Chapter 7, Problem 3UTI

a.

To determine

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. Merging 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 merge to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.

Book value:

Book value of the asset is found out after deducting accumulated depreciation from the recorded value of the asset. Recorded value is the value at which the asset enters the books of account of the organization.

The fair value of the asset:

The fair value of the asset is the amount at which two parties may enter into an agreement with an open hand.

Explain how the sales will be recorded if:

• If Company P sells all 8,000 shares
• If Company P sells 2,000 shares
• If Company P sells 6,000 shares

To determine

Book value:

Book value of the asset is found out after deducting the accumulated depreciation from the recorded value of the asset. Recorded value is the value at which the asset enters the books of account of the organization.

The fair value of the asset:

The fair value of the asset is the amount at which two parties may enter into an agreement with open hand.

To explain:

Whether consolidated statements will be prepared in 2019. Determine the consolidated net income and its distribution if:

• If Company P sells all 8,000 shares
• If Company P sells 2,000 shares
• If Company P sells 6,000 shares

c.

To determine

Book value:

Book value of the asset is found out after deducting accumulated depreciation from the recorded value of the asset. Recorded value is the value at which the asset enters the books of account of the organization.

The fair value of the asset:

The fair value of the asset is the amount at which two parties may enter into an agreement with open hand.

Explain what will be reported by Company P when consolidated statements are not prepared if:

• If Company P sells all 8,000 shares
• If Company P sells 2,000 shares
• If Company P sells 6,000 shares