Business combination:
Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Mergers and acquisition are types of business combinations.
Consolidated financial statements:
The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.
Value analysis:
The value analysis in a business combination is an essential part of determining the worth of the acquired entity. The
:
Preparation of the value analysis and the determination and distribution of excess schedule.
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Advanced Accounting
- The partners of the Liwa Engineering Company have decided to terminate the business. The balances of the company's accounts prior to the liquidation are given in the Table 1. Table 1 Book value in OMR Cash 28,500 Plant assets (net) 75,000 Machinery and equipment (net) 2,500 Inventories 1,300 Liabilities 47,300 Capital, Partner 1 36,000 Capital, Partner 2 24,000 Additional information: The partner 1 and the partner 2 share profits and losses in the ratio 7:3. In the process of liquidation, the non-cash assets are sold for OMR 125,000. Required: A. You are asked to prepare a schedule of cash payments (Table 2), showing how cash will be distributed between the partners as it becomes available. B. Based on the information above (Table 2 – Schedule of Cash Payments), journalize the transactions.arrow_forward2. Parent Company buys Sub Company. Sub Company has the following book and fair market values for their accounts as of the purchase. Balance Sheet of Sub Company Book Values Fair Values Assets Current assets $150 $150 Property, plant, and equipment (net) Copyright (net) 200 300 50 600 Sales contracts 350 Total Assets $400 $1,400 Liabilities Accounts payable $100 $100 Stockholders' Equity Common stock-$5 par value Additional paid-in capital Retained earnings Total Liabilities and Stockholders' Equity 50 50 200 $400 (1) Parent Company pays $400 cash and 50 shares of $10 par common stock, selling for $20 per share as of the business combination. Prepares a journal entry for this takeover for Parent Company. Sub Company dissolves after this event.arrow_forwardIf the company's assets in TL: cash 100.000, accounts receivable 50.000, inventory 150.000, and building 200.000 (market value 300.000) and the liabilities 300.000. If the price paid to acquire company 400.000 TL, how much is the goodwill under market value approach? Select one: a. 100.000 b. 300.000 c. 200.000 d. 150.000arrow_forward
- 2. Parent Company buys Sub Company. Sub Company has the following book market values for their accounts as of the purchase. Balance Sheet of Sub Company Book Values Fair Values Assets Current assets $150 $150 Property, plant, and equipment (net) Copyright (net) Sales contracts 200 300 50 600 350 Total Assets $400 $1,400 Liabilities Accounts payable $100 $100 Stockholders' Equity Common stock-$5 par value 50 Additional paid-in capital 50 Retained earnings 200 Total Liabilities and Stockholders' Equity $400 (1) Parent Company pays $400 cash and 50 shares of $10 par common stock $20 per share as of the business combination. Prepares a journal entry for takeover for Parent Company. Sub Company dissolves after this event. (5arrow_forwardShow the solution in good accounting form Coronation company purchased an entity for 6,000,000 cash on January 31. The book value and fair value of the assets of the acquired entity as of the date of acquisition of follow: Question: What is the good arising from the acquisition? A. 4,450,000 B. 700,000 C. 2,450,000 D. 2,700,000arrow_forwardAccounting On January 1, 20X1, Porta Corporation purchased Swick Company's net assets and assigned goodwill of $81,500 to Reporting Division K. The following assets and liabilities are assigned to Reporting Division K on the acquisition date: Carrying Fair Amount Value Cash 15,500 $ 15,500 Inventory 57,500 72,500 Equipment 185,000 205,000 Goodwill 81,500 Accounts 31,500 31,500 Payable Required: 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 $355,000. $295,000. $275,000.arrow_forward
- Loop Pole Co., acquired all the assets and current liabilities of North Pole Co.,. The North Pole Co., details as follows, Cash OMR 20,000, Building OMR 30,000, Equipment OMR 50,000, Creditors OMR 10,000 and Retained earnings OMR 30,000. Calculate goodwill or capital reserve. Select one: a. Capital Reserve OMR 90,000 b. Goodwill OMR 90,000 c. Goodwill OMR 70,000 d. Capital reserve OMR 70,000arrow_forwardAccounting for Asset and Stock Purchases Assume an investor purchases an investee's net assets with a cash payment of $800 and issuance to the investee's shareholders of 160 shares of $1 par value common stock with a current fair value of $19.00 per share. In addition, we assume the purchaser paid an additional $40 of transaction costs to a third party (e.g., appraiser or broker) and provided the seller with contingent consideration with a fair value of $160 at the date of acquisition. The investee has the following net assets at current appraised fair value and historical book value: Plant and equipment Land Patent Total Required Investee Fair Value Investee Book Value $320 $600 840 600 960 80 $2,400 $1,000 a. Provide the journal entry on the investor's books for the purchase of the individual net assets of the investee. Assume the acquired net assets do not qualify as a business. b. Provide the journal entry on the investor's books for the purchase of the individual net assets of the…arrow_forwardTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Asset turnoverarrow_forward
- Show the solution in good accounting form Orange Company’s ledger revealed the following account balances as of December 31, 2020: Unamortized discount on bonds payable P120,000; Organization costs P100,000; Losses in early years of company P450,000; Trademarks P750,000 Patents P150,000; Amount set up by BOD as goodwill P300,000. How much should be presented as intangible assets shown In the statement of financial position?arrow_forward9. RGW Industries purchased the net assets of SP Company for P1,300,000. A schedule of the net assets of SP Company, as recorded on SP Company's books at the time of the acquisition, is as follows: Assets Cash Receivable Inventory Land, buildings, and equipment (net) Total assets Liabilities Current liabilities Long-term debt P31,000 250,000 302,000 350,000 P933,000 Inventory Land, building and equipment Patent P90,000 185,000 P275,000 P658,000 Total liabilities Net assets (book value) The following schedule shows the differences between the recorded costs and market values of the assets of SP Company at the date of the acquisition: Cost P302,000 350,000 0 Purchased in-process research and development Existing workforce Totals P652,000 P275,000 Liabilities Determine the amount of goodwill to be recognized on the acquisition? a. P642,000 c. P74,000 b. P464,000 d. P164,000 0 0 Market P400,000 390,000 40,000 300,000 90,000 P1,220,000 P275,000arrow_forward6. You were hired by Canyon Company, a well-known multinational, to conduct a purchase audit of XYZ Co.’s books to determine a possible purchase price for XYZ Co.’s net assets. You find the following information: Total identifiable assets of XYZ Company at fair value P6,000,000 Liabilities 1,000,000 Average rate of return on net assets for XYZ Co.’s industry 10% Forecasted earnings per year based on past earnings figures 600,000 Determine the amount of goodwill on the basis of the following assumption: Goodwill is equal to the present value of excess earnings discounted at 15% for 3 years. Use five decimal places for your present valuearrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning