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CHAPTER 5

CHAPTER 5

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

The title of each problem is followed by the estimated time in minutes required for completion and by a The title of each problem is followed by the estimated time in minutes required for completion and by a difficulty rating. The time estimates are applicable for students using the partially filled-in working papers. difficulty rating. The time estimates are applicable for students using the partially filled-in working papers. Pr. 5–1

Pr. 5–1  La Salle Corporation La Salle Corporation (15 minutes, easy) (15 minutes, easy)

Journal entries for business combination (acquisition of net assets except cash), with Journal entries for business combination (acquisition of net assets except cash), with bargain- purchase exc

 purchase excess.ess. Pr. 5–2

Pr. 5–2  Lionel  Lionel CorporationCorporation (20 minutes, easy)(20 minutes, easy)

Journal entries for business combination (acquisition of net assets) inoling issuance of Journal entries for business combination (acquisition of net assets) inoling issuance of  bond

 bonds, with gos, with goodwodwill reill recogncogni!ed.i!ed. Pr. 5–3

Pr. 5–3 Wabash CorporationWabash Corporation (20 minutes, easy) (20 minutes, easy)

"ien #ournal entries for a statutory merger business combination inoling issuance of bonds, "ien #ournal entries for a statutory merger business combination inoling issuance of bonds,  prepare #ournal e

 prepare #ournal entries assumntries assuming thing the issuance e issuance of comof common mon stock.stock. Pr. 5–4

Pr. 5–4 Combinor Combinor CorporationCorporation (20 minutes, easy) (20 minutes, easy)

Journal entries for business combination inoling the acquisition of net assets, with goodwill Journal entries for business combination inoling the acquisition of net assets, with goodwill recogni!ed.

recogni!ed. Pr. 5–5

Pr. 5–5 Consol CorporationConsol Corporation (20  (20 minuminutes, tes, mediummedium))

Journal entries for statutory consolidation, with goodwill recogni!ed. Journal entries for statutory consolidation, with goodwill recogni!ed. Pr. 5–6

Pr. 5–6  Silva Corporation Silva Corporation (30  (30 minuminutes, tes, mediummedium))

$rom condensed balance sheets of suriing corporation prior to and subsequent to a statutory $rom condensed balance sheets of suriing corporation prior to and subsequent to a statutory merger, reconstruct the issuer%s #ournal entries for the business combination.

merger, reconstruct the issuer%s #ournal entries for the business combination. Pr. 5–7

Pr. 5–7  Solomon Corporation Solomon Corporation (30 minutes medium) (30 minutes medium)

&repare #ournal entries for statutory merger, under assumption of a business combination &repare #ournal entries for statutory merger, under assumption of a business combination inoling a bargain-purchase excess. 'ntercompany receiable and payable are inoled. inoling a bargain-purchase excess. 'ntercompany receiable and payable are inoled. Pr. 5–8

Pr. 5–8 Value CorporationValue Corporation (20 minutes, easy) (20 minutes, easy)

ccounting for business combination inoling acquisition of combinee%s net assets. ccounting for business combination inoling acquisition of combinee%s net assets. argain- purchase exc

 purchase excess must be alless must be allocated iocated in accordancn accordance withe with FFASB ASB Statement No. 141Statement No. 141,, *usiness*usiness +ombinations.

+ombinations. Pr. 5–9

Pr. 5–9  Stave Corporation Stave Corporation (50  (50 minminutes, medium)utes, medium)

Journal entries for statutory merger business combination that inoles recognition of Journal entries for statutory merger business combination that inoles recognition of goodwill.

goodwill. Pr. 5–10

Pr. 5–10 Coolidge CorporationCoolidge Corporation (40 minutes, medium) (40 minutes, medium)

ccounting for a business combination inoling acquisition of net assets, contingent ccounting for a business combination inoling acquisition of net assets, contingent consideration, and bargain-purchase excess. +omputation of and accounting for additional consideration, and bargain-purchase excess. +omputation of and accounting for additional shares of common stock issued to settle contingent consideration.

shares of common stock issued to settle contingent consideration. Pr. 5–11

Pr. 5–11  Solo Corporation Solo Corporation (80 minutes, strong) (80 minutes, strong)

+omputation of historical and pro#ected net income and basic earnings per share for merger +omputation of historical and pro#ected net income and basic earnings per share for merger  busin

 business comess combinatiobination. &ro forma combn. &ro forma combineined balance shd balance sheet foleet followlowing buing business csiness combiombination.nation.

ANSWERS TO REVIEW QUESTIONS

ANSWERS TO REVIEW QUESTIONS

.

.   busbusininesess cos combmbininatiation oon occccurs wurs whehen an en an entntitity acqy acquiuires nres net aset assesets thts that coat consnstitituttute a busie a busineness orss or acquires interests of one or more other entities and obtains control oer the entity or entities. acquires interests of one or more other entities and obtains control oer the entity or entities. 

..  statutory mergerstatutory merger is a business combination that is consummated in accordance with applicable is a business combination that is consummated in accordance with applicable state law. 'n a merger, one corporation

state law. 'n a merger, one corporation    the *suriorthe *surior    acquires all the outstanding commonacquires all the outstanding common stock of one or more other corporations, which are then liquidated. 

stock of one or more other corporations, which are then liquidated.  statutory consoidationstatutory consoidation is is © 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

/0

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similar to a merger in that it is consummated in accordance with applicable state law and inoles similar to a merger in that it is consummated in accordance with applicable state law and inoles the acquisition of two or more corporations% outstanding common stock. 1oweer, the surior in a the acquisition of two or more corporations% outstanding common stock. 1oweer, the surior in a consolidation is a new corporation rather than an existing one.

consolidation is a new corporation rather than an existing one. 2.

2. 3n3ne or be or bototh of h of ththe foe follllowowining mg metethohods ards are use used ted to do detetermerminine an ae an apprppropropriatiate prie price ce to pato pay iy in an a  busine

 business combss combinatioination4n4

+apitali!ation of expected aerage earnings of the combinee at a desired rate of return +apitali!ation of expected aerage earnings of the combinee at a desired rate of return 5etermination of current fair alue of the combinee%s net assets (including goodwill) 5etermination of current fair alue of the combinee%s net assets (including goodwill) 6.

6. ThThe coe consnstittitueuent cnt comompapany ny thathat ist issusues ces cashash, ot, otheher assr assetsets, or d, or debebt int instrstrumumenents its in a bun a busisinenessss

combination is the combinor. 'n a business combination inoling the issuance of common stock, combination is the combinor. 'n a business combination inoling the issuance of common stock, the combinor

the combinor generally generally is the constituent company whose former common stockholder interests is the constituent company whose former common stockholder interests either retain or receie the larger portion of the oting rights of the combined enterprise.

either retain or receie the larger portion of the oting rights of the combined enterprise. 7.

7. The The folfollolowiwing ng outout-of-of-po-pockecket ct costosts are s are incincludluded ed in in the the detdetermerminatinatioion on of thf the te total otal coscost of t of thethe combinee4

combinee4 (a)

(a) &rintin&rinting costs of proxy statemeng costs of proxy statement mailed to cot mailed to combinmbinor%s stockhor%s stockholdoldersers (b)

(b) 8egal f8egal fees for neees for negotiagotiating thting the mere merger ger  (f)

(f) +&+& fir firm%s fees for adm%s fees for adice on iice on incomncome tax aspects of the mere tax aspects of the merger ger 

The following out-of-pocket costs are offset against paid-in capital in excess of par of combinor The following out-of-pocket costs are offset against paid-in capital in excess of par of combinor common stock issued in the

common stock issued in the merger4merger4 (c)

(c) +&+& firm firm%s fees for a%s fees for auditiuditing financng financial statemential statements in 9:+ s in 9:+ registratioregistration statement con statement coering sharesering shares of common stock issued in

of common stock issued in the merger the merger  (d)

(d) &rintin&rinting costs for commog costs for common stock certifin stock certificates issued in thcates issued in the merge merger er  (e)

(e) 8egal fe8egal fees for 9:+ es for 9:+ registregistration statemeration statement coernt coering shares of coming shares of common stomon stock issued in thck issued in thee merger 

merger  ;.

;. !ood"i is the alue assigned to the expectation of aboe-aerage or superior earnings from the!ood"i is the alue assigned to the expectation of aboe-aerage or superior earnings from the identifiable assets of a combinee. 'n accounting for a business combination, goodwill is the excess identifiable assets of a combinee. 'n accounting for a business combination, goodwill is the excess of the total cost of the combinee oer the current fair alues assignable to its identifiable net assets. of the total cost of the combinee oer the current fair alues assignable to its identifiable net assets. #egati$e good"i

#egati$e good"i is a residual deferred credit in a business combination in which the cost of the is a residual deferred credit in a business combination in which the cost of the combinee is less than the current fair alues assignable to the combinee%s identifiable net assets. combinee is less than the current fair alues assignable to the combinee%s identifiable net assets. The deficiency first is allocated pro rata to specified assets< any amount remaining after reducing The deficiency first is allocated pro rata to specified assets< any amount remaining after reducing the alues of these assets to !ero is recogni!ed as an extraordinary gain.

the alues of these assets to !ero is recogni!ed as an extraordinary gain. /.

/. %ontingent consideration%ontingent consideration is additional cash, other assets, or securities that may be issuable in the is additional cash, other assets, or securities that may be issuable in the future contingent on specified future eents or transactions, such as a specified leel of earnings, or future contingent on specified future eents or transactions, such as a specified leel of earnings, or a designated market price for a debt or an equity security issued to effect the business combination. a designated market price for a debt or an equity security issued to effect the business combination. 0.

0. The The totatotal col cost ost of a f a comcombinbinee ee in in a busa busininess ess comcombinbinatioation in is als allolocatecated fd first irst to to the the ididenentiftifiabliable ase assetssets acquired and liabilities assumed, based on their current fair alues. ny excess of total cost oer acquired and liabilities assumed, based on their current fair alues. ny excess of total cost oer the amounts assigned is recogni!ed as goodwill. ny excess of amounts assigned oer total cost is the amounts assigned is recogni!ed as goodwill. ny excess of amounts assigned oer total cost is applied pro rata to reduce the amounts otherwise assignable to certain assets specified by the applied pro rata to reduce the amounts otherwise assignable to certain assets specified by the $9.

$9. =.

=. Preac&uisition Preac&uisition contingenciescontingencies are contingent assets (other than potential income tax benefits of a are contingent assets (other than potential income tax benefits of a loss carryforward), contingent liabilities, or contingent impairments of assets that existed prior to loss carryforward), contingent liabilities, or contingent impairments of assets that existed prior to completion of a business combination.

completion of a business combination. >.

>. The foThe follollowiwing cong combmbininee inee intangtangiblible assete assets oths other than ger than goooodwdwill arill are gie gien accen accounountinting recog recogngnitiition ion in an a  busine

 business combss combinatioination4 n4 ssetssets arising from s arising from contractual or lecontractual or legal righgal rights, such as patents, copyrigts, such as patents, copyrights,hts, and franchises. 3ther assets that are separable from the combinee entity and can be sold, licensed, and franchises. 3ther assets that are separable from the combinee entity and can be sold, licensed, exchanged, and the like, such as customer lists and unpatented technology.

exchanged, and the like, such as customer lists and unpatented technology.

SOLUTIONS TO

SOLUTIONS TO EXERCISE

EXERCISES

S

'. 5–1 '. 5–1 .. cc 7.7. d d  . . ## ;.;. aa 2. 2. ## /./. ## 6. 6. cc 0.0. ee © 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

/=

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'. 5–2

'. 5–2 Journal entries for 9al +orporation, Jan. 2, >>74Journal entries for 9al +orporation, Jan. 2, >>74

''nneessttmmeennt it in n ??eel l ++oommppaanny y ++oommmmoon n 99ttoocck k ((2277,,>>>>> x > x @@>>)) //>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((2277,,>>>>> > x x @@)) 2277,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ;;;;77,,>>>>>> ''nneessttmmeennt t iin n ??eel l ++oommppaanny y ++oommmmoon n 99ttoocckk 66>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr //>>,,>>>>>> + +aasshh >>,,>>>>>> + +uurrrreennttsssseettss >>,,>>>>>> 3 3tthheerrsssseettss 0077>>,,>>>>>> " "ooooddwwiillll ==>>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt 66>>,,>>>>>> ''nneessttmmeennt t iin n ??eel l ++oommppaanny y ++oommmmoon n 99ttoocckk //66>>,,>>>>>> '. 5–3

'. 5–3 +omputation +omputation of of amount amount of of goodwigoodwill ll in in the the business business combination combination of of ?aster +orporation ?aster +orporation andand "eo +ompany, ?ar. 2, >>74

"eo +ompany, ?ar. 2, >>74

Total cost to ?aster of "eo%s net assets except cash Total cost to ?aster of "eo%s net assets except cash

((@@//>>>>,,>>>>> > A A @@>>>>,,>>>>>>)) @@00>>>>,,>>>>>> 8ess4 +urrent fair alue of "eo%s identifiable net assets4

8ess4 +urrent fair alue of "eo%s identifiable net assets4 3

3tthheer r ccuurrrreennt t aasssseettss @@66>>,,>>>>>> &

&llaannttsssseettss ==>>,,>>>>>> +

+uurrrreennt t lliiaabbiilliittiieess ((00>>,,>>>>>>)) 8

8oonngg--tteerrm m ddeebbtt ((==>>,,>>>>> > ) ) //==>>,,>>>>>> 

mmoouunnttooff ggooooddwwiillll @@ >>,,>>>>>>

© 

© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006 

$olutions Manual, Chapter %

(4)

'. 5–4

'. 5–4 Journal entries for +ombinor +ompany, Jan. 2, >>74Journal entries for +ombinor +ompany, Jan. 2, >>74

''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy ;;77,,77// 5

5iissccoouunnt t oon n ;;C C oonndds s &&aayyaabbllee //66,,//6622 ;

;CCoonnddss&aay& yaabbllee //>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy 00>>,,>>>>>>

oonndd''ssssuuee+o+ossttss >>,,>>>>>> + +aasshh ==>>,,>>>>>> + +uurrrreennttsssseettss 22>>,,>>>>>> & &llaannttsssseettss ;;00>>,,>>>>>> 3 3tthheerrsssseettss >>,,>>>>>> " "ooooddwwiillll 0077,,77// +

+uurrrreenntt88iiaabbiilliittiieess >>>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt 22>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy //>>77,,77// '. 5–5

'. 5–5 Journal entries for +ombinor +ompany, ?ar. 2, >>74Journal entries for +ombinor +ompany, ?ar. 2, >>74 'n

'nesestmtmenent it in Bn Bet et ssssetets os of +f +omombibinneee +e +omompapany ny ((>>>>,>,>>> x >> x @7@7)) 7>7>>,>,>>>>>> +

+oommmmoon n 99ttoocck k ((>>>>,,>>>>> > x x @@)) >>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 66>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy //>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh >>,,>>>>>> + +uurrrreennttsssseettss ;;>>,,>>>>>> & &llaannttsssseettss 6600>>,,>>>>>> 3 3tthheerrsssseettss 77>>,,>>>>>> " "ooooddwwiillll >>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt ;;>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy 77//>>,,>>>>>> '. 5–6

'. 5–6 Journal entries for yers +orporation, ?ay 2, >>74Journal entries for yers +orporation, ?ay 2, >>74

''nneessttmmeennt t iin n BBeet t sssseetts s oof f 99eelllleerrs s ++oommppaannyy 77;;>>,,>>>>>> +

+aasshh 77;;>>,,>>>>>>

''nneessttmmeennt t iin n BBeet t sssseetts s oof f 99eelllleerrs s ++oommppaannyy ;;>>,,>>>>>> +

+aasshh ;;>>,,>>>>>>

3

3tthheer r ++uurrrreennt t sssseettss 22>>>>,,>>>>>> &

&llaannttsssseettss //00>>,,>>>>>> ''nnttaannggiibblleesssseettss 22>>,,>>>>>> "

"ooooddwwiillll 22>>,,>>>>>>

8

8iiaabbiilliittiieess ;;>>,,>>>>>>

''nneessttmmeennt t iin n BBeet t sssseetts s oof f 99eelllleerrs s ++oommppaannyy ;;>>,,>>>>>>

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

0

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'. 5–7

'. 5–7 Journal entries for cquirer +orporation, 9ept. ;, >>74Journal entries for cquirer +orporation, 9ept. ;, >>74

''nneessttmmeennt t iin n BBeet t sssseetts s oof f 55iissppoosseer r ++oommppaannyy ;;>>,,>>>>>> +

+aasshh ;;>>,,>>>>>>

''nneessttmmeennt t iin n BBeet t sssseetts s oof f 55iissppoosseer r ++oommppaannyy >>,,>>>>>> +

+aasshh >>,,>>>>>>

3

3tthheer r ++uurrrreennt t sssseettss >>,,>>>>>> &

&llaannt t sssseetts s DD@@77>>,,>>>>> > E E ((@@>>,,>>>>> > x x 77FF>>))GG 66,,77>>>> ''nnttaannggiibblle e sssseetts s DD@@77>>,,>>>>> > E E ((@@>>,,>>>>> > x x 77FF>>))GG 66//,,77>>>> 5

5iissccoouunnt t oon n 88oonngg--TTeerrm m 55eebbt t ((@@;;>>,,>>>>> > E E @@77>>,,>>>>>>)) >>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess ==>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt ;;>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f 55iissppoosseer r ++oommppaannyy //>>,,>>>>>> '. 5–8

'. 5–8 Journal entries for +ombinor +ompany, 5ec. 2, >>74Journal entries for +ombinor +ompany, 5ec. 2, >>74 'nestment in +ombinee +ompany +ommon 9tock  'nestment in +ombinee +ompany +ommon 9tock 

((>>>>,,>>>>>>xx@@77)) 77>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((>>>>,,>>>>> > x x @@)) >>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 66>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk //>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh >>,,>>>>>> + +uurrrreennttsssseettss >>>>,,>>>>>> & &llaannttsssseettss 66>>>>,,>>>>>> 3 3tthheerrsssseettss 66>>,,>>>>>> " "ooooddwwiillll //>>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt ;;>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk 77//>>,,>>>>>> '. 5–9

'. 5–9 Journal entries for +ombinor +ompany, 9ept. 6, >>74Journal entries for +ombinor +ompany, 9ept. 6, >>74 'nestment in +ombinee +ompany +ommon 9tock  'nestment in +ombinee +ompany +ommon 9tock 

((>>>>,,>>>>> > x x @2@2>>)) 22,,>>>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((>>>>,,>>>>> > x x @@)) >>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ,,==>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk 22>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh 00>>,,>>>>>> + +uurrrreennttsssseettss >>>>,,>>>>>> & &llaannttsssseettss //>>>>,,>>>>>> 3 3tthheerrsssseettss >>>>,,>>>>>> H

Heesseeaarrcch h aannd d 55eeeellooppmmeennt t ::xxppeennssee 66>>>>,,>>>>>> "

"ooooddwwiillll ,,22>>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess >>>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt 22>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk 22,,22>>,,>>>>>>

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'. 5–10

'. 5–10 Journal Journal entries entries for for ragg ragg +orpor+orporation, ation, $eb. $eb. 0, 0, >>74>>74 'nestment in Bestor +ompany +ommon 9tock  'nestment in Bestor +ompany +ommon 9tock 

((;;>>>>,,>>>>>>xx@@)) ,,>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((;;>>>>,,>>>>> > x x @@)) ;;>>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ;;>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeessttoor r ++oommppaanny y ++oommmmoon n 99ttoocckk 00,,>>>>>>

+ +aasshh 00,,>>>>>> + +uurrrreennttsssseettss 77>>,,>>>>>> & &llaannttsssseettss ,,>>77>>,,>>>>>> 3 3tthheerrsssseettss 22>>,,>>>>>> " "ooooddwwiillll >>00,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 22>>>>,,>>>>>> 8

8oonngg--TTeerrmm55eebbtt 66>>>>,,>>>>>> &

&rreemmiiuum m oon n 88oonngg--tteerrm m 55eebbtt 00>>,,>>>>>> ''nneessttmmeennt t iin n BBeessttoor r ++oommppaanny y ++oommmmoon n 99ttoocckk ,,>>00,,>>>>>> '. 5–11

'. 5–11 Journal Journal entries entries for for 9orrel 9orrel +orpor+orporation, ation, 5ec. 5ec. 2, 2, >>74>>74 'nestment in ?axim +ompany +ommon 9tock  'nestment in ?axim +ompany +ommon 9tock 

((00>>>>,,>>>>>>xx@2@2)) ,,66>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((00>>>>,,>>>>> > x x @@)) 00>>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ,,;;>>>>,,>>>>>> ''nneessttmmeennt t iin n ??aaxxiim m ++oommppaanny y ++oommmmoon n 99ttoocckk 22>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 66>>,,>>>>>> + +aasshh //>>,,>>>>>> + +uurrrreennttsssseettss 77>>>>,,>>>>>> & &llaannttsssseettss ,,77>>>>,,>>>>>> 3 3tthheerrsssseettss >>>>,,>>>>>> " "ooooddwwiillll 7722>>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 22>>>>,,>>>>>> ''nneessttmmeennt t iin n ??aaxxiim m ++oommppaanny y ++oommmmoon n 99ttoocckk ,,6622>>,,>>>>>> '. 5–12

'. 5–12 Journal Journal entries entries for for +ombinor +ombinor +orpora+orporation, tion, ug. ug. 2, 2, >>74>>74 'nestment in +ombinee +ommon 9tock 

'nestment in +ombinee +ommon 9tock 

((>>>>,,>>>>> > x x @@>>)) ,,>>>>>>,,>>>>>> +

+oommmmoon n 99ttoocck k ((>>>>,,>>>>> > x x @@)) >>>>,,>>>>>> &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ,,==>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommmmoon n 99ttoocckk >>>>,,>>>>>>

&

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh 77>>,,>>>>>> + +uurrrreennttsssseettss ;;>>>>,,>>>>>> & &llaannttsssseettss ,,00>>>>,,>>>>>> " "ooooddwwiillll >>>>,,>>>>>> +

+uurrrreenntt88iiaabbiilliittiieess 66>>>>,,>>>>>> 8

8oonngg--tteerrmm55eebbtt ,,>>>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk ,,>>>>,,>>>>>>

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'. 5–13

'. 5–13 a.a. 99uulllliiaan n ++oorrppoorraattiioon n sseeppaarraatte e nneet t iinnccoomme e ffoor r >>>>77 @ @ 77>>>>,,>>>>>> dd4 ?ears 5iision net income, two months ended 5ec. 2,

dd4 ?ears 5iision net income, two months ended 5ec. 2, 

>>>>77 77>>,,>>>>>>

9

9uulllliiaan n ttoottaal l nneet t iinnccoomme e ffoor r >>>>77 @ @ 7777>>,,>>>>>> #.

#. 99uulllliiaan n ++oorrppoorraattiioon n nneet t iinnccoomme e ffoor r >>>>77 @ 7@ 777>>,,>>>>>> Ieighted-aerage number of shares of 9ullian common stock

Ieighted-aerage number of shares of 9ullian common stock outstanding during >>74 outstanding during >>74  >>>>,,>>>>> > sshhaarrees s x x   yyeeaarr >>>>,,>>>>>> 7 7>>,,>>>>> > sshhaarrees s x x FF; ; yeeaar y r 00,,22222 2 >>00,,222222 9ullian basic earnings per share for >>7 (@77>,>>>

9ullian basic earnings per share for >>7 (@77>,>>> ÷÷ 

>>00,,222222)) @@..;;66

c.

c. 99uulllliiaan n ++oorrppoorraattiioon n sseeppaarraatte re reettaaiinneed d eeaarrnniinnggss, 5, 5eecc. 2. 2, , >>>>77 @@,,>>00>>,,>>>>>> dd4 ?ears 5iision net income, two months ended 5ec. 2,

dd4 ?ears 5iision net income, two months ended 5ec. 2, 

>>>>77 77>>,,>>>>>>

9

9uulllliiaan n rreettaaiinneed d eeaarrnniinnggss, , 55eecc. . 22, , >>>>77 @@,,22>>,,>>>>>> '. 5–14

'. 5–14 Journal entry for Tucker +orporation, 5ec. 2, >>;4Journal entry for Tucker +orporation, 5ec. 2, >>;4 &

&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aar r ((;;>>,,>>>>> > x x @@)) >>,,>>>>>> +

+oommmmoon n 99ttoocck k tto o bbe e ''ssssuueed d ffoor r ++oonnttiinnggeennt t ++oonnssiiddeerraattiioonn >>,,>>>>>> To record additional shares of common stock to be issued under

To record additional shares of common stock to be issued under terms of 5ec. 2, >>7, acquisition of net assets of 8oring terms of 5ec. 2, >>7, acquisition of net assets of 8oring +ompany, as follows4

+ompany, as follows4 Heq

Hequiuired red aalulue e of of cocommmmon on stostock ck ississueued d in in acqacquiuisisititionon @,@,;>>;>>,>>,>>>> 8ess4 ?arket alue of common stock, 5ec. 2, >>;

8ess4 ?arket alue of common stock, 5ec. 2, >>;

((>>>>,,>>>>> > x x @@>>) ) ,,>>>>>>,,>>>>>> ?ar

?arkeket t alalue ue of of adaddidititiononal al cocommmmon on ststocock tk to o be be isissusueded @ @ ;>;>>,>>,>>>>>  Bumber of ad

 Bumber of additiditional shares oonal shares of commf common stocon stock to bek to be issued (@;>>,>>>

issued (@;>>,>>> ÷÷ @>) @>)    ;>,>>>;>,>>>

CASES

CASES

%ase 5–1

%ase 5–1 9olamente +orporation%s accounting for the out-of-pocket costs of the business combination9olamente +orporation%s accounting for the out-of-pocket costs of the business combination with ?ika +ompany does not comply with generally accepted accounting principles. 5irect with ?ika +ompany does not comply with generally accepted accounting principles. 5irect out-of-pocket costs incurred by a combinor in a combination are included in the total cost of out-of-pocket costs incurred by a combinor in a combination are included in the total cost of the combinee. 8egal fees and other out-of-pocket costs of the combination paid by ?ika on the combinee. 8egal fees and other out-of-pocket costs of the combination paid by ?ika on  behal

 behalf of 9olamf of 9olamente sente should hould hae behae been recoen recogni!gni!ed as an account reced as an account receiableiable by ?ika and ane by ?ika and an account payable by 9olamente< legal and other expenditures on its own behalf with respect to account payable by 9olamente< legal and other expenditures on its own behalf with respect to the combination with 9olamente should hae been recogni!ed as expenses by ?ika.

the combination with 9olamente should hae been recogni!ed as expenses by ?ika. %ase 5–2

%ase 5–2 T34 The oard of 5irectors, 9oftware +ompanyT34 The oard of 5irectors, 9oftware +ompany $H3?4

$H3?4 , , +ontrol+ontroller ler  5T:4  

5T:4  

9KJ:+T4 &ossible Hecognition of "oodwill in &roposed cquisition of &art of a &roduct 9KJ:+T4 &ossible Hecognition of "oodwill in &roposed cquisition of &art of a &roduct 8ine of ?idge +ompany

8ine of ?idge +ompany

"oodwill is not to be recogni!ed in the sub#ect proposed acquisition, despite pro#ections that "oodwill is not to be recogni!ed in the sub#ect proposed acquisition, despite pro#ections that the acquisition cost will exceed the current fair alue of identifiable net assets to be acquired. the acquisition cost will exceed the current fair alue of identifiable net assets to be acquired. "oodwil

"oodwill is l is recogni!ed only in the acquisition of recogni!ed only in the acquisition of anan entireentire entity in a business combination< it entity in a business combination< it traditionally is associated with the acquired entityLs superior earnings compared with other traditionally is associated with the acquired entityLs superior earnings compared with other enterprises in the industry. 'f the portion of the acquisition cost that exceeds the current fair enterprises in the industry. 'f the portion of the acquisition cost that exceeds the current fair alue of the ?idge +ompany identifiable net assets to be acquired cannot be assigned to alue of the ?idge +ompany identifiable net assets to be acquired cannot be assigned to sometimes-oerlooked intangible assets such as an agreement not to compete or a customer sometimes-oerlooked intangible assets such as an agreement not to compete or a customer

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list, it must be recogni!ed as a loss of the accounting period in which the acquisition of the list, it must be recogni!ed as a loss of the accounting period in which the acquisition of the assets is completed.

assets is completed. %ase 5–3

%ase 5–3 The #ournal entry prepared by 9hane +orporationLs controller to record the transactionThe #ournal entry prepared by 9hane +orporationLs controller to record the transaction

inoling ?erlo +ompany is incorrect in its recognition of common stock to be issued, because inoling ?erlo +ompany is incorrect in its recognition of common stock to be issued, because the contingency had not been resoled on the

the contingency had not been resoled on the date of date of the business the business combination.  combination.  consequencconsequencee of this error is the inappropriate recognition of goodwill and the oerstatement of one or more of this error is the inappropriate recognition of goodwill and the oerstatement of one or more assets other than goodwill. 8ikewise, the #ournal entry to record the transaction inoling assets other than goodwill. 8ikewise, the #ournal entry to record the transaction inoling ?erlo 'ndustries inappropriately recogni!es contingent consideration4 the payable to "eorge ?erlo 'ndustries inappropriately recogni!es contingent consideration4 the payable to "eorge ?erlo amount. :en if it were appropriate to record such payable, the @7>,>>> amount would ?erlo amount. :en if it were appropriate to record such payable, the @7>,>>> amount would hae to be discounted to its present alue on $ebruary 0, >>7, at an appropriate fair interest hae to be discounted to its present alue on $ebruary 0, >>7, at an appropriate fair interest rate. gain, the goodwill of @7>,>>> should not hae been recogni!ed, and one or more assets rate. gain, the goodwill of @7>,>>> should not hae been recogni!ed, and one or more assets should be written down for the @>>,>>> bargain purchase excess (@27>,>>> E @7>,>>> M should be written down for the @>>,>>> bargain purchase excess (@27>,>>> E @7>,>>> M @>>,>>>).

@>>,>>>).

3ne other point should be noted with respect to the controller%s #ournal entry for the ?erlo 3ne other point should be noted with respect to the controller%s #ournal entry for the ?erlo 'ndustries, 'nc., transaction. The controller should consider whether "eorge ?erlo%s agreement 'ndustries, 'nc., transaction. The controller should consider whether "eorge ?erlo%s agreement not to compete with 9hane +orporation is an intangible asset with a current fair alue on the not to compete with 9hane +orporation is an intangible asset with a current fair alue on the date of the combination. 'f so, part of the @7>,>>> cost should be debited to the Bon-+ompete date of the combination. 'f so, part of the @7>,>>> cost should be debited to the Bon-+ompete greement ledger account and amorti!ed oer the fie-year term of the agreement.

greement ledger account and amorti!ed oer the fie-year term of the agreement. %ase 5–4

%ase 5–4 'n the business combination of $rank :lectronics, 'nc., and 8ester :nterprises, 'nc., $rank'n the business combination of $rank :lectronics, 'nc., and 8ester :nterprises, 'nc., $rank :lectronics clearly is the combinor. fter the issuance of ,>>> shares of 8ester :nterprises :lectronics clearly is the combinor. fter the issuance of ,>>> shares of 8ester :nterprises common stock, Hobert $rank would own 76.7C D,>>>

common stock, Hobert $rank would own 76.7C D,>>> ÷÷ (>,>>> A ,>>>) M >.767G of (>,>>> A ,>>>) M >.767G of 8ester :nterpriseLs

8ester :nterpriseLs outstanding outstanding  common stock. The 7,>>> shares of 8ester :nterpriseLs common stock. The 7,>>> shares of 8ester :nterpriseLs unissued

unissued common stock to which "eorge 8ester had subscribed are not outstanding< further,common stock to which "eorge 8ester had subscribed are not outstanding< further, many accountants beliee that the balance of the +ommon 9tock 9ubscriptions Heceiable many accountants beliee that the balance of the +ommon 9tock 9ubscriptions Heceiable account should be offset against the balance of the +ommon 9tock 9ubscribed account< for account should be offset against the balance of the +ommon 9tock 9ubscribed account< for 8ester :nterprises, 'nc.< this would result in

8ester :nterprises, 'nc.< this would result in  ero ero paid-in capital from stock subscriptions. paid-in capital from stock subscriptions. ccordingly, een though 8ester :nterprises, 'nc., is the

ccordingly, een though 8ester :nterprises, 'nc., is the survivor survivor  in the proposed merger with in the proposed merger with $rank :lectronics, 'nc., the latter is the combinor, and its net assets must be recogni!ed at $rank :lectronics, 'nc., the latter is the combinor, and its net assets must be recogni!ed at !arrying value

!arrying value in the post-merger balance sheet of 8ester :nterprises. in the post-merger balance sheet of 8ester :nterprises.

 further problem in the merger as proposed was the assignment of a @6> per share fair alue  further problem in the merger as proposed was the assignment of a @6> per share fair alue for the ,>>> shares of 8ester :nterprises common stock to be issued to Hobert $rank. for the ,>>> shares of 8ester :nterprises common stock to be issued to Hobert $rank. ecause 8ester :nterprises is a *shell corporation with no operating assets, the fair alue of ecause 8ester :nterprises is a *shell corporation with no operating assets, the fair alue of the ,>>> shares to be issued to Hobert $rank should not exceed the @=.7> D(@0>,>>> A the ,>>> shares to be issued to Hobert $rank should not exceed the @=.7> D(@0>,>>> A @,>>> A @6,>>>)

@,>>> A @6,>>>) ÷÷ >,>>> M @=.7>G >,>>> M @=.7>G !arrying amount !arrying amount  (book alue) per share of the >,>>> (book alue) per share of the >,>>> shares of outstanding common stock of 8ester :nterprises, 'nc. This issue is moot, howeer, shares of outstanding common stock of 8ester :nterprises, 'nc. This issue is moot, howeer, gien that $rank :lectronics, not 8ester :nterprises, is the combinor in the merger of the two gien that $rank :lectronics, not 8ester :nterprises, is the combinor in the merger of the two corporations.

corporations. %ase 5–5

%ase 5–5 9tudents who ag9tudents who agree with the $9Ls conclusion that ree with the $9Ls conclusion that core goodwill mecore goodwill meets the ets the $9L$9Ls definitions definition of

of asset asset  might be persuaded by the analysis of the components of might be persuaded by the analysis of the components of !ore good"ill !ore good"ill  (as defined in (as defined in  paragraph >7 of

 paragraph >7 of FFASB ASB Statement No. 141Statement No. 141. $ew accountants would quarrel with a. $ew accountants would quarrel with a definition of goodwill that encompassed the fair alue of the *going concern element of the definition of goodwill that encompassed the fair alue of the *going concern element of the combineeLs existing business and the fair alues of the expected synergies and other benefits of combineeLs existing business and the fair alues of the expected synergies and other benefits of the business combination. 9tudents who disagree with the $9Ls conclusion that core

the business combination. 9tudents who disagree with the $9Ls conclusion that core goodwill meets the $9Ls definition of

goodwill meets the $9Ls definition of asset asset  might not be persuaded that the $9Ls might not be persuaded that the $9Ls

discussion of probable future economic benefits of goodwill in paragraphs  through 6 discussion of probable future economic benefits of goodwill in paragraphs  through 6 of

of FFASB ASB Statement No. 141Statement No. 141 clearly supports the conclusion that goodwill has such benefits. clearly supports the conclusion that goodwill has such benefits. Thus,

Thus, FFASB ASB Statement No. 141Statement No. 141 likely will not still the  likely will not still the controersy of rcontroersy of recognition of goodwiecognition of goodwillll as an

as an asset asset ..

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7 ?inutes, :asy 7 ?inutes, :asy L

LaaSSaalllleeCCoorrppoorraattiioonn PPrr..55!! La Salle Corporation La Salle Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055

JJaann 3311 IInnvveessttmmeennt t iin n NNeet t AAsssseetts s oof f DDe e SSootto o CCoommppaanny y 55 44 00 00 00 00 C

Caasshh 55 44 00 00 00 00 To record ac!isition of net assets of De Soto Company

To record ac!isition of net assets of De Soto Company

3

311 IInnvveessttmmeennt t iin n NNeet t AAsssseetts s oof f DDe e SSootto o CCoommppaannyy "" 00 00 00 00 C

Caasshh "" 00 00 00 00 To record payment of costs inc!rred in ac!isition of 

To record payment of costs inc!rred in ac!isition of  net assets of De Soto Company#

net assets of De Soto Company#

3

31 $1 $tthheer r CC!!rrrreennt t AAsssseettss 33 00 00 00 00 00 %

%&&aannt t aasssseetts s ''(())**44++00000 0 , , --((3300++00000 0 . . 00##//22 )) 44 "" 44 00 00 IInnttaannii&&e e AAsssseetts s ''((**""++00000 0 , , --((3300++00000 0 . . 00##00)) ** 33 "" 00 00

iiaaii&&iittiieess "" 22 00 00 00 00 Investment in Net Assets of De Soto Company

Investment in Net Assets of De Soto Company

--((554400++000000((""00++000000 "" 00 00 00 00 00 To a&&ocate tota& cost of net assets ac!ired to

To a&&ocate tota& cost of net assets ac!ired to

identifia&e net assets+ 6ith e.cess of c!rrent fair va&!e identifia&e net assets+ 6ith e.cess of c!rrent fair va&!e of the net assets

of the net assets oveover tota& cost prorated to nonc!rrentr tota& cost prorated to nonc!rrent assets in the ratio of )*47*"+ or /287)8# -Income assets in the ratio of )*47*"+ or /287)8# -Income ta. effects

ta. effects are disrearded#are disrearded#

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$olutions Manual, Chapter %

(10)

> ?inutes, :asy > ?inutes, :asy L

LiioonneellCCoorrppoorraattiioonn PPrr..55%%

Lionel Corporation Lionel Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055  A!

 A! 3131 InveInvestmenstment in Net t in Net Assets of CAssets of Coopooper Coer Companmpanyy

''--((11++000000++00000 0 . . 00##2255))4411//    --((5500++00000 0 . . 1100##55//44001144 ** )) )) 11 22 00 D

Diissccoo!!nnt t oon n 99oonndds s %%aayyaa&&ee 2 12 1 1 )1 ) ) 0) 0 9

9oonnddss%%aayyaa&&ee 11 00 00 00 00 00 00 T

To record ac!isition of o record ac!isition of net assets of Cooper Co#net assets of Cooper Co#

3

311 99oonnddIIssss!!eeCCoossttss "" 00 00 00 00 IInnvveessttmmeennt t iin n NNeet t AAsssseetts s oof f CCooooppeer r CCoommppaannyy 44 00 00 00 00

C

Caasshh 11 00 00 00 00 00 To record payment of costs inc!rred in ac!isition of

To record payment of costs inc!rred in ac!isition of net assets of Cooper Company#

net assets of Cooper Company#

3

311 CC!!rrrreennttAsssseA ettss 22 22 00 00 00 00 %

%&&aannttAAsssseettss ** 00 00 00 00 00 IInnttaannii&&eeAAsssseettss // 00 00 00 00 D

Diissccoo!!nnt t oon n oonn::TTeerrm m DDeet t --((220000++00000 0 , , ((11//00++000000 11 00 00 00 00 ;

;oooodd66ii&&&& )) )) 11 22 00 C

C!!rrrreennttiiaaii&&iittiieess )) 00 00 00 00 

oonn::TTeerrmmDDeett 22 00 00 00 00 00 Investment in Net Assets of Cooper Co#

Investment in Net Assets of Cooper Co#

--((**))))++112200((4400++000000 )) 22 )) 11 22 00 T

To a&&ocate tota& cost o a&&ocate tota& cost of net assets of net assets investment toinvestment to identifia&e assets and &iai&ities+ 6ith

identifia&e assets and &iai&ities+ 6ith remaindremainder toer to ood6i&&# Amo

ood6i&&# Amo!nt of !nt of ood6i&& is comp!ted as food6i&& is comp!ted as fo&&o6s7o&&o6s7 T

Toottaa& & ccoosst t oof f iinnvveessttmmeenntt (())22))++112200 ess7 C!rrent fair va&!e of

ess7 C!rrent fair va&!e of identifia&e net assets identifia&e net assets

--((11++001100++00000 0 , , ((22**00++000000  **4400++000000 A

Ammoo!!nnt t oof f oooodd66ii&&&& ( ( ))))++112200 -income ta. effects

-income ta. effects are disrearded#are disrearded#

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

0/

(11)

> ?inutes, :asy > ?inutes, :asy W

Waa&&aa$$''CCoorrppoorraattiioonn PPrr..55(( Wa&a$' Corporation Wa&a$' Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 D

Decec 3311 InInvveesstmtmeennt it in n IIndndiiaanna a CCoommppaannyy C

Coommmmoon n SSttoocc< < --11++000000++00000 0 . . ((1100 110 00 0 00 00 00 00 00 C

CoommmmoonnSSttoocc<< 1100 00 00 00 00 00 00

3

311 IInnvveessttmmeennt t iin n IInnddiiaanna a CCoommppaanny y CCoommmmoon n SSttoocc<< 11 55 00 00 00 00 C

CoommmmoonnSSttoocc<< 55 00 00 00 00 C

Caasshh 22 00 00 00 00 00

3

311 CC!!rrrreennttAAsssseettss 33 ** 00 00 00 00 00 %&ant Assets '(/+/00+000 , -(10+250+000 ,

%&ant Assets '(/+/00+000 , -(10+250+000 , (

(1100++115500++000000 // )) 00 00 00 00 00 C

C!!rrrreennt t iiaaii&&iittiiees s 33 33 55 00 00 00 00 Investment in

Investment in Indiana CompanyIndiana Company C

CoommmmoonnSSttoocc<< 1100 11 55 00 00 00 00

© 

© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006 

$olutions Manual, Chapter %

(12)

> ?inutes, :asy > ?inutes, :asy C

Coo))&&iinnoorrCCoorrppoorraattiioonn PPrr..55** Co)&inor Corporation Co)&inor Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 $c

$ctt 3131 InInvvesestmtmenent it in Nn Net et AsAsssetets os of Cf Comominineee Ce Comomppaannyy

--110000++000000..(1(133 11 33 00 00 00 00 00 C

Coommmmoon n SSttoocc< < --110000++00000 0 . . ((1100 11 00 00 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n ==..cceesss s oof f %%aarr 33 00 00 00 00 00 To record ac!isition of net assets of Cominee Company

To record ac!isition of net assets of Cominee Company

3

311 IInnvveessttmmeennt t iin n NNeet t AAsssseetts s oof f CCoommiinneee e CCoommppaannyy 11 )) 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n ==..cceesss s oof f %%aarr 11 22 00 00 00 00 C

Caasshh 33 00 00 00 00 00 To record payment of costs inc!rred in ac!isition of

To record payment of costs inc!rred in ac!isition of net assets

net assets of Cominee Companyof Cominee Company# ea&+ # ea&+ acco!ntin+acco!ntin+ and finder>s fees in connection 6ith the ac!isition are and finder>s fees in connection 6ith the ac!isition are recorded as an investment cost?

recorded as an investment cost? other o!t:of:poc<etother o!t:of:poc<et costs are recorded as a red!ction in the proceeds from costs are recorded as a red!ction in the proceeds from iss!ance of common stoc<#

iss!ance of common stoc<#

3

311 CCaasshh "" 00 00 00 00 $

$tthheerrCC!!rrrreennttAAsssseettss 55 00 00 00 00 00 %

%&&aannttAAsssseettss--nneett 11 00 00 00 00 00 00 D

Diissccoo!!nnt t oon n oonn::TTeerrm m DDeet t --((225500++00000 0 , , ((224400++000000 11 00 00 00 00 ;

;oooodd66ii&&& & --((11++44))00++00000 0 , , ((11++114400++000000 33 44 00 00 00 00 C

C!!rrrreennttiiaaii&&iittiieess 11 )) 00 00 00 00 

oonn::TTeerrmmDDeett 22 55 00 00 00 00 Investment in Net Assets of Cominee Co#

Investment in Net Assets of Cominee Co#

--((11++330000++000000((11))00++000000 11 44 )) 00 00 00 00 T

To a&&ocate tota& cost o a&&ocate tota& cost of net assets of net assets investment toinvestment to identifia&e assets and &iai&ities+ 6ith

identifia&e assets and &iai&ities+ 6ith remaindremainder toer to ood6i&&# -Income ta. effects

ood6i&&# -Income ta. effects are disrearded#are disrearded#

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

0=

(13)

> ?inutes, :asy > ?inutes, :asy C

Coonn$$oollCCoorrppoorraattiioonn PPrr..5555

Con$ol Corporation Con$ol Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 J!

J!&y&y 3131 InInvvesestmtmenent it in Cn Cononnener Cr Comompapany ny anand Cd Capapsoso& C& Comompapanyny C

Coommmmoon n SSttoocc< < --**55++00000 0 . . ((1144 11 0 5 00 5 0 0 0 00 0 0 C

Coommmmoon n SSttoocc< < --**55++00000 0 . . ((1100 ** 55 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n ==..cceesss s oof f %%aarr 33 00 00 00 00 00 T

To record o record stat!tory conso&idation of stat!tory conso&idation of Conner CompanyConner Company and Capso& Company#

and Capso& Company#

3

311 AAsssseetts s --(())0000++00000 0   ((""**00++000000 1 4 *1 4 * 0 00 0 0 00 0 ;

;oooodd66ii&&& & --((11++005500++00000 0 , , (())**00++000000 11 )) 00 00 00 00 

iiaaii&&iittiiees s --((330000++00000 0   ((330000++000000 " 0" 0 0 00 0 0 00 0 Investment in Conner Co# and Capso& Company

Investment in Conner Co# and Capso& Company C

CoommmmoonnSSttoocc<< 11 00 55 00 00 00 00 To a&&ocate tota& cost of investment in Conner Company

To a&&ocate tota& cost of investment in Conner Company and Capso& Company to identifia&e assets and &iai&ities+ and Capso& Company to identifia&e assets and &iai&ities+ 6ith remainder to ood6

6ith remainder to ood6i&&# Assets and &iai&ities i&&# Assets and &iai&ities ofof Capso& -the cominor are recorded at carryin Capso& -the cominor are recorded at carryin amo!nts? assets and &iai&ities of

amo!nts? assets and &iai&ities of Conner -theConner -the cominee are record

cominee are recorded at c!red at c!rrent fair rent fair va&!eva&!e# -Income# -Income ta. effects

ta. effects are disrearded#are disrearded#

© 

© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006 

$olutions Manual, Chapter %

(14)

2> ?inutes, ?edium 2> ?inutes, ?edium S

Siill++aaCCoorrppoorraattiioonn PPrr..55,,

Sil+a Corporation Sil+a Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 @

@aarr 11 IInnvveessttmmeennt t iin n @@aarrvvee& & CCoommppaanny y CCoommmmoon n SSttoocc<< )) ** 00 00 00 00 C

Coommmmoon n SSttoocc< < --((**0000++00000 0 , , ((440000++000000 3 0 03 0 0 0 0 00 0 0  Additi

 Additiona& ona& %aid:%aid:in Capin Capita&ita& 55 ** 00 00 00 00

1

1 InveInvestmenstment in @art in @arve& Cve& Compaompany Cny Commoommon Stocn Stoc<<

--((5500++00000 0 , , ((2200++000000  33 00 00 00 00  Additi

 Additiona& ona& %aid:%aid:in Capin Capita& '(ita& '()"0+000 )"0+000 , (310, (310+000 ,+000 , (

(55**00++000000 22 00 00 00 00 C

Caasshh 55 00 00 00 00

1

1 C!rrC!rrent Aent Assessets '-()ts '-()50+050+000 , (5000 , (500+00+000 00  (

(5500++000000ccaasshhpapaiidd 44 00 00 00 00 00 %

%&&aannt t AAsssseetts s --((11++))0000++00000 0 : : ((11++000000++000000 )) 00 00 00 00 00 C

C!!rrrreennt t iiaaii&&iittiiees s --((""0000++00000 0 : : ((335500++000000 2 52 5 0 00 0 00 00 %remi!m on on:term Det -(150+000 ,

%remi!m on on:term Det -(150+000 , (

(110000++000000 55 00 00 00 00 Investment in @arve& Company Common Stoc<

Investment in @arve& Company Common Stoc<

--(())**00++000000((3300++000000 // 00 00 00 00 00

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

=

(15)

2> ?inutes, ?edium 2> ?inutes, ?edium S

Soolloo))oonnCCoorrppoorraattiioonn PPrr..55- -Solo)on Corporation Solo)on Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 $c

$ctt 3131 InInvvesestmtmenent it in @n @idid&&anand Cd Coompmpaany ny CComommmoon Sn Stotoc<c<

--2200++000000..(2(200 44 00 00 00 00 00 C

CoommmmoonnSSttoocc<<--2200++000000..((11 22 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n ==..cceesss s oof f %%aarr 33 )) 00 00 00 00 To record merer 6ith @id&and Company#

To record merer 6ith @id&and Company#

3

311 IInnvveessttmmeennt t iin n @@iidd&&aannd d CCoommppaanny y CCoommmmoon n SSttoocc<< 22 00 )) ** 00 %

%aaiidd::iin n CCaappiittaa& & iin n =..cce= esss s oof f %%aarr 3 13 1 1 31 3 00 C

Caasshh 55 22 00 00 00 To record payment of costs inc!rred in merer 6ith

To record payment of costs inc!rred in merer 6ith @id&and Company

@id&and Company# Direct # Direct costs of costs of the comination arethe comination are recorded as an investment cost? costs of reisterin recorded as an investment cost? costs of reisterin and iss!in common stoc< are recorded as a and iss!in common stoc< are recorded as a red!ction in the proceeds received from iss!ance of  red!ction in the proceeds received from iss!ance of  common stoc<#

common stoc<#

3

311 IInnvveennttoorriieess 11 ** 00 00 00 00 $

$tthheerrCC!!rrrreennttAAsssseettss )) 00 00 00 00 %

%&&aannttAAsssseettss--nneett 44 22 00 00 00 00 ;

;oooodd66ii&&& & --((442200++))**0 0 , , ((33**00++000000 5 05 0 ) *) * 00 

eecceeiivvaa&&e e ffrroom m @@iidd&&aannd d CCoommppaannyy ** 55 00 00 00 $

$tthheerriiaaii&&iittiieess 22 22 55 00 00 00 Investment in @id&and

Investment in @id&and Company CommoCompany Commonn S

Sttoocc< < --((440000++00000 0   ((2200++))**00 44 22 00 )) ** 00 To a&&ocate tota& cost of @id&and Company investment

To a&&ocate tota& cost of @id&and Company investment to identifia&e assets and &iai&ities+

to identifia&e assets and &iai&ities+ 6ith the remainder6ith the remainder to ood6i&&+ and to offset

to ood6i&&+ and to offset receivreceiva&e from @id&anda&e from @id&and aainst @id&and>s re&ated paya&e# -Income ta. effects aainst @id&and>s re&ated paya&e# -Income ta. effects are disrearded#

are disrearded#

© 

© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006 

$olutions Manual, Chapter %

(16)

> ?inutes, :asy > ?inutes, :asy V

Vaall##eeCCoorrppoorraattiioonn PPrr..55

Val#e Corporation Val#e Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055  Apr

 Apr 11 InveInvestmenstment in Net t in Net Assets of =Assets of =dar Cdar Compaompanyny

''--5500++00000 0 . . ((1144    ((222255++000000 / 2 5 0/ 2 5 0 0 00 0 C Caasshh 22 22 55 00 00 00 C Coommmmoon n SSttoocc< < --5500++00000 0 . . ((1144 ** 00 00 00 00 00 T

To record iss!ance of o record iss!ance of cash and 50+000 shares of cash and 50+000 shares of  common stoc< for net assets of =dar Company# common stoc< for net assets of =dar Company#

1

1 InveInvestmenstment in Net t in Net Assets of =dAssets of =dar Car Compaompany -ny -acco!acco!nt:nt:

iinn+ + &&eeaa&&+ + aannd d ffiinnddeerrss> > ffeeeess 5 0 0 0 05 0 0 0 0 C

Coommmmoon n SSttoocc< < --iissss!!e e ccoossttss * 5* 5 0 00 0 00 C

Caasshh 11 22 55 00 00 00 T

To record payment of o!t:of:poc<et costo record payment of o!t:of:poc<et cost s inc!rred s inc!rred inin ac!isition of net assets of =dar Company#

ac!isition of net assets of =dar Company#

1

1 CC!!rrrreennttAAsssseettss 55 ** 55 00 00 00 %

%&&aannt t AAsssseetts s --nneett  --((11++220000++00000 0 , , ((//""++000000 11 11 00 44 00 00 00 %

%aatteennt t --nneett  --((5500++00000 0 , , ((44++000000 4 "4 " 0 00 0 00 C

C!!rrrreennttiiaaii&&iittiieess 33 00 00 00 00 00 

oonn::TTeerrmmDDeett 44 00 00 00 00 00 %

%rreemmii!!mmoonnoonn::TTeerrmmDDeett 55 00 00 00 00 Investment in Net Assets of =dar Company

Investment in Net Assets of =dar Company

--((//2255++000000((5500++000000 // ** 55 00 00 00 T

To a&&ocate tota& cost o a&&ocate tota& cost of net assets of net assets investment toinvestment to identifia&e assets and &iai&ities+ 6ith (100+000B identifia&e assets and &iai&ities+ 6ith (100+000B e.cess of c!rrent fai

e.cess of c!rrent fai r va&!e of the net assets overr va&!e of the net assets over tota& cost prorated to nonc!rrent assets in tota& cost prorated to nonc!rrent assets in ratio ofratio of (1+200+0007(50+000+ or /"8748# -Income ta. effects (1+200+0007(50+000+ or /"8748# -Income ta. effects are disrearded#

are disrearded#

BC!rrent fair va&!e of =dar>s identifia&e BC!rrent fair va&!e of =dar>s identifia&e net assets '-(5*5+000  (1+200+000  net assets '-(5*5+000  (1+200+000  (

(550+0+000000  , , --((33000+0+00000 0   ((445500+0+00000 ((11++00**55++000000 ess7 Tota& cost of a&!e>s investment

ess7 Tota& cost of a&!e>s investment  

-  -((//2255++00000 0   ((5500++000000  //**55++000000 =.cess

=.cess of c!rrent of c!rrent fair vafair va&!e &!e of nof net asset assetsets o

ovveer r ttoottaa& & ccoosstt ( ( 110000++000000

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

=2

(17)

7> ?inutes, ?edium 7> ?inutes, ?edium S

Sttaa++eeCCoorrppoorraattiioonn PPrr..55//

Sta+e Corporation Sta+e Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055  Apr

 Apr 3030 InveInvestmenstment in @o&t in @o&o Coo Companmpany Coy Common mmon Stoc<Stoc< 2020 00 00 00 00 00 00 C

Caasshh 33 11 00 00 00 00 00 1

1008899oonnddss%%aayyaa&&ee 11"" // 00 00 00 00 00 To record merer 6ith @o&o Company as a p!rchase#

To record merer 6ith @o&o Company as a p!rchase#

3

300 IInnvveessttmmeennt t iin n @@oo&&o o CCoommppaanny y CCoommmmoon n SSttoocc<< 11 55 00 00 00 9

9oonnddIIssss!!eeCCoossttss 11 00 00 00 00 C

Caasshh 22 55 00 00 00 T

To record payment of o!t:of:poc<et costo record payment of o!t:of:poc<et cost s inc!rred s inc!rred inin merer 6ith @o&o Company#

merer 6ith @o&o Company#

3

300 CC!!rrrreennt t AAsssseetts s 33 44 00 00 00 00 00 %

%&&aannttAAsssseettss 1144 00 00 00 00 00 00 %

%aatteennttss--nneett 33 "" 00 00 00 00 ;

;oooodd66ii&&& & --((2200++001155++00000 0 , , ((1155++""""00++000000 44 33 55 55 00 00 00 

iiaaii&&iittiiees s 22 11 00 00 00 00 00 Investment in @o&o Company Common Stoc<

Investment in @o&o Company Common Stoc<

--((2200++000000++00000 0   ((1155++000000 2200 00 11 55 00 00 00 To a&&ocate tota& cost of @o&o Company investment

To a&&ocate tota& cost of @o&o Company investment to identifia&e assets and &iai&ities+

to identifia&e assets and &iai&ities+ 6ith remainder to6ith remainder to ood6i&&# -Income ta. effects

ood6i&&# -Income ta. effects are disrearded#are disrearded#

© 

© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006 

$olutions Manual, Chapter %

(18)

6> ?inutes, ?edium 6> ?inutes, ?edium C

Coooollii0011eeCCoorrppoorraattiioonn PPrr..55!!22 Cooli01e Corporation Cooli01e Corporation "o#rnal Entrie$ "o#rnal Entrie$ a. a. 2 200 0055 S

Sepeptt 3030 InInvvesestmtmenent it in Nn Net et AsAssesets ts of of oooovever r CoCompmpananyy

''--5500++00000 0 . . ((2200    (())5500++000000 11 ) 5 0 0) 5 0 0 0 00 0 C

Coommmmoon n SSttoocc< < --5500++00000 0 . . ((1100 55 00 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n ==..cceesss s oof f %%aarr 55 00 00 00 00 00 C

Caasshh )) 55 00 00 00 00 T

To record iss!ance of o record iss!ance of cash and 50+000 shares ofcash and 50+000 shares of common stoc< for

common stoc< for net assets of net assets of oovoover Companyer Company##

30

30 Investment in Net Assets Investment in Net Assets of oover Companyof oover Company

--((3355++000000((1155++000000 55 00 00 00 00 %

%aaiidd::iin n CCaappiittaa& & iin n =..cce= esss s oof f %%aarr * 5* 5 3 53 5 00 C

Caasshh 11 22 55 33 55 00 T

To record payment of o!t:of:poc<et costo record payment of o!t:of:poc<et cost s inc!rred s inc!rred inin ac!isition of

ac!isition of net assets of net assets of oovoover Companyer Company##

30

30 TTrraadde e AAccccoo!!nntts s eecceeiivvaa&&e e --nneett 33 00 00 00 00 00 IInnvveennttoorriiees s "" )) 00 00 00 00 S

Shhoorrtt::TTeerrm m %%rreeppaayymmeennttss 22 00 00 00 00 IInnvveessttmmeennt t iin n TTrr!!mmaan n CCoommppaanny y CCoommmmoon n SSttoocc<< 11 )) 00 00 00 00 

aannd d --((""5500++00000 0 , , ((3322++000000 " 1" 1 * 5* 5 0 00 0 $

$tthheer r %%&&aannt t AAsssseetts s --nneett  --((11++225500++00000 0 , , ((""22++550000 11 11 )) ** 55 00 00 %

%aatteennt t --nneett  --((110000++00000 0 , , ((55++000000 // 5 05 0 0 00 0 D

Diissccoo!!nnt t oon n oonn::TTeerrm m DDeet t --((550000++00000 0 , , ((44))00++000000 22 00 00 00 00 C

C!!rrrreennttiiaaii&&iittiieess ** 00 00 00 00 00 

oonn::TTeerrmmDDeett 55 00 00 00 00 00 Investment in Net Assets

Investment in Net Assets of oover Companyof oover Company

--((11++))5500++000000((5500++000000 11 // 00 00 00 00 00 T

To a&&ocate tota& cost o a&&ocate tota& cost of net assets of net assets investment toinvestment to identifia&e assets and &iai&ities+ 6ith

identifia&e assets and &iai&ities+ 6ith (100+000 e.cess(100+000 e.cess of c!rrent f

of c!rrent fair va&!e of the net assets over tota& costair va&!e of the net assets over tota& cost prorated to nonc!rrent assets+

prorated to nonc!rrent assets+ other than investmentother than investment in mar<eta&e sec!rities+ in ratio of ("50+0007 in mar<eta&e sec!rities+ in ratio of ("50+0007 (1+250+0007(100+000 or 32 E87"2 E8758# (1+250+0007(100+000 or 32 E87"2 E8758#

© 

© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006 

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References

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