Please anwer the questions in the file. Thank you!

SESSION A7: RECORDING BUSINESS COMBINATIONS Poorly Behaved AAP Exercise A7-4 On January 1, 2013, Petulant Company acquired 25,000 shares of the outstanding common stock of Splenetic Corporation by issuing Petulant common stock ($2 par value) to Splenetic stockholders in a 1:1 ratio. The market price of Petulant stock on the date of acquisition is $50 per share. As part of the acquisition, Petulant agreed to pay (on March 15, 2011) an extra $20 per share to Splenetic's selling shareholders if Splenetic's operations achieved $500,000 in net income during the year ended December 31, 2013. The fair value of this provision is $11 per share on January 1, 2013. Splenetic only earned $475,000 in net income during the year ended December 31, 2013, so the earn-out expired worthless. On December 10, 2012, Splenetic had declared a cash dividend of $1 per share to be paid at February 1, 2013 for stockholders of record at January 8, 2013. The stockholders equity section of Splenetic at January 1, 2013 is: Common stock ($4 par) APIC Retained earnings $ 100,000 900,000 375,000 $ 1,375,000 The fair market values of the net assets of Splenetic are equal to their book values except for the following: Inventories Land Patents Long-term notes payable Book Value $ 260,000 368,000 152,000 100,000 Fair Value $ 350,000 408,000 212,000 90,000 Assume that the tax bases of the net assets are equal to their consolidated financial bases & that the transaction is a taxable business combination. 1 RECORDING BUSINESS COMBINATIONS Poorly Behaved AAP Exercise A7-4 1. Prepare any journal entries on the books of Petulant and Splenetic for the acquisition on January 1, 2013. 2. Do you notice anything unusual when you attempt to allocate the AAP at January 1, 2013? In your own words, please describe how we got to this unusual answer. From a strictly conceptual perspective, what is the best way to represent this situation in the financial statements? 2