Week 2 Assignment

ACC401 Accounting for Business Combinations

Background

Saskia foundMama'sPies' balance sheet to befairly straightforward. At the top, the company's accountant added the header, "Acquisition ofMama'sPies," with the subheads "Acquirer: Bugliosi Pizzerias, Inc." and "Acquisition Date: October 1."The acquirer and acquisition date were the first two steps of the acquisition method ("Accounting and reporting," 2017).

The next stepincluded the pizza chain's estimated assets, liabilities, and equityall of which wouldbe recalculated on the acquisition date.Underassets, Saskia had a long list of pizza ovens, pots and pans, refrigerators, furniture, cargo vans, and even minor itemsall valued according to listings found on various Internet auction sites.The assets ledger also listed equity in five buildings with first floor pizzerias and second-floor rental apartments. This was a business activity her boss, Vince, probablydidn'twant to keep. Liabilities included leases, mortgages,payroll, utilities,andotherservice contracts thatMama'swas obligated to pay out every year.

Assets

Liabilities

Goodwill

Real Estate (5 buildings): $1,368,300

Cargo Vans (5): $136,800

Pizza Ovens (28): $34,000

Refrigerators (34): $23,560

Furniture: $46,000

Kitchen implements: $26,400

Cleaning equipment: $12,430

Cash: $101,456.87

Leases($158,270 per year)

Mortgages ($48,390 per year)

Utilities ($58,320 per year)

Internet and phone ($43,600 per year)

Payroll ($768,300 per year)

Web domain ($12,000)

Secret Recipes ($70,000)

Brand reputation ($50,000)

Email lists ($20,000)

Exclusivity agreements: minor league baseball and hockey ($123,000)

The fourth step was a calculation of goodwill and other intangible assets. Goodwill included recipes and ingredient lists used inMama'sauthentic style ofSicilianpizza,Mama'sbrand and reputation. "Other Intangible Assets" included the web domain "Mama's.com," which could potentially be sold to a pizza chain in a different part of the country at some point. The list of intangible assets also included an extensive email list with thousands of subscribersanda number ofexclusivity agreements with local events venues such as minor league baseball and hockey teams.

Saskia would take the goodwill list and weigh it against goodwill impairments such as overpriced leases and underperforming locations. If theimpairments drove the company's value down below its asking price, thenegative goodwillwould cause abargain purchasethat would be recorded as anextraordinary gainon Bugliosi's tax statement (Barone, 2019).

It all seemed straightforward in the balance sheet, which was like the summary page of a complex tax return. Saskia's next step would be to dig intoallthe documentation and, as President Reagan once said, "Trust, but verify."

References

Accounting and reporting. (2017, August 11). CPA Practice Advisor. Retrieved on March 30, 2020.https://www.cpapracticeadvisor.com/accounting-audit/news/12359095/accounting-and-reporting-for-business-combinations(Links to an external site.)

Barone, A. (2019, April 12). Negative goodwill. Investopedia. March 30, 2020.https://www.investopedia.com/terms/n/negativegoodwill.asp(Links to an external site.)

Hayes, A. (2019, May 19).Balance sheet.Investopedia. Retrieved on March 30, 2020.https://www.investopedia.com/terms/b/balancesheet.asp(Links to an external site.)

Prompt

Createthe balance sheetwhich shouldincludethe amount of goodwillMama'sPiesis holding from the acquisition.

Next,use the acquisition method tocreateanacquisition report ofgoodwill that contains the followinginformation:

1.The acquirer

2.Acquisition date

3.TotalAssets(not including Goodwill)and Liabilities reported

4.The amount of Goodwill (+/-)

Yourbalance sheet andreport should bein an Excelworkbook each on separate tabs. The report will containat least 3 formulas and with 1 pie chart showing assets (not including goodwill), liabilities, and goodwill.

Submission Requirements

You will submit 1 Excel workbook titled LastNameFirstName_ACC401_Wk2Assign