The year ended June 30, 2016, has been another successful year for Koebel's Family Bakery Ltd. The success, however, has meant that Natalie, Daniel, Janet, and Brian have spent many long hours in the bakery accommodating their customers, both large and small. Janet and Brian have still not had time to enjoy any of their successes and are considering retiring from the bakery.
The Koebel family has come to know the executives at Biscuits, a public corporation, and Coffee Beans, a private corporation. Both of these organizations have been thrilled with the products that Koebel's Family Bakery has provided over the year. Frank Vosburgh, the president of Biscuits, wishes to strengthen the relationship between Koebel's Family Bakery and Biscuits. He recognizes that Janet and Brian are considering retirement. He has put forward an offer for Biscuits to purchase all of the shares that are currently held by the Koebel family. He has also guaranteed employment to both Natalie and Daniel for the next two years.
Bruce Anderson, the president of Coffee Beans, has found out about the offer put forward by Biscuits and is concerned that the great relationship he has developed with Koebel's Bakery will be not be maintained if Koebel's is taken over by Biscuits. As a result, he has also offered to purchase the shares held by Janet and Brian, leaving Natalie and Daniel with their 50% ownership interest and the responsibility for running the bakery. Natalie and Daniel would maintain control of the company. You will recall from Chapter 11 that 100 common shares are owned by each family member, for a total of 400 common shares.
Instructions
(a) If Biscuits were to succeed in the offer to purchase all of the outstanding shares of Koebel's Family Bakery Ltd., describe how this investment would be accounted for in the accounting records of Biscuits. Would a change in the manner in which Koebel's accounting records are maintained have to be undertaken? Why or why not?
(b) If Coffee Beans were to succeed in the offer to purchase Janet and Brian's shares (50%) of Koebel's Family Bakery Ltd., describe how this investment would be accounted for in the accounting records of Coffee Beans. Would a change in the manner in which Koebel's accounting records are maintained have to be undertaken? Why or why not?
(c) Identify some of the advantages and disadvantages to Janet, Brian, Natalie, and Daniel of each of these offers?