Pd-In Capt - P Retained Earnings - P 100,000 150,000 538,000 Land Buildings Accumulated Other Intangibles Total Common Stock - S Co. Addn'l Pd-In Capt - S Retained Earnings - S NCI Total Eliminations and Adjustments Debit Credit 50,000 70,000 120,000 979,000 405,000 (continued) Account Titles Assets: Inventory Other Current Assets Investment in Subsidiary Land Buildings Accumulated Other Intangibles NCI Consolidated Balance Sheet Debit Credit Total Liabilities and Equity: Current Liabilities Bonds Payable Common Stock - P Co. Addn'l Pd-In Capt - P Retained Earnings - P Common Stock - S Co. Addn'l Pd-In Capt - S Retained Earnings - S NCI Page intentionally left blank for calculations