Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 1.2C
1
To determine
Acquisition
It is a process under which one company buysmajority of shares of another company and gains the control of the other company.
One reason for which company A purchased majority of shares of company T and the benefit of this acquisition to company A.
2
To determine
Purchase consideration
Purchase consideration represents the amount that purchasing company pays to the acquired company in exchange of the assets and liabilities.
The amount of consideration in the acquisition of company T by company A.
3
To determine
Purchase consideration
Purchase consideration represents the amount that purchasing company pays to the acquired company in exchange of the assets and liabilities.
How purchase consideration was satisfied in the given acquisition case.
4
To determine
Acquisition
It is a process under which one company buysmajority of shares of another company and gains the control of the other company.
The type of acquisition that would describe the given case of acquisition.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the post-merger data for GCC (in thousands of dollars) gathered in the Excel Online file below. If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 30% if it were consolidated. GCC's current market-determined beta is 1.35, and its investment bankers think that its beta will rise to 1.50 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would…
P1-2 Prepare balance sheet after an acquisition
On January 2, 2016, Pop Corporation enters into a business combination with Son Corporation in
which Son is dissolved. Pop pays $1,650,000 for Son, the consideration consisting of 66,000
shares of Pop $10 par common stock with a market value of $25 per share. In addition, Pop pays the
following expenses in cash at the time of the merger:
Finder's fee
Accounting and legal fees
Registration and issuance costs of securities
Balance sheet and fair value information for the two companies on December 31, 2015, immediately before
the merger, is as follows (in thousands):
Cash
Accounts receivable-net
Inventories
Land
Buildings-net
Equipment-net
Total assets
Accounts payable
Note payable
Capital stock, $10 par
Other paid-in capital
Retained earnings
Total liabilities and owners' equity
Pop Book Value
$300
460
1,040
800
2,000
1,000
$5,600
$ 600
1,200
1,600
1,200
1,000
$5,600
$70,000
130,000
80,000
$280,000
Son Book Value Son Fair Value
$ 60
$60
100…
Week 1You are the audit manager of Overseas Explorer Ltd (OEL), which acquired the small proprietarycompany Local Pty Ltd (Local) on 30 June 2018. The price of the acquisition was agreed at $5 million,on the condition that OEL is satisfied with the financial records of Local. As Local is a small proprietarycompany, it has not prepared statutory financial reports or undergone an audit since its incorporationin 2016. However, Local has agreed to allow your firm, which is the auditor of OEL, to access its booksand records. The CEO of OEL, Wendy Champion, has requested that your firm provide assurance onthe following three items: The management accounts for the year ended 30 June 2017 All transactions occurring from the date negotiations commenced until the settlement date, toensure that all transactions were within the normal course of operations The financial report prepared at the acquisition date of 30 June 2018In order to clarify your responsibilities, you requested that OEL…
Chapter 1 Solutions
Advanced Financial Accounting
Ch. 1 - What types of circumstances would encourage...Ch. 1 - How would the decision to dispose of a segment of...Ch. 1 - Prob. 1.3QCh. 1 - Prob. 1.4QCh. 1 - Prob. 1.5QCh. 1 - Prob. 1.6QCh. 1 - Prob. 1.7QCh. 1 - Prob. 1.8QCh. 1 - Prob. 1.9QCh. 1 - Prob. 1.10Q
Ch. 1 - Prob. 1.11QCh. 1 - Prob. 1.12QCh. 1 - Prob. 1.13QCh. 1 - Prob. 1.14QCh. 1 - Within the measurement period following a business...Ch. 1 - Prob. 1.16QCh. 1 - Prob. 1.1CCh. 1 - Prob. 1.2CCh. 1 - Prob. 1.3CCh. 1 - Prob. 1.4CCh. 1 - Risks Associated with Acquisitions Not all...Ch. 1 - Prob. 1.6CCh. 1 - Prob. 1.1.1ECh. 1 - Prob. 1.1.2ECh. 1 - Prob. 1.1.3ECh. 1 - Multiple-Choice Questions on Complex Organizations...Ch. 1 - Prob. 1.1.5ECh. 1 - Prob. 1.2.1ECh. 1 - Prob. 1.2.2ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Prob. 1.2.4ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Prob. 1.3.3ECh. 1 - Prob. 1.3.4ECh. 1 - Prob. 1.4.1ECh. 1 - Prob. 1.4.2ECh. 1 - Prob. 1.4.3ECh. 1 - Multiple-Choice Questions Involving Account...Ch. 1 - Prob. 1.4.5ECh. 1 - Prob. 1.5ECh. 1 - Prob. 1.6ECh. 1 - Prob. 1.7ECh. 1 - Prob. 1.8ECh. 1 - Prob. 1.9ECh. 1 - Prob. 1.10ECh. 1 - Balances Reported Following Combination Palm...Ch. 1 - Goodwill Recognition Spur Corporation reported the...Ch. 1 - Acquisition Using Debentures Planter Corporation...Ch. 1 - Bargain Purchase Using the data resented in E1-13,...Ch. 1 - Prob. 1.15ECh. 1 - Prob. 1.16ECh. 1 - Prob. 1.17ECh. 1 - Prob. 1.18ECh. 1 - Prob. 1.19ECh. 1 - Prob. 1.20ECh. 1 - Prob. 1.21ECh. 1 - Prob. 1.22ECh. 1 - Prob. 1.23ECh. 1 - Prob. 1.24PCh. 1 - Prob. 1.25PCh. 1 - Prob. 1.26PCh. 1 - Acquisition in Multiple Steps Peal Corporation...Ch. 1 - Prob. 1.28PCh. 1 - Prob. 1.29PCh. 1 - Prob. 1.30PCh. 1 - Prob. 1.31PCh. 1 - Computation of Account Balances Saspro Division is...Ch. 1 - Prob. 1.33PCh. 1 - Prob. 1.34PCh. 1 - Prob. 1.35PCh. 1 - Business Combination Following are the balance...Ch. 1 - Prob. 1.37PCh. 1 - Prob. 1.38PCh. 1 - Prob. 1.39PCh. 1 - Prob. 1.40P
Knowledge Booster
Similar questions
- BAQ is a listed entity with a financial year end of 31 March. At 31 March 2018, it had 8,000,000 ordinary shares in issue. The directors of BAQ wish to expand the business’s operations by acquiring competitor entities. They intend to make no more than one acquisition in any financial year. The directors are about to meet to discuss two possible acquisitions. Their principal criterion for the decision is the likely effect of the acquisition on group earnings per share. Details of the possible acquisitions are as follows: Acquisition of CBR 100% of the share capital of CBR could be acquired on 1 October 2018 for a new issue of shares in BAQ; CBR has 4 00,000 ordinary shares in issue; Four CBR shares would be exchanged for three new shares in BAQ; CBR’s profit after tax for the year ended 31 March 2018 was N$625,000 and the entity’s directors are projecting a 10% increase in this figure for the year ending 31 March 2019. Acquisition of DCS 80% of the…arrow_forwardOn January 5, 2018 Johnson Co. announced their planned acquisition of Smith Co. The following is a summary of the consideration to be paid for the acquisition. Cash: $10 million Stock: 1 million shares of Johnson Co. common stock. At January 5 the market price of the stock was $20 per share, but as of the date the transaction closed, Johnson Co. stock was trading at $25 per share. Contingent Consideration: The selling shareholders of Smith Co. are entitled to receive $2 million upon receipt of FDA approval (by December 31, 2018) of a medical device Smith is developing that is under review by the FDA. FDA approval is the sole contingency which must be resolved for the contingent consideration to be paid, however if approval is not received by the deadline, no payment is due. As of the acquisition date, Johnson believes there is 80% likelihood the contingent consideration will be paid. 1. What is the amount of consideration used to record this business combination under IFRS? Under US…arrow_forwardUse the following data to answer this question. It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data): January 1, 2017 ($ in millions) Pegasus Chimera GAAP revenue $150.40 $112.00 GAAP net income $14.04 $9.92 Tax rate 40% 35% Assume all activities below occur on January 1, 2017: You also obtained the following transaction-related data: Offer value Sources of funds Refinanced debt Transaction fees Financing fees Cost synergies Revenue synergies Goodwill Asset write ups What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax income? Hint: There will be three components - lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest. O 21.66 O -3.10 O -3.96 O -4.01 $132.0 million in cash 50% of the offer value funded using Pegasus's cash…arrow_forward
- At the beginning of 2024, specifically on January 1st, Global Enterprises acquired a significant stake in the company Miniature Essentials by purchasing 25% of its available voting shares. This acquisition was made with a cash payment of $197.500. On the acquisition date, the book value and the fair value of Miniature Essentials were both at $790,000. Given the nature of this investment, the equity method was considered the most suitable accounting approach. As the year came to a close, Miniature Essentials reported a net income of $75,000 on December 31, 2024. Additionally, during the year 2024, Miniature Essentials distributed cash dividends totaling $21,500. Required: What is the balance on the Investment account that would be reported on Global Enterprises financial statements as of December 31, 20247arrow_forwardCurrent Attempt in Progress On January 1, 2025, Windsor Corporation purchased 20% of the common shares of Sheridan Company for $196,000. During the year, Sheridan earned net income of $77,000 and paid dividends of $19,250. Prepare the entries for Windsor to record the purchase and any additional entries related to this investment in Sheridan Company in 2025. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation (To record purchase of stock.) (To record receipt of dividends.) (To record revenue.) Debit Creditarrow_forwardTransWorld Communications Inc., a large telecommunications company,is evaluating the possible acquisition of Georgia Cable Company (GCC), a regionalcable company. TransWorld’s analysts project the following post-merger data for GCC (inthousands of dollars): If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the incomestatements are assumed to occur at the end of the year. GCC currently has a capital structureof 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC,if independent, would pay taxes at 20%, but its income would be taxed at 35% if it wereconsolidated. GCC’s current market-determined beta is 1.40, and its investment bankersthink that its beta would rise to 1.50 if the debt ratio were increased to 50%. The cost of goodssold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generatedfunds would be used to replace worn-out equipment, so they would not be available toTransWorld’s…arrow_forward
- Sky Ltd (Sky) has purchased an investment of 15,000 shares on 1 August 2019 at a cost of $6.5 each. Transaction costs on the purchase amounted to $1,500. As at the year ended 30 September 2019, these shares are now worth $7.75 each. Sky makes an irrevocable election at initial recognition to measure these shares at fair value through other comprehensive income to reduce accounting mismatch. Required: What is the effect on the statement of profit or loss and other comprehensive income of these shares for the year ended 30 September 2019 of Sky in accordance with HKFRS 9 ‘Financial Instruments’? A. $17,250 gain in other comprehensive income B. $18,750 gain in other comprehensive income and $1,500 expense C. $17,250 gain in profit or loss and $1,500 expense D. $18,750 loss in other comprehensive income and $1,500 expensearrow_forwardOn August 1, 2015, McLellan Ltd. purchased 1,000 Data-wave common shares for $45,000 cash with the intention of trading the shares and using the fair value through profit or loss model. On December 31, 2015, McLellan s year end, the shares fair value was $49,000. Prepare the journal entry to record (a) The purchase of this investment on August 1, and (b) Any adjusting journal entry required at December 31? Please provide explanation to the recorded entries through narration.arrow_forwardIn 2021, Google, a company that specializes in internet-related service, acquired Fitbit, the fitness tracking company, to bolster its wearable capabilities. Google paid shareholders $7.25 per share in cash. This is an example of which of the following? Group of answer choices horizontal acquisition conglomerate acquisition vertical acquisition mergerarrow_forward
- Grouper Corporation has owned stock of Conrad Corporation since 2017. At December 31, 2020, its balances related to this investment were: Equity Investments $170,000 Fair Value Adjustment (AFS) 36,000 Dr. On January 1, 2021, Grouper purchased additional stock of Jennifer Company for $489,000 and now has significant influence over Conrad.Prepare Grouper’s journal entries to record the purchase of the investment and the change to the equity method.arrow_forwardAcquisition Entries, Acquisition Costs, Bargain Gain Plastic Corporation is contemplating a business combination with Steel Corporation at December 31, 2021. Steel's condensed balance sheet on that date appears below: Assets Cash and receivables Inventory Equity method investments Land Buildings and equipment Patents Total assets Liabilities and Stockholders' Equity Liabilities Common stock Retained earnings Total liabilities and equity Cash and receivables Inventory Equity method investments Land Description Buildings and equipment Patents Goodwill Liabilities Required Prepare the journal entry to record the business combination of Plastic and Steel for each of the following acquisition costs and combination methods. (a) Plastic acquires Steel as a merger for $250,000 cash. Other direct cash acquisition costs are $20,000. General Journal Description Cash and receivables Inventory Equity method investments. Land Liabilities Cash Buildings and equipment Patents ÷ Description (b) Plastic…arrow_forwardPine Company makes an investment in Holt Company. Journalize the following transactions assuming that Pine Company uses (a) the fair value method and (b) the equity method for its investment in Holt Company: 1) On Jan. 1, 2017, Pine bought 30% of Holt’s common stock. Total book value of all Holt’s common stock was $800,000 on this date. 2) During 2017, Holt reported $40,000 of net income. 3) During 2017, Holt paid $20,000 of dividendsarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning