[BUSINESS COMBINATION]

SOLUTIONS TO MULTIPLE CHOICE PROBLEMS

BUSINESS COMBINATION AT DATE OF ACQUISITION

PROBLEM 1:
Nova Rise
Acquisition Cost 3,375,000.00 1,680,000.00
FMV of Net Assets 2,390,000.00 2,065,000.00

(385,000.00
Goodwill/(Gain) 985,000.00 )

Shareholders' Equity:
Acquirer @ BV
Common Stock 2,748,500.00
APIC 176,500.00
Retained Earnings 1,250,000.00
Issuance – Nova 3,375,000.00
Issuance – Rise 1,680,000.00
Gain on Bargain Purchase 385,000.00
Total SHE 9,615,000.00 (D)

Assets:
Acquirer @ BV 4,500,000.00
Nova @ FMV 2,600,000.00
Rise @ FMV 2,205,000.00
Goodwill on Acquisition 985,000.00
Total Assets 10,290,000.00 (A)

PROBLEM 2:

Acquisition Cost
Issuance of stock 816,000.00
Contingent Consideration 195,000.00
Total 1,011,000.00
FMV of Net Assets 696,450.00
Goodwill/(Gain) 314,550.00 (C)

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Total expense:
Acquisition expenses 257,200.00
Loss on Contingent Consideration 260,000.00

Total 517,200.00 (B)

Acquisition expenses
Legal fees 35,600.00
Broker's fee 23,600.00
Accountant's fee 80,000.00
Other direct cost 75,000.00
General and allocated
expenses 43,000.00
Total 257,200.00

Loss on Contingent Consideration

Actual payment 455,000.00
Initial setup amount 195,000.00
Loss on CL 260,000.00

PROBLEM 3:

Retained Earnings

Acquirer @ BV 750,000.00

Acquisition expenses 218,600.00

Stock Issuance cost (in excess of APIC from original
issuance) 5,400.00

Total 526,000.00 (Rule) (C)

Rule:
1/SIC is deducted from APIC of new issuance
2/If APIC from new issuance is not enough, excess will be charged to
R/E.

Acquisition cost
Stock issuance 1,350,000.00
Contingent consideration 750,000.00
Total 2,100,000.00
FMV of Net Assets 1,895,000.00

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Goodwill/(Gain) 205,000.00

Total Assets:
Acquirer @ BV 5,000,000.00
Acquiree @ FMV 2,860,000.00
Goodwill from acquisition 205,000.00
Cash/Noncash consideration -
SIC paid 355,400.00
Expenses paid 218,600.00
Total Assets 7,491,000.00 (D)

PROBLEM 4

Case 1
Consideration transferred 500,000.00
Recognized amount of NCI 89,500.00 (500000-142000)/80% x 20%
Total consideration 589,500.00
FMV of Net Assets 572,500.00
Goodwill/(Gain) 17,000.00

Rules:
Goodwill - may be shared by parent and subsidiary
Gain - for parent only
Control premium - attributable to parent only / part of purchase price
NCI is recognized at 1/Fair value if given
2/ Estimated fair value (based on FMV of Net assets)
3/Proportionate share (based on purchase price, net of control premium)

Parent - 80% NCI - 20%

Acquisition cost 500,000.00 89,500.00
FMV of Net Assets 458,000.00 114,500.00

(25,000.00
Goodwill/(Gain) 42,000.00 )

NCI or subsidiary doesn't recognize Gain from Bargain Purchase

Rule: NCI is to be recognized at (1) estimated FV or (2) proportionate share, whichever is higher.

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Consideration transferred 500,000.00

(Higher between proportionate share and
Recognized amount of NCI 114,500.00 Estimated FV)

Total consideration 614,500.00

FMV of Net Assets 572,500.00

Goodwill/(Gain) 42,000.00 (C)

Case 2
Consideration transferred 523,000.00
Recognized amount of NCI 122,750.00 Fair value, given
Total consideration 645,750.00
FMV of Net Assets 572,500.00
Goodwill/(Gain) 73,250.00 (B)

Parent - 80% NCI - 20%

Acquisition cost 523,000.00 122,750.00
FMV of Net Assets 458,000.00 114,500.00
Goodwill/(Gain) 65,000.00 8,250.00

Case 3
Consideration transferred 500,000.00
Recognized amount of NCI 115,750.00 (500000-37000)/80% x 20%
Total consideration 615,750.00
FMV of Net Assets 572,500.00
Goodwill/(Gain) 43,250.00 (A)

Parent - 80% NCI - 20%

Acquisition cost 500,000.00 115,750.00
FMV of Net Assets 458,000.00 114,500.00
Goodwill/(Gain) 42,000.00 1,250.00

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PROBLEM 5

Consideration transferred 2,580,000.00

Recognized amount of NCI 450,000.00 (2580000-30000) /85% x 15%
Total consideration 3,030,000.00
FMV of Net Assets 2,157,000.00
Goodwill/(Gain) 873,000.00 consolidated presentation

Parent - 85% NCI - 15%

Acquisition cost 2,580,000.00 450,000.00
FMV of Net Assets 1,833,450.00 323,550.00
Goodwill/(Gain) 746,550.00 126,450.00

Total Assets:
Acquirer @ BV 8,750,000.00
Acquiree @ FMV 3,175,000.00
Goodwill from acquisition 873,000.00
Cash/Noncash consideration 2,580,000.00
SIC paid -
Expenses paid 125,000.00
Total Assets 10,093,000.00 (B)

Shareholders' Equity:
Acquirer @ BV
Common Stock 3,400,000.00
APIC 1,575,000.00
Retained Earnings 1,700,000.00
Issuance in Acquisition -
Gain on Bargain Purchase -
NCI 450,000.00
Expenses 125,000.00
Total SHE 7,000,000.00 (A)

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PROBLEM 6

Case 1

Consideration transferred 105,000.00

Recognized amount of NCI 61,000.00 vs. (183000 x 30% = 54900)

Total consideration 166,000.00

FMV of Net Assets 183,000.00

Goodwill/(Gain) (17,000.00) (A)

Parent - 70% NCI - 30%

Acquisition cost 105,000.00 61,000.00
FMV of Net Assets 128,100.00 54,900.00
Goodwill/(Gain) (23,100.00) 6,100.00

Case 2

Consideration transferred 136,800.00

(136800 / 80% x 20%) = 34200 vs. (183000 x 20% =
Recognized amount of NCI 36,600.00 36600)
Total
consideration 173,400.00
FMV of Net
Assets 183,000.00

Goodwill/(Gain) (9,600.00)

Parent - 80% NCI - 20%

Acquisition cost 136,800.00 36,600.00
FMV of Net Assets 146,400.00 36,600.00
Goodwill/(Gain) (9,600.00) -

Consolidated Shareholders' Equity:

P - SHE

Common Stock 150,000.00

APIC 450,000.00

Retained Earnings 810,000.00

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Issuance in Acq -

Gain on Bargain Purchase 9,600.00

NCI 36,600.00

Expenses -

Total SHE 1,456,200.00 (D)

Case 3

Consideration transferred 243,000.00

(243000 / 90% x 10% = 27000) vs est. FMV (183000
Recognized amount of NCI 27,000.00 x 10% = 18300)
Total
consideration 270,000.00
FMV of Net
Assets 183,000.00
Goodwill/
(Gain) 87,000.00

Parent - 90% NCI - 10%

Acquisition cost 243,000.00 27,000.00
FMV of Net Assets 164,700.00 18,300.00
Goodwill/(Gain) 78,300.00 8,700.00

Total Assets:
Acquirer @ BV 1,500,000.00
Acquiree @ FMV 198,000.00
Goodwill from acquisition 87,000.00
Cash/Noncash consideration 243,000.00
SIC paid -
Expenses paid -
Total Assets 1,542,000.00 (A)

PROBLEM 7

Consideration transferred 765,000.00 (540000 / 60% x 85%)

Recognized amount of NCI 125,000.00 fair value, given
Total consideration 890,000.00
FMV of Net Assets 640,000.00 (920000 - 280000)
Goodwill/(Gain) 250,000.00 (B)

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Parent - 85% NCI - 15%

Acquisition cost 765,000.00 125,000.00
FMV of Net Assets 544,000.00 96,000.00
Goodwill/(Gain) 221,000.00 29,000.00

PROBLEM 8

Consideration transferred 218,750.00

Contingent consideration 3,750.00
Total consideration 222,500.00
FMV of Net Assets 165,000.00
Goodwill/(Gain) 57,500.00

Total Assets:
Acquirer @ BV 225,000.00
Acquiree @ FMV 176,000.00
Goodwill from acquisition 56,500.00 (57500 + 1250 - 2250)
Cash/Noncash consideration -
SIC paid 8,500.00
Expenses paid 4,750.00
Total Assets 444,250.00 (D)

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