Concept explainers
Business combination:
Business combination refers tothe combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity.The consolidated financial statements serve the purpose of both the entities about financial information.
Value analysis:
The value analysis in a business combination is an essential part of determining the worth of the acquired entity. The
:
To prepare: Consolidated worksheet for Company A and Company Tfor the year ended December 31, 2018.
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Advanced Accounting
- Nascent, Inc., acquires 60 percent of Sea-Breeze Corporation for $414,000 cash on January 1, 2015. The remaining 40 percent of the Sea-Breeze shares traded near a total value of $276,000 both before and after the acquisition date. On January 1, 2015, Sea-Breeze had the following assets and liabilities:The companies’ financial statements for the year ending December 31, 2018, follow:Answer the following questions:a. How can the accountant determine that the parent has applied the initial value method?b. What is the annual excess amortization initially recognized in connection with this acquisition?c. If the parent had applied the equity method, what investment income would the parent have recorded in 2018?d. What amount should the parent report as retained earnings in its January 1, 2018, consolidated balance sheet?e. What is consolidated net income for 2018 and what amounts are attributable to the controlling and noncontrolling interests?f. Within consolidated statements at January 1,…arrow_forward) Liala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactions occurred between the two entities: 1. On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12000, this inventory previously costed Liala Ltd $10000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to other entities for $3000. The other 80% was all sold to external entities by 30 June 2017 for $13000. 2. During the 2016–17 period, Jordan Ltd sold inventory to Liala Ltd for $6000, this being at cost plus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. The tax rate is 30% Required:(i) Prepare the consolidation worksheet entries for Liala Ltd at 30 June 2017 in relation to the intragroup transfers of inventory. (ii) Compute the amount of cost of goods sold to be reported in the consolidated income statement for 2017 relating to the relevant intra-group sales. (b) On 1 July 2016 Liala ltd sold an item of plant to Jordan Ltd for $150000…arrow_forwardLiala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactionsoccurred between the two entities: On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12,000, this inventory previouslycosted Liala Ltd $10,000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to otherentities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000. During the 2016–17 period, Jordan Ltd sold inventory to Liala Ltd for $6,000, this being at costplus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. Thetax rate is 30%.Required:(i) Prepare the consolidation worksheet entries for Liala Ltd at 30 June 2017 in relation to the intragroup transfers of inventory. (ii) Compute the amount of cost of goods sold to be reported in the consolidated incomestatement for 2017 relating to the relevant intra-group sales. b) On 1 July 2016, Liala ltd sold an item of plant to Jordan Ltd Ltd for $150,000…arrow_forward
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- On January 1, 2017, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland’s outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000 shares of Zeeland continued to trade in the market close to its recent average of $6.50 per share both before and after the acquisition by Holland. Zeeland’s acquisition date balance sheet follows:On January 1, 2017, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $55,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $285,000. Zeeland’s acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Zeeland books showed 260,000 for net stockholder equity Any remaining excess of Zeeland’s acquisition-date fair value over its book value was attributed to goodwill.The companies’ financial statements for…arrow_forwardOn January 1, 2017, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland’s outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000 shares of Zeeland continued to trade in the market close to its recent average of $6.50 per share both before and after the acquisition by Holland. Zeeland’s acquisition date balance sheet follows:On January 1, 2017, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $55,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $285,000. Zeeland’s acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Zeeland books showed 260,000 for net stockholder equity Any remaining excess of Zeeland’s acquisition-date fair value over its book value was attributed to goodwill.The companies’ financial statements for…arrow_forwardOn January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows: Asset Book Value Fair Value RemainingUseful Life Patented technology $ 140,000 $ 2,240,000 7 years Computer software 60,000 1,260,000 12 years Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…arrow_forward
- On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows: Asset Book Value Fair Value RemainingUseful Life Patented technology $ 140,000 $ 2,240,000 7 years Computer software 60,000 1,260,000 12 years Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…arrow_forwardOn January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows: Asset Book Value Fair Value RemainingUseful Life Patented technology $ 140,000 $ 2,240,000 7 years Computer software 60,000 1,260,000 12 years Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…arrow_forwardMiller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $952,000 in cash to the owners of Taylor to acquire these shares. In addition, the remaining 20 percent of Taylor shares continued to trade at a total value of $238,000 both before and after Miller’s acquisition. On January 1, 2016, Taylor reported a book value of $546,000 (Common Stock = $273,000; Additional Paid-In Capital = $81,900; Retained Earnings = $191,100). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $72,800. During the next three years, Taylor reports income and declares dividends as follows: YearNet IncomeDividends2016$63,900 $9,200 2017 82,800 13,800 2018 92,000 18,400 Determine the appropriate answers for each of the following questions:aWhat amount of excess depreciation expense should be recognized in the consolidated financial statements for the initial years following this acquisition?bIf a consolidated balance…arrow_forward
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