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) inoling issuance of Journal entries for business combination (acquisition of net assets) inoling 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)
"ien #ournal entries for a statutory merger business combination inoling issuance of bonds, "ien #ournal entries for a statutory merger business combination inoling 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 inoling the acquisition of net assets, with goodwill Journal entries for business combination inoling 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 suriing corporation prior to and subsequent to a statutory $rom condensed balance sheets of suriing 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 inoling a bargain-purchase excess. 'ntercompany receiable and payable are inoled. inoling a bargain-purchase excess. 'ntercompany receiable and payable are inoled. Pr. 5–8
Pr. 5–8 Value CorporationValue Corporation (20 minutes, easy) (20 minutes, easy)
ccounting for business combination inoling acquisition of combinee%s net assets. ccounting for business combination inoling 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 inoles recognition of Journal entries for statutory merger business combination that inoles recognition of goodwill.
goodwill. Pr. 5–10
Pr. 5–10 Coolidge CorporationCoolidge Corporation (40 minutes, medium) (40 minutes, medium)
ccounting for a business combination inoling acquisition of net assets, contingent ccounting for a business combination inoling 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 oer the entity or entities. acquires interests of one or more other entities and obtains control oer 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 *suriorthe *surior 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 consoidationstatutory consoidation is is ©
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/0
similar to a merger in that it is consummated in accordance with applicable state law and inoles similar to a merger in that it is consummated in accordance with applicable state law and inoles the acquisition of two or more corporations% outstanding common stock. 1oweer, the surior in a the acquisition of two or more corporations% outstanding common stock. 1oweer, the surior 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 aerage earnings of the combinee at a desired rate of return +apitali!ation of expected aerage 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 inoling the issuance of common stock, combination is the combinor. 'n a business combination inoling 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 receie the larger portion of the oting rights of the combined enterprise.
either retain or receie 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 adm%s fees for adice 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 con statement coering 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 coernt coering 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 aboe-aerage or superior earnings from the!ood"i is the alue assigned to the expectation of aboe-aerage 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 oer the current fair alues assignable to its identifiable net assets. of the total cost of the combinee oer 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 eents or transactions, such as a specified leel of earnings, or future contingent on specified future eents or transactions, such as a specified leel 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 oer acquired and liabilities assumed, based on their current fair alues. ny excess of total cost oer the amounts assigned is recogni!ed as goodwill. ny excess of amounts assigned oer total cost is the amounts assigned is recogni!ed as goodwill. ny excess of amounts assigned oer 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 gie gien accen accounountinting recog recogngnitiition ion in an a busine
business combss combinatioination4 n4 ssetssets 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
''nneessttmmeennt 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,,>>>>>> ''nneessttmmeennt t iin n ??eel l ++oommppaanny y ++oommmmoon n 99ttoocckk 66>>,,>>>>>>
&
&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr //>>,,>>>>>> + +aasshh >>,,>>>>>> + +uurrrreennttsssseettss >>,,>>>>>> 3 3tthheerrsssseettss 0077>>,,>>>>>> " "ooooddwwiillll ==>>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt 66>>,,>>>>>> ''nneessttmmeennt 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>>,,>>>>>> &
&llaannttsssseettss ==>>,,>>>>>> +
+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 %
'. 5–4
'. 5–4 Journal entries for +ombinor +ompany, Jan. 2, >>74Journal entries for +ombinor +ompany, Jan. 2, >>74
''nneessttmmeennt 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 ;
;CCoonnddss&aay& yaabbllee //>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeet t sssseetts s oof f ++oommbbiinneee e ++oommppaannyy 00>>,,>>>>>>
oonndd''ssssuuee+o+ossttss >>,,>>>>>> + +aasshh ==>>,,>>>>>> + +uurrrreennttsssseettss 22>>,,>>>>>> & &llaannttsssseettss ;;00>>,,>>>>>> 3 3tthheerrsssseettss >>,,>>>>>> " "ooooddwwiillll 0077,,77// +
+uurrrreenntt88iiaabbiilliittiieess >>>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt 22>>>>,,>>>>>> ''nneessttmmeennt 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
'nesestmtmenent 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>>>>,,>>>>>> ''nneessttmmeennt 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 >>,,>>>>>> + +uurrrreennttsssseettss ;;>>,,>>>>>> & &llaannttsssseettss 6600>>,,>>>>>> 3 3tthheerrsssseettss 77>>,,>>>>>> " "ooooddwwiillll >>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt ;;>>,,>>>>>> ''nneessttmmeennt 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
''nneessttmmeennt t iin n BBeet t sssseetts s oof f 99eelllleerrs s ++oommppaannyy 77;;>>,,>>>>>> +
+aasshh 77;;>>,,>>>>>>
''nneessttmmeennt t iin n BBeet t sssseetts s oof f 99eelllleerrs s ++oommppaannyy ;;>>,,>>>>>> +
+aasshh ;;>>,,>>>>>>
3
3tthheer r ++uurrrreennt t sssseettss 22>>>>,,>>>>>> &
&llaannttsssseettss //00>>,,>>>>>> ''nnttaannggiibblleesssseettss 22>>,,>>>>>> "
"ooooddwwiillll 22>>,,>>>>>>
8
8iiaabbiilliittiieess ;;>>,,>>>>>>
''nneessttmmeennt 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
'. 5–7
'. 5–7 Journal entries for cquirer +orporation, 9ept. ;, >>74Journal entries for cquirer +orporation, 9ept. ;, >>74
''nneessttmmeennt t iin n BBeet t sssseetts s oof f 55iissppoosseer r ++oommppaannyy ;;>>,,>>>>>> +
+aasshh ;;>>,,>>>>>>
''nneessttmmeennt 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 ;;>>,,>>>>>> ''nneessttmmeennt 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 'nestment in +ombinee +ompany +ommon 9tock 'nestment 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>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk //>>,,>>>>>>
&
&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh >>,,>>>>>> + +uurrrreennttsssseettss >>>>,,>>>>>> & &llaannttsssseettss 66>>>>,,>>>>>> 3 3tthheerrsssseettss 66>>,,>>>>>> " "ooooddwwiillll //>>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 00>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt ;;>>,,>>>>>> ''nneessttmmeennt 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 'nestment in +ombinee +ompany +ommon 9tock 'nestment 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 ,,==>>>>,,>>>>>> ''nneessttmmeennt 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>>,,>>>>>> + +uurrrreennttsssseettss >>>>,,>>>>>> & &llaannttsssseettss //>>>>,,>>>>>> 3 3tthheerrsssseettss >>>>,,>>>>>> H
Heesseeaarrcch h aannd d 55eeeellooppmmeennt t ::xxppeennssee 66>>>>,,>>>>>> "
"ooooddwwiillll ,,22>>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess >>>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt 22>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk 22,,22>>,,>>>>>>
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
'. 5–10
'. 5–10 Journal Journal entries entries for for ragg ragg +orpor+orporation, ation, $eb. $eb. 0, 0, >>74>>74 'nestment in Bestor +ompany +ommon 9tock 'nestment in Bestor +ompany +ommon 9tock
((;;>>>>,,>>>>>>xx@@)) ,,>>>>,,>>>>>> +
+oommmmoon n 99ttoocck k ((;;>>>>,,>>>>> > x x @@)) ;;>>>>,,>>>>>> &
&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ;;>>>>,,>>>>>> ''nneessttmmeennt t iin n BBeessttoor r ++oommppaanny y ++oommmmoon n 99ttoocckk 00,,>>>>>>
+ +aasshh 00,,>>>>>> + +uurrrreennttsssseettss 77>>,,>>>>>> & &llaannttsssseettss ,,>>77>>,,>>>>>> 3 3tthheerrsssseettss 22>>,,>>>>>> " "ooooddwwiillll >>00,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 22>>>>,,>>>>>> 8
8oonngg--TTeerrmm55eebbtt 66>>>>,,>>>>>> &
&rreemmiiuum m oon n 88oonngg--tteerrm m 55eebbtt 00>>,,>>>>>> ''nneessttmmeennt 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 'nestment in ?axim +ompany +ommon 9tock 'nestment 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 ,,;;>>>>,,>>>>>> ''nneessttmmeennt 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 //>>,,>>>>>> + +uurrrreennttsssseettss 77>>>>,,>>>>>> & &llaannttsssseettss ,,77>>>>,,>>>>>> 3 3tthheerrsssseettss >>>>,,>>>>>> " "ooooddwwiillll 7722>>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 22>>>>,,>>>>>> ''nneessttmmeennt 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 'nestment in +ombinee +ommon 9tock
'nestment in +ombinee +ommon 9tock
((>>>>,,>>>>> > x x @@>>)) ,,>>>>>>,,>>>>>> +
+oommmmoon n 99ttoocck k ((>>>>,,>>>>> > x x @@)) >>>>,,>>>>>> &
&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr ,,==>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommmmoon n 99ttoocckk >>>>,,>>>>>>
&
&aaiidd--iin n ++aappiittaal l iin n ::xxcceesss s oof f &&aarr 77>>,,>>>>>> + +aasshh 77>>,,>>>>>> + +uurrrreennttsssseettss ;;>>>>,,>>>>>> & &llaannttsssseettss ,,00>>>>,,>>>>>> " "ooooddwwiillll >>>>,,>>>>>> +
+uurrrreenntt88iiaabbiilliittiieess 66>>>>,,>>>>>> 8
8oonngg--tteerrmm55eebbtt ,,>>>>>>,,>>>>>> ''nneessttmmeennt t iin n ++oommbbiinneee e ++oommppaanny y ++oommmmoon n 99ttoocckk ,,>>>>,,>>>>>>
©
© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006
02
'. 5–13
'. 5–13 a.a. 99uulllliiaan n ++oorrppoorraattiioon n sseeppaarraatte e nneet t iinnccoomme e ffoor r >>>>77 @ @ 77>>>>,,>>>>>> dd4 ?ears 5iision net income, two months ended 5ec. 2,
dd4 ?ears 5iision net income, two months ended 5ec. 2,
>>>>77 77>>,,>>>>>>
9
9uulllliiaan n ttoottaal l nneet t iinnccoomme e ffoor r >>>>77 @ @ 7777>>,,>>>>>> #.
#. 99uulllliiaan n ++oorrppoorraattiioon n nneet t iinnccoomme e ffoor r >>>>77 @ 7@ 777>>,,>>>>>> Ieighted-aerage number of shares of 9ullian common stock
Ieighted-aerage number of shares of 9ullian 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 9ullian basic earnings per share for >>7 (@77>,>>>
9ullian basic earnings per share for >>7 (@77>,>>> ÷÷
>>00,,222222)) @@..;;66
c.
c. 99uulllliiaan n ++oorrppoorraattiioon n sseeppaarraatte re reettaaiinneed d eeaarrnniinnggss, 5, 5eecc. 2. 2, , >>>>77 @@,,>>00>>,,>>>>>> dd4 ?ears 5iision net income, two months ended 5ec. 2,
dd4 ?ears 5iision net income, two months ended 5ec. 2,
>>>>77 77>>,,>>>>>>
9
9uulllliiaan 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 aalulue 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 hae behae been recoen recogni!gni!ed as an account reced as an account receiableiable 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 hae been recogni!ed as expenses by ?ika.
the combination with 9olamente should hae 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 5T:4
5T:4
9KJ:+T4 &ossible Hecognition of "oodwill in &roposed cquisition of &art of a &roduct 9KJ:+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-oerlooked intangible assets such as an agreement not to compete or a customer sometimes-oerlooked intangible assets such as an agreement not to compete or a customer
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
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
inoling ?erlo +ompany is incorrect in its recognition of common stock to be issued, because inoling ?erlo +ompany is incorrect in its recognition of common stock to be issued, because the contingency had not been resoled on the
the contingency had not been resoled on the date of date of the business the business combination. combination. consequencconsequencee of this error is the inappropriate recognition of goodwill and the oerstatement of one or more of this error is the inappropriate recognition of goodwill and the oerstatement of one or more assets other than goodwill. 8ikewise, the #ournal entry to record the transaction inoling assets other than goodwill. 8ikewise, the #ournal entry to record the transaction inoling ?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 hae to be discounted to its present alue on $ebruary 0, >>7, at an appropriate fair interest hae to be discounted to its present alue on $ebruary 0, >>7, at an appropriate fair interest rate. gain, the goodwill of @7>,>>> should not hae been recogni!ed, and one or more assets rate. gain, the goodwill of @7>,>>> should not hae 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 oer the fie-year term of the agreement.
greement ledger account and amorti!ed oer the fie-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 beliee that the balance of the +ommon 9tock 9ubscriptions Heceiable many accountants beliee that the balance of the +ommon 9tock 9ubscriptions Heceiable 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, een though 8ester :nterprises, 'nc., is the
ccordingly, een 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, howeer, shares of outstanding common stock of 8ester :nterprises, 'nc. This issue is moot, howeer, gien that $rank :lectronics, not 8ester :nterprises, is the combinor in the merger of the two gien 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 $9Ls conclusion that ree with the $9Ls conclusion that core goodwill mecore goodwill meets the ets the $9L$9Ls 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 $9Ls conclusion that core
the business combination. 9tudents who disagree with the $9Ls conclusion that core goodwill meets the $9Ls definition of
goodwill meets the $9Ls definition of asset asset might not be persuaded that the $9Ls might not be persuaded that the $9Ls
discussion of probable future economic benefits of goodwill in paragraphs through 6 discussion of probable future economic benefits of goodwill in paragraphs through 6 of
of FFASB ASB Statement No. 141Statement No. 141 clearly supports the conclusion that goodwill has such benefits. clearly supports the conclusion that goodwill has such benefits. Thus,
Thus, FFASB ASB Statement No. 141Statement No. 141 likely will not still the likely will not still the controersy of rcontroersy of recognition of goodwiecognition of goodwillll as an
as an asset asset ..
©
© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006
07
7 ?inutes, :asy 7 ?inutes, :asy L
LaaSSaalllleeCCoorrppoorraattiioonn PPrr..55!! La Salle Corporation La Salle Corporation "o#rnal Entrie$ "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 IInnttaannii&&e e AAsssseetts s ''((**""++00000 0 , , --((3300++00000 0 . . 00##00)) ** 33 "" 00 00
iiaaii&&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 disrearded#are disrearded#
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
> ?inutes, :asy > ?inutes, :asy L
LiioonneellCCoorrppoorraattiioonn PPrr..55%%
Lionel Corporation Lionel Corporation "o#rnal Entrie$ "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 IInnttaannii&&eeAAsssseettss // 00 00 00 00 D
Diissccoo!!nnt t oon n oonn::TTeerrm m DDeet t --((220000++00000 0 , , ((11//00++000000 11 00 00 00 00 ;
;oooodd66ii&&&& )) )) 11 22 00 C
C!!rrrreennttiiaaii&&iittiieess )) 00 00 00 00
oonn::TTeerrmmDDeett 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 &iai&ities+ 6ith
identifia&e assets and &iai&ities+ 6ith remaindremainder toer to ood6i&&# Amo
ood6i&&# Amo!nt of !nt of ood6i&& is comp!ted as food6i&& 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 disrearded#are disrearded#
©
© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006
0/
> ?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 iiaaii&&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 %
> ?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 Comominineee 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 Cominee Company
To record ac!isition of net assets of Cominee Company
3
311 IInnvveessttmmeennt t iin n NNeet t AAsssseetts s oof f CCoommiinneee 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 Cominee Companyof Cominee Company# ea&+ # ea&+ 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 DDeet 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!!rrrreennttiiaaii&&iittiieess 11 )) 00 00 00 00
oonn::TTeerrmmDDeett 22 55 00 00 00 00 Investment in Net Assets of Cominee Co#
Investment in Net Assets of Cominee 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 &iai&ities+ 6ith
identifia&e assets and &iai&ities+ 6ith remaindremainder toer to ood6i&&# -Income ta. effects
ood6i&&# -Income ta. effects are disrearded#are disrearded#
©
© The McGraw-HilThe McGraw-Hill Companies, Inc., l Companies, Inc., 2006 2006
0=
> ?inutes, :asy > ?inutes, :asy C
Coonn$$oollCCoorrppoorraattiioonn PPrr..5555
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
iiaaii&&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 &iai&ities+ and Capso& Company to identifia&e assets and &iai&ities+ 6ith remainder to ood6
6ith remainder to ood6i&&# Assets and &iai&ities i&&# Assets and &iai&ities ofof Capso& -the cominor are recorded at carryin Capso& -the cominor are recorded at carryin amo!nts? assets and &iai&ities of
amo!nts? assets and &iai&ities of Conner -theConner -the cominee are record
cominee are recorded at c!red at c!rrent fair rent fair va&!eva&!e# -Income# -Income ta. effects
ta. effects are disrearded#are disrearded#
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
2> ?inutes, ?edium 2> ?inutes, ?edium S
Siill++aaCCoorrppoorraattiioonn PPrr..55,,
Sil+a Corporation Sil+a Corporation "o#rnal Entrie$ "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 iiaaii&&iittiiees s --((""0000++00000 0 : : ((335500++000000 2 52 5 0 00 0 00 00 %remi!m on on:term Det -(150+000 ,
%remi!m on on:term Det -(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
=
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 merer 6ith @id&and Company#
To record merer 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 merer 6ith
To record payment of costs inc!rred in merer 6ith @id&and Company
@id&and Company# Direct # Direct costs of costs of the comination arethe comination are recorded as an investment cost? costs of reisterin recorded as an investment cost? costs of reisterin 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 $
$tthheerriiaaii&&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 &iai&ities+
to identifia&e assets and &iai&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 aainst @id&and>s re&ated paya&e# -Income ta. effects aainst @id&and>s re&ated paya&e# -Income ta. effects are disrearded#
are disrearded#
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
> ?inutes, :asy > ?inutes, :asy V
Vaall##eeCCoorrppoorraattiioonn PPrr..55
Val#e Corporation Val#e Corporation "o#rnal Entrie$ "o#rnal Entrie$ 2 200 0055 Apr
Apr 11 InveInvestmenstment in Net t in Net Assets of =Assets of =dar Cdar 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 =dar Company# common stoc< for net assets of =dar Company#
1
1 InveInvestmenstment in Net t in Net Assets of =dAssets of =dar Car Compaompany -ny -acco!acco!nt:nt:
iinn+ + &&eeaa&&+ + 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 =dar Company#
ac!isition of net assets of =dar 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!!rrrreennttiiaaii&&iittiieess 33 00 00 00 00 00
oonn::TTeerrmmDDeett 44 00 00 00 00 00 %
%rreemmii!!mmoonnoonn::TTeerrmmDDeett 55 00 00 00 00 Investment in Net Assets of =dar Company
Investment in Net Assets of =dar 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 &iai&ities+ 6ith (100+000B identifia&e assets and &iai&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 disrearded#
are disrearded#
BC!rrent fair va&!e of =dar>s identifia&e BC!rrent fair va&!e of =dar>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+00000 ((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
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 merer 6ith @o&o Company as a p!rchase#
To record merer 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 merer 6ith @o&o Company#
merer 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
iiaaii&&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 &iai&ities+
to identifia&e assets and &iai&ities+ 6ith remainder to6ith remainder to ood6i&&# -Income ta. effects
ood6i&&# -Income ta. effects are disrearded#are disrearded#
©
© The McGraw-Hill Companies, Inc., 2006 The McGraw-Hill Companies, Inc., 2006
$olutions Manual, Chapter %
6> ?inutes, ?edium 6> ?inutes, ?edium C
Coooollii0011eeCCoorrppoorraattiioonn PPrr..55!!22 Cooli01e Corporation Cooli01e Corporation "o#rnal Entrie$ "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 oovoover 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 oovoover 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 DDeet t --((550000++00000 0 , , ((44))00++000000 22 00 00 00 00 C
C!!rrrreennttiiaaii&&iittiieess ** 00 00 00 00 00
oonn::TTeerrmmDDeett 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 &iai&ities+ 6ith
identifia&e assets and &iai&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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