Millennium Capital Management, Inc., (MCM) acquired a 90% interest in NextGen, Inc. MCM's Financial Manager, Matthew Steven, has prepared a draft memo to the CFO, Hannah Jordan, advising her on how the company should account for certain aspects of the acquisition. Mr Steven would like you to review the draft memo and make any necessary revisions to comply with generally accepted accounting principles.Using the information from the exhibits in the file attached (Homework SIM 2 DRS simulation.pdf- also in the test instructions), select the option from the list provided that corrects each underlined portion of the memo. If the underlined text is already correct in the context of the document, select[Original Text]from the list.

HW3Q1:

The fair value of the consideration that MCM transferred to acquire its interest in NextGen is

1. A.$9,000,000
2. B.$8,000,000
3. C.$10,000,000
4. D.$9,500,000
5. E.$8,500,000

1 points

QUESTION 2

We mustexpense the $190,000 paymentto Jacob, Sullivan, & Duke.

1. A.[OriginalText]expense the $190,000 payment
2. B.capitalize the $190,000 payment
3. C.expense $150,000 of the payment
4. D.expense $135,000 of the payment
5. E.expense $40,000 of the payment

1 points

QUESTION 3

1. On its acquisition-date consolidated balance sheet, MCM willreport a noncontrolling interest of $900,000 in NextGen.
2. A.[OriginalText]report a noncontrolling interest of $900,000 in NextGen.
3. B.not report a noncontrolling interest in NextGen.
4. C.report a noncontrolling interest of $433,000 in NextGen.
5. D.report a noncontrolling interest of $1,000,000 in NextGen.
6. E.report a noncontrolling interest of $962,500 in NextGen.

1 points

QUESTION 4

1. On the date of MCM's acquisition of a 90% interest in NextGen, MCM willrecognize goodwill of $500,000 on the acquisition.
2. A.[OriginalText]recognize goodwill of $500,000 on the acquisition.
3. B.recognize goodwill of $5,670,000 on the acquisition.
4. C.recognize goodwill of $1,000,000 on the acquisition.
5. D.recognize goodwill of $5,170,000 on the acquisition.
6. E.not recognize any goodwill on the acquisition

DRS: EXHIBITS MILLENNIUM CAPITAL MANAGEMENT, INC. Always ahead of the curve January 15, 20XX To our shareholders: Acquisition Announcement Millennium Capital Management, Inc., ("MCM") is pleased to announce that on January 14, 20XX, we acquired from NextGen, Inc., ("NextGen") shareholders a 90% interest in NextGen, which is a public company. Board Approval MCM's board of directors unanimously approved this acquisition on January 13, 20XX. Consideration In consideration for a 90% interest in NextGen, MCM issued 100,000 shares of its common stock to NextGen shareholders in exchange for 450,000 shares of NextGen common stock. This transaction occurred on January 14, 20XX. Regulatory Approval This acquisition passed federal regulatory review on January 12, 20XX, and is in full compliance with all applicable laws, statutes, and regulations. Sincerely, Joseph Prince, CEOGSG Financial Advisory Services SUMMARY VALUATION REPORT: NextGen, Inc. January 14, 20XX Millennium Capital Management, Inc. Attn: Joseph Prince, CEO Mr. Prince: In accordance with our engagement letter, we performed a valuation of NextGen, Inc., ("NextGen") to ascertain the fair values of its identifiable assets and liabilities. The fair values are based on the most appropriate markets relative to NextGen's identifiable assets and liabilities Accordingly, we assess the fair value of NextGen's identifiable assets and liabilities at $35,000,000 and $25,000,000, respectively. The fair value of every asset equaled its book value except for Land and Buildings. The fair value for Land exceeded its book value by $1,500,000, and the fair value for Buildings (net of accumulated depreciation) exceeded its book value by $4, 170,000. The fair value of every liability equaled its book value. Also in accordance with our engagement letter, this valuation report is a summary of the full report, which is available upon your request. In closing, we would like to take this opportunity to thank you for trusting us to undertake this valuation. Should there be any areas that need clarification, please do not hesitate to contact us. Sincerely, Michael Carter, CPA/ABV Managing Partner GSG Financial Advisory ServicesNextGen, Inc. Balance Sheet January 14, 20XX Assets Current assets Cash $530,000 Accounts receivable, net of allowance for doubtful accounts $1,500,000 Inventories $3,800,000 Supplies on hand $750,000 Prepaid expenses $300,000 Total current assets $6,880,000 Noncurrent assets Investment in bonds $2,500,000 Equipment, net of accumulated depreciation $5,000,000 Land $3,000,000 Buildings, net of accumulated depreciation $11,950,000 Total noncurrent assets $22,450,000 Total assets $29,330,000Liabilities and Stockholders' Equity Current liabilities Accounts payable $1,000,000 Income taxes payable $2,000,000 Accrued salaries, wages, and other liabilities $2,000,000 Deposits received from customers $500,000 Total current liabilities $5,500,000 Noncurrent liabilities Note payable $19,500,000 Total noncurrent liabilities $19,500,000 Total liabilities $25,000,000 Stockholders' equity Common- Authorized, issued, and outstanding, 500,000 shares of $1.00 par value $500,000 Additional paid-in capital $3,500,000 Retained earnings $330,000 Total stockholders' equity $4,330,000 Total liabilities and stockholders' equity $29,330,000MILLENNIUM CAPITAL MANAGEMENT, INC. Always ahead of the curve January 14, 20XX To: Joseph Prince, CEO; Samuel Lamon, General Counsel From: Hannah Jordan, CFO Re: Share Prices The listed share prices* of MCM and NextGen on the requested dates are shown below: MCM NextGen Preliminary discussions date (01/01/20XX) $75.00 $18.00 Regulatory approval date (01/12/20XX) $80.00 $18.50 Board approval date (01/13/20XX) $85.00 $19.25 Acquisition date (01/14/20XX) $95.00 $20.00 *Reflect stock market closing prices on respective dates Sincerely, Hannah Jordan, CFO Millennium Capital ManagementJacob, Sullivan, & Duke LLP Attorneys at Law Your mergers and acquisitions experts since 1934 INVOICE PAID Date: 01/14/20XX Date: 01/13/20XX Accounts payable supervisor: REB Invoice No.: 12442 Controller: SEG Matter: Acquisition File No.: M-27 Bill to: Millennium Capital Management, Inc. Due date: Due upon receipt Professional Services Details Amount* Acquisition-related fees (consultation, agreement review, meeting attendance) $150,000.00 Direct issue costs of stock 40,000.00 Total $190,000.00 "Itemized fees report available on request