1) Pale Company was established on January 1, 20X1.

Along with other assets, it immediately purchased land for

$80,000, a building for $240,000, and equipment for $90,000. On January 1, 20X5, Pale transferred these assets,
cash of $21,000, and inventory costing $37,000 to a newly created subsidiary, Sight Company, in exchange for
10,000 shares of Sight’s $6 par value stock. Pale uses straight-line depreciation and useful lives of 40 years and 10
years for the building and equipment, respectively, with no estimated residual values.

A) Record the transfer of assets by Pale Company to Sight Company.

Investment in Sight Company common stock
408,000
21k+37k+80k+240k+90k-24k-36k
Accumulated depreciation–Buildings (240k/40)*4 24,000
Accumulated depreciation–Equipment (90k/10)*4
36,000
Cash 21,000
Inventory 37,000
Land 80,000
Buildings 240,000
Equipment 90,000

 B) Record the receipt of assets by Sight Company from Pale Company.
Cash 21,000
Inventory 37,000
Land 80,000
Buildings 240,000
Equipment 90,000
Accumulated depreciation–Buildings 24,000
Accumulated depreciation–Equipment 36,000
Common Stock (10k*6) 60,000
Additional paid in capital
348,000
21k+37k+80k+240k+90k-24k-36k-60k

2) Samper Company reported the book value of its net assets at $160,000 when Public Corporation acquired 100
percent of its voting stock for cash. The fair value of Samper’s net assets was determined to be $190,000 on that
date. Determine the amount of goodwill to be reported in consolidated financial statements presented
immediately following the combination and the amount at which Public will record its investment in Samper if the
amount paid by Public is:

a. $310,000.

Goodwill=310k-190k= $120,000

Investment= $310,000

b. $196,000.

Goodwill=196k-190k= $6,000

Investment= $196,000

c. $150,000.

Goodwill= No goodwill is recorded when purchase price is below fair value of the net identifiable assets. Goodwill=0.

Investment= $190,000
3) On January 1, 20X1, Porta Corporation purchased Swick Company’s net assets and assigned goodwill
of $80,000 to Reporting Division K. The following assets and liabilities are assigned to Reporting Division
K on the acquisition date:

Fair
  Carrying Amount Value

Cash $14,000   $14,000  

Inventory   56,000     71,000  

Equipment   170,000     190,000 

Goodwill   80,000       

Accounts
  30,000     30,000  
Payable

On December 31, 20X3, Porta must test goodwill for impairment. Determine the amount of goodwill to
be reported for Division K and the amount of goodwill impairment to be recognized, if any, if Division K’s
fair value is determined to be:

*Note: Good will Impairment = Recorded value (at the time of acquisition ) – Current fair market value

a. $340,000.

Amount of Goodwill= $80,000

Goodwill impairment= Current fair value of division K is $340,000 which is greater than the
carrying value of $290,000. Goodwill impairment= $0

b. $280,000.

Goodwill impairment= 290k-280k= $10,000

Amount of Goodwill= 80k-10k= $70,000

c. $260,000.

Goodwill impairment= 290k-260k= $30,000

Amount of Goodwill= 80k-30k= $50,000

4) On July 1, 20X2, Alan Enterprises merged with Terry Corporation through an exchange of stock and
the subsequent liquidation of Terry. Alan issued 200,000 shares of its stock to effect the combination.
The book values of Terry’s assets and liabilities were equal to their fair values at the date of
combination, and the value of the shares exchanged was equal to Cherry’s book value. Information
relating to income for the companies is as follows:

  20X1 Jan. 1–June 30, 20X2 July 1–Dec. 31, 20X2

Net Income:              

Alan Enterprises $4,460,000   $2,500,000  $ 3,528,000  

Terry Corporation   1,300,000    692,000   —  

 Alan Enterprises had 1,000,000 shares of stock outstanding prior to the combination. Remember that
when calculating earnings per share (EPS) for the year of the combination, the shares issued in the
combination were not outstanding for the entire year.

Compute the net income and earnings-per-share amounts that would be reported in Alan's 20X2
comparative income statements for both 20X2 and 20X1.

20X1:

Net income= $4,460,000

Earnings Per Share= Net income/# of shares= 4,460,000/1,000,000=$4.46

20X2:

Net income=2,500,000+3,528,000= $6,028,000

Earnings Per Share = 6,028,000/(1,000,000 +100,000)=$4.31

Note* 200,000/(12/6)=100,000
1) Given the increased development of complex business structures, which of the following regulators is
responsible for the continued usefulness of accounting reports? All of the above

2) A business combination in which the acquired company's assets and liabilities are combined with
those of the acquiring company into a single entity is defined as: Statutory Merger

3) During its inception, Devon Company purchased land for $100,000 and a building for $180,000.
After exactly 3 years, it transferred these assets and cash of $50,000 to a newly created subsidiary,
Regan Company, in exchange for 15,000 shares of Regan's $10 par value stock. Devon uses straight-
line depreciation. Useful life for the building is 30 years, with zero residual value. An appraisal
revealed that the building has a fair value of $200,000.

A) Based on the information provided, at the time of the transfer, Regan Company should record:

Accumulated dep= cost-salvage value/expected useful life

180,000-0/30= $6,000

Accumulated dep at time of transfer= $6k*3= $18,000

Building at $180,000 and accumulated depreciation of $18,000.

B) Based on the information provided, what amount would be reported by Devon Company as
investment in Regan Company common stock?

Land + bldg. - accumulated dep + cash= Inv in Devon Co.

100k+180k-18k+50k= $312,000

C) Based on the preceding information, Regan Company will report:

Inv in Devon Co. – cash paid to acq share=additional paid in capital

312k-(15k*10)= $162,000

4) Rivendell Corporation and Foster Company merged as of January 1, 20X9. To effect the merger,
Rivendell paid finder's fees of $40,000, legal fees of $13,000, audit fees related to the stock issuance
of $10,000, stock registration fees of $5,000, and stock listing application fees of $4,000.

a) Based on the preceding information, under the acquisition method, what amount relating to the
business combination would be expensed?

$40k+13k= $53,000

b) Based on the preceding information, under the acquisition method:

10k+5k+4k= $19,000 of stock issue costs are treated as a reduction in the paid-in capital.

5) Burrough Corporation paid $80,000 to acquire all of Helyar Company's net assets. Helyar reported
assets with a book value of $60,000 and fair value of $98,000 and liabilities with a book value and fair
value of $23,000 on the date of combination. Burrough also paid $3,000 to a search firm for finder's
fees related to the acquisition. What amount will be recorded as goodwill by Burrough Corporation
while recording its investment in Helyar?

Net assets= 98k-23k= 75k

Cost-net assets= 80k-75k= $5,000

6) Plummet Corporation reported the book value of its net assets at $400,000 when Zenith
Corporation acquired 100 percent ownership. The fair value of Plummet's net assets was determined
to be $510,000 on that date.

a) Based on the preceding information, what amount of goodwill will be reported in consolidated
financial statements presented immediately following the combination if Zenith paid $550,000 for the
acquisition?

Amount paid-fair value of assets= amount of goodwill

550k-510k= $40,000

b) Based on the preceding information, what amount will be recorded by Zenith as its investment in
Plummet, if it paid $500,000 for the acquisition?

Inv in Plummet recorded by Zenith =Fair Value of net assets of Plummet= $510,000

c) Based on the preceding information, what amount of goodwill will be reported in consolidated
financial statements presented immediately following the combination if Zenith paid $500,000 for the
acquisition?

Cost of Acquisition is less than Fair value of net assets, Goodwill= $0

7) The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On X Company's
books, the carrying value of this reporting unit's net assets is $350,000, which includes $60,000 of
goodwill. If the fair value of the reporting unit as a whole is $335,000, what amount of goodwill
impairment will be recognized for this unit? $25,000

8) The fair value of net identifiable assets of a reporting unit of Y Company is $270,000. The carrying
value of the reporting unit's net assets on Y Company's books is $320,000, including $50,000 of goodwill
before any impairment. If the reported goodwill impairment for the unit is $10,000, what would be the
fair value of the entire reporting unit?
320k-10k= $310,000

9) Big Company acquired the following assets and liabilities of Little Company (fair values listed below)
for $470,000 cash.

Inventory $70,000  

Land   100,000 

Buildings and Equipment   320,000 

Current Liabilities   50,000  

Assuming these items are all recorded at their acquisition date fair values, what additional item needs
to be recorded and how will it be accounted for in the future?

Net assets= 70k+100k+320k-50k= 440k

Acq cost-net assets=goodwill

470k-440k= $30,000 Goodwill, capitalized and tested for impairment

10) Company X acquired for cash all of the outstanding common stock of Company Y. How should
Company X determine in general the amounts to be reported for the inventories and long-term debt
acquired from Company Y? Both at fair value