On December 31, 20

18

,

Big

Company acquired all the capital stock of

Little

Company.

Big

acquired 79.2

million shares of

Little

s shares.

Big

issued 59 million shares of

Big

stock plus $30 for each share of

Little

stock.

Big

stock, which has a par value of $0.01 per share, had a market value of $32.25 per share. The

estimated fair value of

Little

accounts were as follows:

Cash and cash equivale

nts

$

105,000,000

Receivables

$

141,000,000

Capitalized film costs

$

269,000,000

Intangible assets

$

3,140,000,000

Accounts payable

$

(325,000,000)

Other Liabilities

$

(83,000,000)

Deferred income tax liability

$(1,121,000,000)

Required:

1.

Calculate the total price paid for

Little

. Is there goodwill or a gain

on bargain purchases

?

(

3

point

s

)

2.

Record the acquisition

assuming

Little

was dissolved

(3 point

s

)

5

Case 1.3

Huge

Corporation acquires 5% of the outstanding voting shares of

Tiny

Corporation on January 1, 201

6

,

for $100,000 when

Tiny

Corporation has a book value of $1,500,000. Despite the low percentage of

ownership,

Huge

Corporation is able to exercise significant influence over

Tiny

, and therefore uses the

equity method to account for the investment. An additional 30% of the stock i

s purchased on January 1,

201

7

, for $651,000.

The following information is available for

Tiny

Corporation:

201

6

201

7

201

8

Net Income

700,000

750,000

900,000

Dividends

150,000

100,000

100,000

The Fair Value of

Tiny

Corporations stock at December 31, 201

6

was $2,170,000

.

The book values of

Tiny

Corporations asset and liability accounts are considered as equal to fair values

except for a Customer List whose value accounted for

Huge

Corporations excess cost in each purchase.

The Customer List had a remaining life of 10 years at January 1, 201

6

.

Required:

1.

If

Huge

Corporation sells its entire investment in

Tiny

Corporation on January 1, 201

9

, for $1,300,000

cash, what is the impact on

Huge

Corporation

s

income? Show all your calculations

(

4

points)

2.

Assume that

Huge

Corporation sell

s

inventory to

Tiny

Corporation during 201

7

and 201

8

as follow

s:

Cost to

Huge

Corporation

Price to

Tiny

Corporation

Year

-

End Balance

(at transfer price)

201

7

35

,000

50,000

20,000 (sold in following year)

201

8

33,000

60,000

40,000 (sold in following year)

What amount of equity income should

Huge

recognize for the year 2018

? Show all your calculations