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CHAPTER 2
Note: The letter A indicated for a question, exercise, or problem means that the question, exercise, or problem relates to a chapter appendix.

ANSWERS TO QUESTIONS

1. At the acquisition date, the information available (and through the end of the measurement period) is used to estimate the expected total
consideration at fair value. If the subsequent stock issue valuation differs from this assessment, the Exposure Draft (SFAS 1204-001) expected to
replace FASB Statement No. 141R (codified in FASB ASC 805-30-35) specifies that equity should not be adjusted. The reason is that the valuation
was determined at the date of the exchange, and thus the impact on the firm’s equity was measured at that point based on the best information
available then.

2. Pro forma financial statements (sometimes referred to as “as if” statements) are financial statements that are prepared to show the effect of planned
or contemplated transactions.

3. For purposes of the goodwill impairment test, all goodwill must be assigned to a reporting unit. Goodwill impairment for each reporting unit
should be tested in a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying amount (goodwill included)
at the date of the periodic review. The fair value of the unit may be based on quoted market prices, prices of comparable businesses, or a present
value or other valuation technique. If the fair value at the review date is less than the carrying amount, then the second step is necessary. In the
second step, the carrying value of the goodwill is compared to its implied fair value. (The calculation of the implied fair value of goodwill used
in the impairment test is similar to the method illustrated throughout this chapter for valuing the goodwill at the date of the combination.)
4. The expected increase was due to the elimination of goodwill amortization expense. However, the impairment loss under the new rules was
potentially larger than a periodic amortization charge, and this is in fact what materialized within the first year after adoption (a large impairment
loss). If there was any initial stock price impact from elimination of goodwill amortization, it was only a short-term or momentum effect. Another
issue is how the stock market responds to the goodwill impairment charge. Some users claim that this charge is a non-cash charge and should be
disregarded by the market. However, others argue that the charge is an admission that the price paid was too high, and might result in a stock price
decline (unless the market had already adjusted for this overpayment prior to the actual writedown).

ANSWERS TO BUSINESS ETHICS CASE

a and b. The board has responsibility to look into anything that might suggest malfeasance or inappropriate conduct. Such incidents might suggest
broader problems with integrity, honesty, and judgment. In other words, can you trust any reports from the CEO? If the CEO is not fired, does this
send a message to other employees that ethical lapses are okay? Employees might feel that top executives are treated differently.

ANSWERS TO ANALYZING FINANCIAL STATEMENTS EXERCISES

AFS2-1 eBay acquires Skype

(A) Goodwill computation

Acquisition price $ 2,593 million

Net tangible and intangible assets 262 million
Goodwill $ 2,331 million

(B) Factors used to determine in the contingent consideration is part of the exchange or not. (FASB ASC paragraphs 805-10-55-24 and 25)

The acquirer should consider the following if the contingent payments are made to employees or selling shareholders.
1. Is the selling shareholder a continuing employee? If the contingent payment is canceled if the employee’s employment is terminated, then
the consideration might be post-acquisition compensation for services.
 2. If the selling shareholder is a continuing employee and the period of required continuing employment is longer than the contingent
payment period, the contingent payments might, in substance, be compensation.
3. If the selling shareholder is a continuing employee and the employee’s compensation is reasonable in comparison to other key employees,
the contingent payment may indicate additional consideration rather than compensation.
4. If the contingent payment for non-employees is less than the contingent payments for continuing employees, the additional contingent
payments for employees may indicated compensation rather than additional consideration.

(C) It is not clear why eBay would settle the earnout for $530.3 million when it is not clear that the conditions for having to make the additional
contingent payments (up to $1.3 billion) were probably not going to be made. Under current GAAP, if the amount of the contingent payment
exceeded the previously expected amount, the difference is reflected in earnings. Under the rules in effect for the Skype transaction the contingent
payment was simply an adjustment of goodwill. Because eBay was settling the earnout for approximately a third of the total potential payments
indicates that Skype was not performing well. Notice that eBay wrote down$1.39 billion in goodwill at the same time. One potential reason that eBay
might have agreed to the payment is that the former CEO of Skype was stepping down and the contingent payment may have been incentive. In
addition, the earnout may have prevented eBay from selling Skype.
 AFS2-2 eBay Sells Skype As Reported Adjustments Adjusted
eBay's Income Statement 2007 2008 2009 2007 2008 2009 2007 2008 2009
Net revenues $7,672,329 $8,541,261 $8,727,362 -364,564 -550,841 -620,403 $7,307,765 $7,990,420 $8,106,959
Cost of net revenues 1,762,972 2,228,069 2,479,762 -337,338 -434,588 -462,701 1,425,634 1,793,481 2,017,061
Gross profit 5,909,357 6,313,192 6,247,600 (27,226) (116,253) (157,702) 5,882,131 6,196,939 6,089,898
Operating expenses:
Sales and marketing 1,882,810 1,881,551 1,885,677 1,882,810 1,881,551 1,885,677
Product development 619,727 725,600 803,070 619,727 725,600 803,070
General & administrative 904,681 998,871 1,418,389 (343,200) 904,681 998,871 1,075,189
Provision for trans. &
loan
losses 293,917 347,453 382,825 293,917 347,453 382,825
Amortization of acquired
intangible assets 204,104 234,916 262,686 204,104 234,916 262,686
Restructuring 49,119 38,187 - 49,119 38,187
Impairment of goodwill 1,390,938 (1,390,938) - - -
Total operating
expenses 5,296,177 4,237,510 4,790,834 (1,390,938) (343,200) 3,905,239 4,237,510 4,447,634
Income from operations 613,180 2,075,682 1,456,766 1,363,712 (116,253) 185,498 1,976,892 1,959,429 1,642,264
Interest and other income 137,671 107,882 1,422,385 (1,400,000) 137,671 107,882 22,385
Income before income
taxes 750,851 2,183,564 2,879,151 1,363,712 (116,253) (1,214,502) 2,114,563 2,067,311 1,664,649

Provision for income taxes (402,600) (404,090) (490,054)

Net income $348,251 $1,779,474 $2,389,097

Ratios 2007 2008 2009 2007 2008 2009

Gross Margin Percentage 77.0% 73.9% 71.6% 7.5% 21.1% 25.4% 80.5% 77.6% 75.1%
Operating Margin
Percentage 8.0% 24.3% 16.7% 27.1% 24.5% 20.3%
Income before taxes % 9.8% 25.6% 33.0% 28.9% 25.9% 20.5%

There are four adjustments to eliminate the effect of Skype from eBay’s books. First, we eliminate the revenues and the direct expenses
AFS2-2 solution continued:

from each year. We eliminated 100% of Skype’s revenues and direct expenses disclosed in the
footnotes in 2009 because it was not clear from the disclosure whether those amounts were the amounts
included on eBay’s statements or whether they were for the entire year. An acceptable solution would
be to eliminate 11.5/12 or 95.8%. Second, the impairment of goodwill was added back in 2007. Third,
the gain on the sale of $1.4 million was subtracted from interest and other income in 2009. And finally,
the charge from the legal settlement was added back (or subtracted from costs) in 2009.

Performance: Including Skype, eBay’s gross margin declined from 77% to 71.6%. Without Skype, the
gross margin still declined, but the decline was smaller (80.5% to 75.1%). Including Skype, income
before taxes showed a rather large increase in absolute dollars increasing to $2,879,151 from $648,251
(283% increase). After Skype is eliminated we find a decreasing trend from $2,114,563 to 1,664,649 (a
21.3% decline). A similar trend exists for the income before tax as a percentage of revenues. The
unadjusted percentage increased from 9.8% to 33% while the adjusted percentage decreased from
28.9% to 20.5%. The most interesting aspect of the numbers is that eBay recorded an impairment
charge of $1.4 million in 2007 and then in 2009 recorded an $1.4 million gain on the sale.

ANSWERS TO EXERCISES

Exercise 2-1

Part A Receivables 228,000

Inventory 396,000
Plant and Equipment 540,000
Land 660,000
Goodwill ($2,154,000 - $1,824,000) 330,000
Liabilities 594,000
Cash 1,560,000

Part B Receivables 228,000

Inventory 396,000
Plant and Equipment 540,000
Land 660,000
Liabilities 594,000
Cash 990,000
Gain on Acquisition of Saville - Ordinary ($1,230,000 - 240,000
$990,000)

2-5
Exercise 2-2
Cash $680,000
Receivables 720,000
Inventories 2,240,000
Plant and Equipment (net) ($3,840,000 + $720,000) 4,560,000
Goodwill 120,000
Total Assets $8,320,000

Liabilities 1,520,000
Common Stock, $16 par ($3,440,000 + (.50  $800,000)) 3,840,000
Other Contributed Capital ($400,000 + $800,000) 1,200,000
Retained Earnings 1,760,000
Total Equities $8,320,000

Entries on Petrello Company’s books would be:

Cash 200,000
Receivables 240,000
Inventory 240,000
Plant and Equipment 720,000
Goodwill * 120,000
Liabilities 320,000
Common Stock (25,000  $16) 400,000
Other Contributed Capital ($48 - $16)  25,000 800,000

* ($48  25,000) – [($1,480,000 – ($800,000 – $720,000) – $320,000]

= $1,200,000 – [$1,480,000 – $80,000 – $320,000] = $1,200,000 – $1,080,000 = $120,000

2-6
 Exercise 2-3

Accounts Receivable 231,000

Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,000
Goodwill 848,000
Allowance for Uncollectible Accounts ($231,000 - $198,000) 33,000
Current Liabilities 275,000
Bonds Payable 450,000
Premium on Bonds Payable ($495,000 - $450,000) 45,000
Preferred Stock (15,000  $100) 1,500,000
Common Stock (30,000  $10) 300,000
Other Contributed Capital ($25 - $10)  30,000 450,000
Cash 50,000

Cost of acquisition ($1,500,000 + $750,000 + $50,000) = $2,300,000

Fair value of net assets (198,000 + 330,000 + 550,000 + 1,144,000 – 275,000 – 495,000) = 1,452,000
Goodwill = $848,000

Exercise 2-4

Cash 96,000
Receivables 55,200
Inventory 126,000
Land 198,000
Plant and Equipment 466,800
Goodwill* 137,450
Accounts Payable 44,400
Bonds Payable 480,000
Premium on Bonds Payable** 45,050
Cash 510,000

** Present value of maturity value, 12 periods @ 4%: 0.6246  $480,000 = $299,808

Present value of interest annuity, 12 periods @ 4%: 9.38507  $24,000 = 225,242
Total present value 525,050
Par value 480,000
Premium on bonds payable $ 45,050
*Cash paid $510,000
Less: Book value of net assets acquired ($897,600 – $44,400 – $480,000) (373,200)
Excess of cash paid over book value 136,800
Increase in inventory to fair value (15,600)
Increase in land to fair value (28,800)
Increase in bond to fair value 45,050
Total increase in net assets to fair value 650
Goodwill $137,450

2-7
Exercise 2-5

Current Assets 960,000

Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,000
Liability for Contingent Consideration 360,000

Exercise 2-6

The amount of the contingency is $500,000 (10,000 shares at $50 per share)

Part A Goodwill 500,000

Paid-in-Capital for Contingent Consideration - Issuable 500,000

Part B Paid-in-Capital for Contingent Consideration - Issuable 500,000

Common Stock ($10 par) 100,000
Paid-In-Capital in Excess of Par 400,000

Platz Company does not adjust the original amount recorded as equity.

Exercise 2-7

1. (c) Cost (8,000 shares @ $30) $240,000

Fair value of net assets acquired 228,800
Excess of cost over fair value (goodwill) $ 11,200

2. (c) Cost (8,000 shares @ $30) $240,000

Fair value of net assets acquired ($90,000 + $242,000 – $56,000) 276,000
Excess of fair value over cost (gain) $ 36,000

Exercise 2-8

Current Assets 362,000

Long-term Assets ($1,890,000 + $20,000) + ($98,000 + $5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000  $5) 720,000
Other Contributed Capital (144,000  ($15 - $5)) 1,440,000

* (144,000  $15) – [$362,000 + $2,013,000 – ($119,000 + $491,000)] = $395,000

2-8
  $700 ,000 $20 ,000 
Total shares issued  +  = 144,000
 $5 $5 
Fair value of stock issued (144,000  $15) = $2,160,000

Exercise 2-9
Case A
Cost (Purchase Price) $130,000
Less: Fair Value of Net Assets 120,000
Goodwill $ 10,000
Case B
Cost (Purchase Price) $110,000
Less: Fair Value of Net Assets 90,000
Goodwill $ 20,000
Case C
Cost (Purchase Price) $15,000
Less: Fair Value of Net Assets 20,000
Gain ($ 5,000)

Assets
Liabilities Retained
Goodwill Current Assets Long-Lived Assets
Earnings (Gain)
Case A $10,000 $20,000 $130,000 $30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000

2-9
Exercise 2-10
Part A.
2011: Step 1: Fair value of the reporting unit $400,000
Carrying value of unit:
Carrying value of identifiable net assets $330,000
Carrying value of goodwill ($450,000 - $375,000) 75,000
405,000
Excess of carrying value over fair value $ 5,000

The excess of carrying value over fair value means that step 2 is required.

Step 2: Fair value of the reporting unit $400,000

Fair value of identifiable net assets 340,000
Implied value of goodwill 60,000
Recorded value of goodwill ($450,000 - $375,000) 75,000
Impairment loss $ 15,000

2012: Step 1: Fair value of the reporting unit $400,000

Carrying value of unit:
Carrying value of identifiable net assets $320,000
Carrying value of goodwill ($75,000 - $15,000) 60,000
380,000
Excess of fair value over carrying value $ 20,000

The excess of fair value over carrying value means that step 2 is not required.

2013: Step 1: Fair value of the reporting unit $350,000

Carrying value of unit:
Carrying value of identifiable net assets $300,000
Carrying value of goodwill ($75,000 - $15,000) 60,000
360,000
Excess of carrying value over fair value $ 10,000

The excess of carrying value over fair value means that step 2 is required.

Step 2: Fair value of the reporting unit $350,000

Fair value of identifiable net assets 325,000
Implied value of goodwill 25,000
Recorded value of goodwill ($75,000 - $15,000) 60,000
Impairment loss $ 35,000

2 - 10
Part B.
2011: Impairment Loss—Goodwill 15,000
Goodwill 15,000

2012: No entry

2013: Impairment Loss—Goodwill 35,000

Goodwill 35,000
Part C.
FASB ASC paragraph 350-20-45-1 specifies the presentation of goodwill in the balance sheet and
income statement (if impairment occurs) as follows:
• The aggregate amount of goodwill should be a separate line item in the balance
sheet.
• The aggregate amount of losses from goodwill impairment should be shown as a
separate line item in the operating section of the income statement unless some of
the impairment is associated with a discontinued operation (in which case it is
shown net-of-tax in the discontinued operation section).

Part D.
In a period in which an impairment loss occurs, FASB ASC paragraph 350-20-45-2 mandates the
following disclosures in the notes:
(1) A description of the facts and circumstances leading to the impairment;
(2) The amount of the impairment loss and the method of determining the fair value of
the reporting unit;
(3) The nature and amounts of any adjustments made to impairment estimates from
earlier periods, if significant.

Exercise 2-11

a. Fair Value of Identifiable Net Assets

Book values $500,000 – $100,000 = $400,000
Write up of Inventory and Equipment:
($20,000 + $30,000) = 50,000
Purchase price above which goodwill would result $450,000

b. Equipment would not be written down, regardless of the purchase price, unless it was
reviewed and determined to be overvalued originally.
c. A gain would be shown if the purchase price was below $450,000.
d. Anything below $450,000 is technically considered a bargain.
e. Goodwill would be $50,000 at a purchase price of $500,000 or ($450,000 + $50,000).

2 - 11
Exercise 2-12A

Cash 20,000
Accounts Receivable 112,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Accounts Payable 54,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

Cost of acquisition $600,000

Book value of net assets acquired ($80,000 + $132,000 + $160,000) 372,000
Difference between cost and book value 228,000
Allocated to:
Increase inventory, land, and plant assets to fair value ($52,000 + $25,000 + $71,000) (148,000)
Decrease bonds payable to fair value (20,000)
Establish deferred income tax liability ($168,000  40%) 67,200
Balance assigned to goodwill $127,200

ANSWERS TO ASC (Accounting Standards Codification) EXERCISES

ASC2-1 Presentation Does current GAAP require that the information on the income statement be
reported in chronological order with the most recent year listed first, or is the reverse order acceptable
as well?
Alternative one:
Step 1: In the search box on the home page, enter ‘chronological order’.
Step 2: Two results are obtained.

Alternative two:
Step 1: Use the drop-down menus under the ‘presentation’ general topic on the homepage and choose
‘Presentation of financial statements’; then under the second drop-down menu, choose ’10-overall’.
Step 2: Click on the ‘Expand’ option and scroll through the topics looking for ‘chronological order’.
The very last line is SAB Topic 11.E Chronological Ordering of Data.

FASB ASC 205-10-S99-9 under SEC guidance indicates that the SEC staff have not preference in what
order the data are presented (e.g., the most current data displayed first, etc.) as long as all schedules in
the report are ordered in the same chronological order.

ASC2-2 General Principles In the 1990s, the pooling of interest method was a preferred method of
accounting for consolidations by many managers because of the creation of instant earnings if the
acquisition occurred late in the year. Can the firms that used pooling of interest in the 1990s continue
to use the method for those earlier consolidations, or were they required to adopt the new standards for
previous business combinations retroactively?

2 - 12
This issue is related to whether the rules for pooling of interest have been grandfathered or not.
Alternative one:
Step 1: Below the search box on the home page, click on ‘advanced search.’ Enter ‘Pooling of
interests’ in the text/keyword box and click on exact phrase.
Step 2: Three results are obtained and the first alternative is the correct answer.

Alternative two:
Step 1: Use the drop-down menus under the ‘General Principles’ general topic on the homepage and
choose ‘Generally Accepted Accounting Principles’; then under the second drop-down menu, choose
’10-overall’.
Step 2: Section 70 is always the section for grandfathered guidance.

FASB ASC subparagraph 105-10-70-2(a) lists pooling of interests is listed as a grandfathered method.

ASC2-3 Glossary What instruments qualify as cash equivalents?

On the Codification homepage, click on ‘Master Glossary’ in the left-hand column. In the ‘glossary
term quick find’ menu type ‘cash equivalent’ and hit return.

Cash equivalents are short-term, highly liquid investments that have both of the following
characteristics:
a. Readily convertible to known amounts of cash
b. So near their maturity that they present insignificant risk of changes in value because of
changes in interest rates.

ASC2-4 Overview If guidance for a transaction is not specifically addressed in the Codification, what
is the appropriate procedure to follow in identifying the proper accounting?

The topic that established the Codification as authoritative GAAP is Topic 105.
Step 1: Use the drop-down menus under the ‘General Principles’ general topic on the homepage and
choose ‘Generally Accepted Accounting Principles’; then under the second drop-down menu, choose
’10-overall’.
Step 2: click on the red ‘Join all Sections’ button. Scroll through the paragraphs.

FASB ASC paragraph 105-10-05-2 states that if the guidance for a transaction or event is not specified
within a source of authoritative GAAP for that entity, an entity shall first consider accounting
principles for similar transactions or events within a source of authoritative GAAP for that entity and
then consider nonauthoritative guidance from other sources.

2 - 13
ASC2-5 General List all the topics found under General Topic 200—Presentation (Hint:There are 15
topics).

Presentation

205 Presentation of Financial Statements

210 Balance Sheet
215 Statement of Shareholder Equity
220 Comprehensive Income
225 Income Statement

230 Statement of Cash Flows

235 Notes to Financial Statements
250 Accounting Changes and Error Corrections
255 Changing Prices
260 Earnings Per Share

270 Interim Reporting

272 Limited Liability Entities
274 Personal Financial Statements
275 Risks and Uncertainties
280 Segment Reporting

ASC2-6 Cross-Reference The rules providing accounting guidance on subsequent events were
originally listed in FASB Statement No. 165. Where is this information located in the Codification? List
all the topics and subtopics in the Codification where this information can be found (i.e., ASC XXX-
XX).

Step 1: Choose the cross reference tab on the opening page of the Codification.
Step 2: Use the ‘By Standard’ drop down menu. Choose FAS as the standard type and 165 as the
standard number. Click on ‘Generate Report.’

FASB ASC subtopic 855-10 [, Subsequent Events – Overall]

ASC2-7 Overview Distinguish between an asset acquisition and the acquisition of a business.

This is a more difficult issue to find.

Alternative one:
Step 1: Below the search box on the home page, click on ‘advanced search.’ Enter ‘asset acquisition’ in
the text/keyword box and click on exact phrase.
Step 2: Sixteen results are obtained. You can narrow the search by clicking on ‘business combinations’
in the Narrow by related term section. Then, notice that the section on ‘related issues’ seems to be
where acquisition of assets rather than a business is located.

FASB ASC paragraph 805-50-05-3 states that the guidance in the ‘acquisition of assets rather than a
business’ subsections address transactions in which the assets acquired and liabilities assumed do not
constitute a business. A business is considered an integrated set of activities and assets that is capable
of being conducted and managed for the purpose of providing a return in the form of dividends, lower
costs, or other economic benefits directly to investors or other owners, members, or participants.

2 - 14
Alternative two:
Step 1: Use the drop-down menus under the ‘Broad Transactions’ general topic on the homepage and
choose ‘Business Combinations’; then under the second drop-down menu, choose ’10-overall’. Expand
the sections. Since nothing is listed related to the search, go to the scope section (805-10-15). FASB
ASC subparagraph 805-10-15-4(b) tells you the scope of section 10 does not cover asset acquisitions.
Step 2: Go back and search for ‘asset acquisition.

ASC2-8 Measurement GAAP requires that firms test for goodwill impairment on an annual basis.
One reporting unit performs the impairment test during January while a second reporting unit performs
the impairment test during July. If the firm reports annual results on a calendar basis, is this acceptable
under GAAP?

This can be a difficult issue to find depending on the student’s knowledge of goodwill. If a general
search is used with the term ‘goodwill impairment’ the correct section can be found. The student must
be aware that ‘subsequent measurement’ would be related to impairment testing of goodwill since
impairment tests are subsequent measurements of goodwill. However, since the correct paragraph is
paragraph 28, a lot of scrolling is needed.

Alternative two
Step 1: Use the drop-down menus under the ‘Assets’ general topic on the homepage and choose ‘350 –
Intangibles-Goodwill and other’; then under the second drop-down menu, choose ’20-Goodwill’.
Expand the sections. Since nothing is listed related to the search, go to the scope section (805-10-15).
FASB ASC subparagraph 805-10-15-4(b) tells you the scope of section 10 does not cover asset
acquisitions.
Step 2: click on subsequent measurement and click on ‘expand’ topics. One of the topics is ‘when to
test goodwill impairment’.

FASB ASC paragraph 350-20-35-28 states that different reporting units may be tested for impairment
at different times.

ANSWERS TO PROBLEMS

Problem 2-1

Current Assets 85,000

Plant and Equipment 150,000
Goodwill* 100,000
Liabilities 35,000
Common Stock [(20,000 shares @ $10/share)] 200,000
Other Contributed Capital [(20,000  ($15 – $10))] 100,000

Acquisition Costs Expense 20,000

Cash 20,000

Other Contributed Capital 6,000

Cash 6,000
To record the direct acquisition costs and stock issue costs

2 - 15
* Goodwill = Excess of Consideration of $335,000 (stock valued at $300,000 plus debt assumed of
$35,000) over Fair Value of Identifiable Assets of $235,000 (total assets of $225,000 plus PPE fair
value adjustment of $10,000)

Problem 2-2 Acme Company

Balance Sheet
October 1, 2011
(000)
Part A.
Assets (except goodwill) ($3,900 + $9,000 + $1,300) $14,200
Goodwill (1) 1,160
Total Assets $15,360

Liabilities ($2,030 + $2,200 + $260) $4,490

Common Stock (180  $20) + $2,000 5,600
Other Contributed Capital (180  ($50 – $20)) 5,400
Retained Earnings (130)
Total Liabilities and Equity $15,360

(1) Cost (180  $50) $9,000

Fair value of net assets acquired:
Fair value of assets of Baltic and Colt $10,300
Less liabilities assumed 2,460 7,840
Goodwill $1,160

2 - 16
Problem 2-2 (continued)

Part B.

Baltic
2012: Step1: Fair value of the reporting unit $6,500,000
Carrying value of unit:
Carrying value of identifiable net assets 6,340,000
Carrying value of goodwill 200,000*
Total carrying value 6,540,000
*[(140,000 x $50) – ($9,000,000 – $2,200,000)]
The excess of carrying value over fair value means that step 2 is required.

Step 2: Fair value of the reporting unit $6,500,000

Fair value of identifiable net assets 6,350,000
Implied value of goodwill 150,000
Recorded value of goodwill 200,000
Impairment loss $ 50,000

(because $150,000 < $200,000)

Colt
2012: Step1: Fair value of the reporting unit $1,900,000
Carrying value of unit:
Carrying value of identifiable net assets $1,200,000
Carrying value of goodwill 960,000*
Total carrying value 2,160,000
*[(40,000 x $50) – ($1,300,000 – $260,000)]
The excess of carrying value over fair value means that step 2 is required.

Step 2: Fair value of the reporting unit $1,900,000

Fair value of identifiable net assets 1,000,000
Implied value of goodwill 900,000
Recorded value of goodwill 960,000
Impairment loss $ 60,000

(because $900,000 < $960,000)

Total impairment loss is $110,000.

Journal entry:
Impairment Loss $110,000
Goodwill $110,000

2 - 17
Problem 2-3
Present value of maturity value, 20 periods @ 6%: 0.3118  $600,000 = $187,080
Present value of interest annuity, 20 periods @ 6%: 11.46992  $30,000 = 344,098
Total Present value 531,178
Par value 600,000
Discount on bonds payable $68,822

Cash 114,000
Accounts Receivable 135,000
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount ($40,000 + $68,822) 108,822
Current Liabilities 95,300
Bonds Payable ($300,000 + $600,000) 900,000
Gain on Acquisition of Stalton (ordinary) 81,872

Computation of Excess of Net Assets Received Over Cost

Cost (Purchase Price) ($531,178 plus liabilities assumed of $95,300 and $260,000) $886,478
Less: Total fair value of assets received $968,350
Excess of fair value of net assets over cost ($ 81,872)

Problem 2-4
Part A January 1, 2011
Accounts Receivable 72,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill* 54,000
Allowance for Uncollectible Accounts 7,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
Liability for Contingent Consideration 135,000

*Computation of Goodwill
Cost of Acquisition ($720,000 + $135,000) $855,000
Total fair value of net assets acquired ($1,064,000 - $263,000) 801,000
Goodwill $ 54,000

2 - 18
Problem 2-4 (continued)

Part B January 2, 2013

Liability for Contingent Consideration 135,000

Cash 135,000

Part C January 2, 2013

Liability for Contingent Consideration 135,000

Income from Change in Estimate 135,000

Problem 2-5 Pepper Company

Pro Forma Balance Sheet
Giving Effect to Proposed Issue of Common Stock and Note Payable for
All of the Net Assets of Salt Company
December 31, 2010

Audited Pro Forma

Balance Sheet Adjustments Balance Sheet
Cash $180,000 405,000 $585,000
Receivables 230,000 (60,000) 287,000
117,000
Inventories 231,400 134,000 365,400
Plant Assets 1,236,500 905,000 (1) 2,141,500
Goodwill _________ 181,500 181,500
Total Assets $1,877,900 $3,560,400

Accounts Payable $255,900 (60,000) $375,900

180,000
Notes Payable, 8% 0 300,000 300,000
Mortgage Payable 180,000 152,500 332,500
Common Stock, $20 par 900,000 600,000 1,500,000
Additional Paid-in Capital 270,000 510,000 (2) 780,000
Retained Earnings 272,000 272,000
Total Liabilities and Equity $1,877,900 $3,560,400

2 - 19
Problem 2-5 (continued)

Change in Cash
Cash from stock issue ($37  30,000) $1,110,000
Less: Cash paid for acquisition (800,000)
Plus: Cash acquired in acquisition 95,000
Total change in cash $ 405,000

Goodwill:
Cost of acquisition $1,100,000
Net assets acquired ($340,000 + $179,500 + $184,000) 703,500
Excess cost over net assets acquired $396,500
Assigned to plant assets 215,000
Goodwill $ 181,500

(1) $690,000 + $215,000 (2) ($37 - $20)  30,000

Problem 2-6 Ping Company

Pro Forma Income Statement for the Year 2011
Assuming a Merger of Ping Company and Spalding Company

Sales (1) $6,345,972

Cost of goods sold:
Fixed Costs (2) $824,706
Variable Costs (3) 2,464,095 3,288,801
Gross Margin 3,057,171

Selling Expenses (4) $785,910

Other Expenses (5) 319,310 1,105,220

Net Income $1,951,951

$1,951,951 – ($952,640 + $499,900) = $499,411 = $2,497,055

0.20 0.20
Since $2,497,055 is greater than $1,800,000 Ping should buy Spalding.

(1) $3,510,100 + $2,365,800 = $5,875,900  1.2  .9 = $6,345,972

(2) ($1,752,360  .30) + ($1,423,800  .30  .70) = $824,706

$5,875,900  1.2
(3) $1,752,360  .70  = $2,464,095
$3,510 ,100
(4) ($632,500 + $292,100)  .85 = $785,910

(5) $172,600  1.85 = $319,310

NOTE: In this problem, Part B states that fixed manufacturing expenses have been 35% of cost
of goods for each company and that variable manufacturing expense of Ping Company is 70% of

2 - 20
cost of goods sold. This is an error because the percentages must equal 100%. For this solution,
use 30% for fixed manufacturing expenses.

Problem 2-7A

Part A Receivables 125,000

Inventory 195,000
Land 120,000
Plant Assets 567,000
Patents 200,000
Deferred Tax Asset ($60,000 x 35%) 21,000
Goodwill* 154,775
Current Liabilities 89,500
Bonds Payable 300,000
Premium on Bonds Payable 60,000
Deferred Tax Liability 93,275
Common Stock (30,000  $2) 60,000
Other Contributed Capital (30,000  $26) 780,000

Cost of acquisition (30,000  $28) $840,000

Book value of net assets acquired ($120,000 + $164,000 + $267,000) 551,000
Difference between cost and book value 289,000
Allocated to:
Increase inventory, land, plant assets, and patents to fair value (266,500)
Deferred income tax liability (35%  $266,500) 93,275
Increase bonds payable to fair value 60,000
Deferred income tax asset (35%  $60,000) (21,000)
Balance assigned to goodwill $154,775

Part B Income Tax Expense (Balancing amount) 148,006

Deferred Tax Liability ($51,125  35%)* 17,894
Deferred Tax Asset ($6,000  35%) 2,100
Income Tax Payable ($468,000  35%) 163,800

* Inventory: $28,000
$100,000
Plant Assets, 10,000
10
$105,000
Patents, 13,125
8
Total $51,125

2 - 21
Another random document with
no related content on Scribd:
Where was his Pastorell? where all the other crew?

Ah well away (sayd he then sighing sore) xxix

That euer I did liue, this day to see,
This dismall day, and was not dead before,
Before I saw faire Pastorella dye.
Die? out alas![585] then Calidore did cry:
How could the death dare euer her to quell?
But read thou shepheard, read what destiny,
Or other dyrefull hap from heauen or hell
Hath wrought this wicked deed, doe feare away, and tell.

Tho when the shepheard breathed had a whyle, xxx

He thus began: Where[586] shall I then commence
This wofull tale? or how those Brigants vyle,
With cruell rage and dreadfull violence
Spoyld all our cots, and caried vs from hence?
Or how faire Pastorell should haue bene sold
To marchants, but was sau’d with strong defence?
Or how those theeues, whilest one sought her to hold,
Fell all at ods, and fought through fury fierce and bold.

In that same conflict (woe is me) befell xxxi

This fatall chaunce, this dolefull accident,
Whose heauy tydings now I haue to tell.
First all the captiues, which they here had hent,
Were by them slaine by generall consent;
Old Melibœ and his good wife withall
These eyes saw die, and dearely did lament:
But when the lot to Pastorell did fall,
Their Captaine long withstood, and did her death forstall.

But what could he gainst all them doe alone?[587] xxxii

It could not boot, needs mote she die at last:
I onely scapt through great confusione
Of cryes and clamors, which amongst them past,
In dreadfull darknesse dreadfully aghast;
 That better were with them to haue bene dead,
Then here to see all desolate and wast,
Despoyled of those ioyes and iollyhead,[588]
Which with those gentle shepherds here I wont to lead.

When Calidore these ruefull newes had raught, xxxiii

His hart quite deaded was with anguish great,
And all his wits with doole were nigh distraught,
That he his face, his head, his brest did beat,
And death it selfe vnto himselfe did threat;
Oft cursing th’heauens, that so cruell were
To her, whose name he often did repeat;
And wishing oft, that he were present there,
When she was slaine, or had bene to her succour nere.

But after griefe awhile had had his course, xxxiv

And spent it selfe in mourning, he at last
Began to mitigate his swelling sourse,
And in his mind with better reason cast,
How he might saue her life, if life did last;
Or if that dead, how he her death might wreake,
Sith otherwise he could not mend thing past;
Or if it to reuenge he were too weake,
Then for to die with her, and his liues threed to breake.

Tho Coridon he prayd, sith he well knew xxxv

The readie way vnto that theeuish wonne,
To wend with him, and be his conduct trew
Vnto the place, to see what should be donne.
But he, whose hart through feare was late fordonne,
Would not for ought be drawne to former drede,
But by all meanes the daunger knowne did shonne:
Yet Calidore so well him wrought with meed,
And faire bespoke with words, that he at last agreed.

So forth they goe together (God before) xxxvi

Both clad in shepheards weeds agreeably,
 And both with shepheards hookes: But Calidore
Had vnderneath, him armed priuily.
Tho to the place when they[589] approched nye,
They chaunst, vpon an hill not farre away,
Some flockes of sheepe and shepheards to espy;
To whom they both agreed to take their way,
In hope there newes to learne, how they mote best assay.

There did they find, that which they did not feare, xxxvii
The selfe same flocks, the which those theeues had reft
From Melibœ and from themselues[590] whyleare,
And certaine of the theeues there by them left,
The which for want of heards themselues then kept.
Right well knew Coridon his owne late sheepe,
And seeing them, for tender pittie wept:
But when he saw the theeues, which did them keepe,[591]
His hart gan fayle, albe he saw them all asleepe.

But Calidore recomforting his griefe, xxxviii

Though not his feare; for nought may feare disswade;
Him hardly forward drew, whereas the thiefe
Lay sleeping soundly in the bushes shade,
Whom Coridon him counseld to inuade
Now all vnwares, and take the spoyle away;
But he, that in his mind had closely made
A further purpose, would not so them slay,
But gently waking them, gaue them the time of day.

Tho sitting downe by them vpon the greene, xxxix

Of sundrie things he purpose gan to faine;
That he by them might certaine tydings weene
Of Pastorell, were she aliue or slaine.
Mongst which the theeues them questioned againe,
What mister men, and eke from whence they were.
To whom they answer’d, as did appertaine,
That they were poore heardgroomes, the which whylere
Had from their maisters fled, and now sought hyre elswhere.
Whereof right glad they seem’d, and offer made xl
To hyre them well, if they their flockes would keepe:
For they themselues were euill groomes, they sayd,
Vnwont with heards to watch, or pasture sheepe,
But to forray the land, or scoure the deepe.
Thereto they soone agreed, and earnest tooke,
To keepe their flockes for litle hyre and chepe:
For they for better hyre did shortly looke,
So there all day they bode, till light the sky forsooke.

Tho when as towards darksome night it drew, xli

Vnto their hellish dens those theeues them brought,
Where shortly they in great acquaintance grew,
And all the secrets of their entrayles sought.
There did they find, contrarie to their thought,
That Pastorell yet liu’d, but all the rest
Were dead, right so as Coridon had taught:
Whereof they both full glad and blyth did rest,
But chiefly Calidore, whom griefe had most possest.

At length when they occasion fittest found, xlii

In dead of night, when all the theeues did rest
After a late forray, and slept full sound,
Sir Calidore him arm’d, as he thought best,
Hauing of late by diligent inquest,
Prouided him a sword of meanest sort:
With which he streight went to the Captaines nest.
But Coridon durst not with him consort,
Ne durst abide behind, for dread of worse effort.

When to the Caue they came, they found it fast: xliii

But Calidore with huge resistlesse might,
The dores assayled, and the locks vpbrast.
With noyse whereof the theefe awaking light,
Vnto the entrance ran: where the bold knight
Encountring him with small resistance slew;
The whiles faire Pastorell through great affright
 Was almost dead, misdoubting least of new
Some vprore were like that, which lately she did vew.

But when as Calidore was comen in, xliv

And gan aloud for Pastorell to call,
Knowing his voice although not heard long sin,
She sudden was reuiued therewithall,
And wondrous ioy felt in her spirits thrall:
Like him that being long in tempest tost,
Looking each houre into deathes mouth to fall,
At length espyes at hand the happie cost,
On which he safety hopes, that earst feard to be lost.

Her gentle hart, that now long season past xlv

Had neuer ioyance felt, nor chearefull thought,
Began some smacke of comfort new to tast,
Like lyfull[592] heat to nummed senses brought,
And life to feele, that long for death had sought;
Ne lesse in hart reioyced Calidore,
When he her found, but like to one distraught
And robd of reason, towards her him bore,
A thousand times embrast, and kist a thousand more.

But now by this, with noyse of late vprore, xlvi

The hue and cry was raysed all about;
And all the Brigants flocking in great store,
Vnto the caue gan preasse, nought hauing dout
Of that was doen, and entred in a rout.
But Calidore in th’entry close did stand,
And entertayning them with courage stout,
Still slew the formost, that came first to hand,
So long till all the entry was with bodies mand.

Tho when no more could nigh to him approch, xlvii

He breath’d his sword, and rested him till day,
Which when he spyde vpon the earth t’encroch,
Through the dead carcases he made his way,
 Mongst which he found a sword of better say,
With which he forth went into th’open light:
Where all the rest for him did readie stay,
And fierce assayling him, with all their might
Gan all vpon him lay: there gan a dreadfull fight.

How many flyes in whottest sommers day xlviii

Do seize vpon some beast, whose flesh is bare,
That all the place with swarmes do ouerlay,
And with their litle stings right felly fare,
So many theeues about him swarming are,
All which do him assayle on euery side,
And sore oppresse, ne any him doth spare:
But he doth with his raging brond diuide
Their thickest troups, and round about him scattreth wide.

Like as a Lion mongst an heard of dere, xlix

Disperseth them to catch his choysest pray,
So did he fly amongst them here and there,
And all that nere him came, did hew and slay,
Till he had strowd with bodies all the way;
That none his daunger daring to abide,
Fled from his wrath, and did themselues conuay
Into their caues, their heads from death to hide,
Ne any left, that victorie to him enuide.

Then backe returning to his dearest deare, l

He her gan to recomfort, all he might,
With gladfull speaches, and with louely cheare,
And forth her bringing to the ioyous light,
Whereof she long had lackt the wishfull sight,
Deuiz’d all goodly meanes, from her to driue
The sad remembrance of her wretched plight.
So her vneath at last he did reuiue,
That long had lyen dead, and made againe aliue.

This doen, into those theeuish dens he went, li

And thence did all the spoyles and threasures take,
 Which they from many long had robd and rent,
But fortune now the victors meed did make;
Of which the best he did his loue betake;
And also all those flockes, which they before
Had reft from Melibœ and from his make,
He did them all to Coridon restore.[593]
So droue them all away, and his loue with him bore.

FOOTNOTES:
[572] xliv 3 (Where 1609
[573] 7 glade) 1609
[574] 8 But] And 1609
[575] iii 7 eyes 1609
[576] iv 6 shewed 1609
[577] ix 7 th’instant 1609
[578] x 8 be] he 1609
[579] xi 6 that] the 1609
[580] xiv 2 prices 1609
[581] xv 5 prices 1609
[582] xix 4 protended conj. Collier
[583] xxiv 1 reuiv’d 1609
[584] xxvi 4 there, 1596
[585] xxix 5 alas 1596, 1609
[586] xxx 2 where 1596
[587] xxxii 1 alone: 1596
[588] 8 iolly head 1596, 1609
[589] xxxvi 5 they] him 1609
[590] xxxvii 3 themseles 1596
[591] 8 keepe 1596
[592] xlv 4 lifefull 1609
 Cant. XII.

Fayre Pastorella by great hap

her parents understands,
Calidore doth the Blatant beast
subdew, and bynd in bands.

Like as a ship, that through the Ocean wyde i

Directs her course vnto one certaine cost,
Is met of many a counter winde and tyde,
With which her winged speed is let and crost,
And she her selfe in stormie surges tost;
Yet making many a borde, and many a bay,
Still winneth way, ne hath her compasse lost:
Right so it fares with me in this long way,
Whose course is often stayd, yet neuer is astray.

For all that hetherto hath long delayd ii

This gentle knight, from sewing his first quest,
Though out of course, yet hath not bene mis-sayd,
To shew the courtesie by him profest,
Euen vnto the lowest and the least.
But now I come into my course againe,
To his atchieuement of the Blatant beast;
Who all this while at will did range and raine,
Whilst none was him to stop, nor none him to restraine.

Sir Calidore when thus he now had raught iii

Faire Pastorella from those Brigants powre,
Vnto the Castle of Belgard her brought,
Whereof was Lord the good Sir Bellamoure;
Who whylome was in his youthes freshest flowre
A lustie knight, as euer wielded speare,
And had endured many a dreadfull stoure
In bloudy battell for a Ladie deare,
The fayrest Ladie then of all that liuing were.

Her name was Claribell, whose father hight iv

The Lord of Many Ilands, farre renound
For his great riches and his greater might.
He through the wealth, wherein he did abound,
This daughter thought in wedlocke to haue bound
Vnto the Prince of Picteland bordering nere,
But she whose sides before with secret wound
Of loue to Bellamoure empierced were,
By all meanes shund to match with any forrein fere.

And Bellamour againe so well her pleased, v

With dayly seruice and attendance dew,
That of her loue he was entyrely seized,
And closely did her wed, but knowne to few.
Which when her father vnderstood, he grew
In so great rage, that them in dongeon deepe
Without compassion cruelly he threw;
Yet did so streightly them a sunder keepe,
That neither could to company of th’other creepe.

Nathlesse Sir Bellamour, whether through grace vi

Or secret guifts so with his keepers wrought,
That to his loue sometimes he came in place,
Whereof her wombe vnwist to wight was fraught,
And in dew time a mayden child forth brought.
Which she streight way for dread least, if her syre
 Should know thereof, to slay he would haue sought,
Deliuered to her handmayd, that for hyre
She should it cause be fostred vnder straunge attyre.

The trustie damzell bearing it abrode vii

Into the emptie fields, where liuing wight
Mote not bewray the secret of her lode,
She forth gan lay vnto the open light
The litle babe, to take thereof a sight.
Whom whylest she did with watrie eyne behold,
Vpon the litle brest like christall bright,
She mote perceiue a litle purple mold,
That like a rose her silken leaues did faire vnfold.

Well she it markt, and pittied the more, viii

Yet could not remedie her wretched case,
But closing it againe like as before,
Bedeaw’d with teares there left it in the place:
Yet left not quite, but drew a litle space
Behind the bushes, where she her did hyde,
To weet what mortall hand, or heauens grace
Would for the wretched infants helpe prouyde,
For which it loudly cald, and pittifully cryde.

At length a Shepheard, which there by did keepe ix

His fleecie flocke vpon the playnes around,
Led with the infants cry, that loud did weepe,
Came to the place, where when he wrapped found
Th’abandond spoyle, he softly it vnbound;
And seeing there, that did him pittie sore,
He tooke it vp, and in his mantle wound;
So home vnto his honest wife it bore,
Who as her owne it nurst, and named euermore.

Thus long continu’d Claribell a thrall, x

And Bellamour in bands, till that her syre
Departed life, and left vnto them all.
Then all the stormes of fortunes former yre
 Were turnd, and they to freedome did retyre.
Thenceforth they ioy’d in happinesse together,
And liued long in peace and loue entyre,
Without disquiet or dislike of ether[594],
Till time that Calidore brought Pastorella thether

Both whom they goodly well did entertaine; xi

For Bellamour knew Calidore right well,
And loued for his prowesse, sith they twaine
Long since had fought in field. Als Claribell
No lesse did tender the faire Pastorell,
Seeing her weake and wan, through durance long.
There they a while together thus did dwell
In much delight, and many ioyes among,
Vntill the damzell gan to wex more sound and strong.

Tho gan Sir Calidore him to aduize xii

Of his first quest, which he had long forlore,
Asham’d to thinke, how he that enterprize,
The which the Faery Queene had long afore
Bequeath’d to him, forslacked had so sore;
That much he feared, least reprochfull blame
With foule dishonour him mote blot therefore;
Besides the losse of so much loos[595] and fame,
As through the world thereby should glorifie his name.

Therefore resoluing to returne in hast xiii

Vnto so great atchieuement, he bethought
To leaue his loue, now perill being past,
With Claribell, whylest he that monster sought
Throughout[596] the world, and to destruction brought.
So taking leaue of his faire Pastorell,
Whom to recomfort, all the meanes he wrought,
With thanks to Bellamour and Claribell,
He went forth on his quest, and did, that him befell.

But first, ere I doe his aduentures tell, xiv

 In this exploite, me needeth to declare,
What did betide to the faire Pastorell,
During his absence left in heauy care,
Through daily mourning, and nightly misfare:
Yet did that auncient matrone all she might,
To cherish her with all things choice and rare;
And her owne handmayd, that Melissa hight,
Appointed to attend her dewly day and night.

Who in a morning, when this Mayden faire xv

Was dighting her, hauing her snowy brest
As yet not laced, nor her golden haire
Into their comely tresses dewly drest,
Chaunst to espy vpon her yuory chest
The rosie marke, which she remembred well
That litle Infant had, which forth she kest,
The daughter of her Lady Claribell,
The which she bore, the whiles in prison she did dwell.

Which well auizing, streight she gan to cast xvi

In her conceiptfull mynd, that this faire Mayd
Was that same infant, which so long sith[597] past
She in the open fields had loosely layd
To fortunes spoile, vnable it to ayd.
So full of ioy, streight forth she ran in hast
Vnto her mistresse, being halfe dismayd,
To tell her, how the heauens had her graste,
To saue her chylde, which in misfortunes mouth was plaste.

The sober mother seeing such her mood, xvii

Yet knowing not, what meant that sodaine thro,
Askt her, how mote her words be vnderstood,
And what the matter was, that mou’d her so.
My liefe (sayd she) ye know, that long ygo,
Whilest ye in durance dwelt, ye to me gaue
A little mayde, the which ye chylded tho;
The same againe if now ye list to haue,
The same is yonder Lady, whom high God did saue.

Much was the Lady troubled at that speach, xviii

And gan to question streight how she it knew.
Most certaine markes, (sayd she) do me it teach,
For on her brest I with these eyes did vew
The litle purple rose, which thereon grew,
Whereof her name ye then to her did giue.
Besides her countenaunce, and her likely hew,
Matched with equall yeares, do surely prieue
That yond same is your daughter sure, which yet doth liue[598].

The matrone stayd no lenger to enquire, xix

But forth in hast ran to the straunger Mayd;
Whom catching greedily for great desire,
Rent vp her brest, and bosome open layd,
In which that rose she plainely saw displayd.
Then her embracing twixt her armes twaine,
She long so held, and softly weeping sayd;
And liuest thou my daughter now againe?
And art thou yet aliue, whom dead I long did faine[599]?

Tho further asking her of sundry things, xx

And times comparing with their accidents,
She found at last by very certaine signes,
And speaking markes of passed monuments,
That this young Mayd, whom chance to her presents
Is her owne daughter, her owne infant deare.
Tho wondring long at those so straunge euents,
A thousand times she her embraced nere,
With many a ioyfull kisse, and many a melting teare.

Who euer is the mother of one chylde, xxi

Which hauing thought long dead, she fyndes aliue,
Let her by proofe of that, which she hath fylde
In her owne breast, this mothers ioy descriue:
For other none such passion can contriue
 In perfect forme, as this good Lady felt,
When she so faire a daughter saw suruiue,
As Pastorella was, that nigh she swelt
For passing ioy, which did all into pitty melt.

Thence running forth vnto her loued Lord, xxii

She vnto him recounted, all that fell:
Who ioyning ioy with her in one accord,
Acknowledg’d for his owne faire Pastorell.
There leaue we them in ioy, and let vs tell
Of Calidore, who seeking all this while
That monstrous Beast by finall force to quell,
Through euery place, with restlesse paine and toile
Him follow’d, by the tract[600] of his outragious spoile.

Through all estates he found that he had past, xxiii

In which he many massacres had left,
And to the Clergy now was come at last;
In which such spoile, such hauocke, and such theft
He wrought, that thence all goodnesse he bereft,
That endlesse were to tell. The Elfin Knight,
Who now no place besides vnsought had left,
At length into a Monastere did light,
Where he him found despoyling all with maine and might.

Into their cloysters now he broken had, xxiv

Through which the Monckes he chaced here and there,
And them pursu’d into their dortours sad,
And searched all their cels and secrets neare;
In which what filth and ordure did appeare,
Were yrkesome to report; yet that foule Beast
Nought sparing them, the more did tosse and teare,
And ransacke all their dennes from most to least,
Regarding nought religion, nor their holy heast.

From thence into the sacred Church he broke, xxv

And robd the Chancell, and the deskes downe threw,
 And Altars fouled, and blasphemy spoke,
And th’Images for all their goodly hew,
Did cast to ground, whilest none was them to rew;
So all confounded and disordered there.
But seeing Calidore, away he flew,
Knowing his fatall hand by former feare;
But he him fast pursuing, soone approched neare.

Him in a narrow place he ouertooke, xxvi

And fierce assailing forst him turne againe:
Sternely he turnd againe, when he him strooke
With his sharpe steele, and ran at him amaine
With open mouth, that seemed to containe
A full good pecke within the vtmost brim,
All set with yron teeth in raunges[601] twaine,
That terrifide his foes, and armed him,
Appearing like the mouth of Orcus griesly grim.

And therein were a thousand tongs empight, xxvii

Of sundry kindes, and sundry quality,
Some were of dogs, that barked day and night,
And some of cats, that wrawling still did cry,
And some of Beares, that groynd continually,
And some of Tygres, that did seeme to gren,
And snar at all, that euer passed by:
But most of them were tongues of mortall men,
Which spake reprochfully, not caring where nor when.

And them amongst were mingled here and there, xxviii

The tongues of Serpents with three forked stings,
That spat out poyson and gore bloudy gere
At all, that came within his rauenings,
And spake licentious words, and hatefull things
Of good and bad alike, of low and hie;
Ne Kesars spared he a whit, nor Kings,
But either blotted them with infamie,
Or bit them with his banefull teeth of iniury.
But Calidore thereof no whit afrayd, xxix
Rencountred him with so impetuous might,
That th’outrage of his violence he stayd,
And bet abacke, threatning in vaine to bite,
And spitting[602] forth the poyson of his spight,
That fomed all about his bloody iawes.
Tho rearing vp his former feete on hight,
He rampt vpon him with his rauenous pawes,
As if he would haue rent him with his cruell clawes.

But he right well aware, his rage to ward, xxx

Did cast his shield atweene, and therewithall
Putting his puissaunce forth, pursu’d so hard,
That backeward he enforced him to fall,
And being downe, ere he new helpe could call,
His shield he on him threw, and fast downe held,
Like as a bullocke, that in bloudy stall
Of butchers balefull hand to ground is feld,
Is forcibly kept downe, till he be throughly queld.

Full cruelly the Beast did rage and rore, xxxi

To be downe held, and maystred so with might,
That he gan fret and fome out bloudy gore,
Striuing in vaine to rere him selfe vpright.
For still the more he stroue, the more the Knight
Did him suppresse, and forcibly subdew;
That made him almost mad for fell despight.
He grind, hee bit, he scratcht, he venim threw,
And fared like a feend, right horrible in hew.

Or like the hell-borne Hydra, which they faine xxxii

That great Alcides whilome ouerthrew,
After that he had labourd long in vaine,
To crop his thousand heads, the which still new
Forth budded, and in greater number grew.
Such was the fury of this hellish Beast,
Whilest Calidore him vnder him downe threw;
 Who nathemore his heauy load releast,
But aye the more he rag’d, the more his powre increast.

Tho when the Beast saw, he mote nought auaile, xxxiii

By force, he gan his hundred tongues apply,
And sharpely at him to reuile and raile,
With bitter termes of shamefull infamy;
Oft interlacing many a forged lie,
Whose like he neuer once did speake, nor heare,
Nor euer thought thing so vnworthily:
Yet did he nought for all that him forbeare,
But strained him so streightly, that he chokt him neare.

At last when as he found his force to shrincke, xxxiv

And rage to quaile, he tooke a muzzell strong
Of surest yron, made with many a lincke;
Therewith he mured vp his mouth along,
And therein shut vp his blasphemous tong,
For neuer more defaming gentle Knight,
Or vnto louely Lady doing wrong:
And thereunto a great long chaine he tight,
With which he drew him forth, euen in his own despight.

Like as whylome that strong Tirynthian swaine, xxxv

Brought forth with him the dreadfull dog of hell,
Against his will fast bound in yron chaine,
And roring horribly, did him compell
To see the hatefull sunne, that he might tell
To griesly Pluto, what on earth was donne,
And to the other damned ghosts, which dwell
For aye in darkenesse, which day light doth shonne.
So led this Knight his captyue with like conquest wonne.

Yet greatly did the Beast repine at those xxxvi

Straunge bands, whose like till then he neuer bore,
Ne euer any durst till then impose,
And chauffed inly, seeing now no more
Him liberty was left aloud to rore:
 Yet durst he not draw backe; nor once withstand
The proued powre of noble Calidore,
But trembled vnderneath his mighty hand,
And like a fearefull dog him followed through the land.

Him through all Faery land he follow’d so, xxxvii

As if he learned had obedience long,
That all the people where so he did go,
Out of their townes did round about him throng,
To see him leade that Beast in bondage strong,
And seeing it, much wondred at the sight;
And all such persons, as he earst did wrong,
Reioyced much to see his captiue plight,
And much admyr’d the Beast, but more admyr’d the Knight.

Thus was this Monster by the maystring might xxxviii

Of doughty Calidore, supprest and tamed,
That neuer more he mote endammadge wight
With his vile tongue, which many had defamed,
And many causelesse caused to be blamed:
So did he eeke long after this remaine,
Vntill that, whether wicked fate so framed,
Or fault of men, he broke his yron chaine,
And got into the world at liberty againe.

Thenceforth more mischiefe and more scath[603] he wrought xxxix

To mortall men, then he had done before;
Ne euer could by any more be brought
Into like bands, ne maystred any more:
Albe that long time after Calidore,
The good Sir Pelleas him tooke in hand,
And after him Sir Lamoracke of yore,
And all his brethren borne in Britaine land;
Yet none of them could euer bring him into band.

So now he raungeth through the world againe, xl

And rageth sore in each degree and state;
 Ne any is, that may him now restraine,
He growen is so great and strong of late,
Barking and biting all that him doe bate,
Albe they worthy blame, or cleare of crime:
Ne spareth he most learned[604] wits to rate,
Ne spareth he the gentle Poets rime,
But rends without regard of person or of time.

Ne may this homely verse, of many meanest, xli

Hope[605] to escape his venemous despite,
More then my former writs, all were they clearest[606]
From blamefull blot, and free from all that wite,
With which some wicked tongues[607] did it backebite,
And bring into a mighty Peres displeasure,
That neuer so deserued to endite.
Therfore do you my rimes keep better measure,
And seeke to please, that now is counted wisemens threasure.

FOOTNOTES:
[593] li 8 restore 1596
[594] x 8 either 1609
[595] xii 8 loos] praise 1609
[596] xiii 5 Troughout 1596
[597] xvi 3 sith] since 1609
[598] xviii 9 liue 1596
[599] xix 9 faine. 1596
[600] xxii 9 track 1609
[601] xxvi 7 ranges 1609
[602] xxix 5 spetting 1609
[603] xxxix i scathe 1609
[604] xl 7 learned] gentle 1609