ACCT 1B Lecture Notes - Lecture 27: Controlling Interest, Deferred Tax, Leveraged Buyout

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rosebuffalo981

31 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1B

Professor

seilo

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Document Summary

A deferred tax asset and liability be recognized for differences between the assigned values and tax basis of the assets and liabilities recognized in a purchase business combo. Cost of the acquisition (,000) minus the fair value of net assets acquired (,000) produces a bargain, or an excess of fair value of net assets acquired over cost of ,000. Is the period after the acquisition date during which the acquirer may adjust amounts recognized for business combinations. It is a reasonable period to obtain information necessary to measure any of the following as of acquisition date: Identifiable assets acquired, liabilities assumed, and any noncontrolling interest in aquiree. In a business combination achieved in stages, any previous equity interest held by the acquirer. The amount of goodwill originating or any gain in a bargain purchase. During the measurement period, the acquirer must retrospectively adjust the provisional amounts recognized at the acquisition date.

Related Questions

1. On January 1, Year 1, Pungent Corporation acquired 75% of Summer Corporation's 200,000 outstanding common shares for $2,850,000. On January 1, the book value of Summer's net assets was $3,000,000. Book value equaled fair value for all of Summer's assets and liabilities except land, which had a fair value $200,000 greater than book value, and equipment, which had a fair value $150,000 greater than book value. On January 1, Year 1, Summer had a non-compete agreement with a fair value of $300,000. Compute the amount of goodwill (show your work) to be reported on Pungent Corporation's December 31, Year 1 balance sheet under U.S. GAAP?

2. List the 4 steps in applying the Acquisition method of accounting.

3. In a business combination accounted for as an acquisition, the appraised values of the identifiable assets acquired exceeded the acquisition price. Describe how the excess appraised valued should be reported?

4. Direct costs of a business combination, including findersâ fees and consulting fees, are recognized as expenses in the period incurred. True or False

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On May 31, 2013, Armstrong Company paid $3,300,000 to acquireall of the common stock of Hall Corporation, which became adivision of Armstrong. Hall reported the following balance sheet atthe time of the acquisition:

Currentassets $ 900,000 Current liabilities $ 600,000

Noncurrentassets 2,700,000 Long-termliabilities 500,000

Stockholdersâ equity 2,500,000

Total liabilities and

Totalassets $3,600,000 stockholdersâ equity $3,600,000

It was determined at the date of the purchase that the fairvalue of the identifiable net assets of Hall was $2,800,000. AtDecember 31, 2013, Hall reports the following balance sheetinformation:

Currentassets $ 800,000

Noncurrent assets(including goodwill recognized in purchase) 2,400,000

Currentliabilities (700,000)

Long-termliabilities (500,000)

Netassets $2,000,000

It is determined that the fair value of the Hall division is$2,100,000. The recorded amount for Hallâs net assets (excludinggoodwill) is the same as fair value, except for property, plant,and equipment, which has a fair value of $200,000 above thecarrying value.

Instructions

(a) Compute theamount of goodwill recognized, if any, on May 31, 2013.

(b) Determine theimpairment loss, if any, to be recorded on December 31, 2013.

(c) Assume thatthe fair value of the Hall division is $1,950,000 instead of$2,100,000. Prepare the journal entry to record the impairmentloss, if any, on December 31, 2013.

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Assume an investee has the following financial statement information for the three years ending December 31, 2013:

(At December 31)	2011	2012	2013
Current assets	$310,500	$416,550	$428,205
Tangible fixed assets	844,500	861,450	992,595
Intangible assets	75,000	67,500	60,000
Total assets	$1,230,000	$1,345,500	$1,480,800

Current liabilities	$150,000	$165,000	$181,500
Noncurrent liabilities	330,000	363,000	399,300
Common stock	150,000	150,000	150,000
Additional paid-in capital	150,000	150,000	150,000
Retained earnings	450,000	517,500	600,000
Total liabilities and equity	$1,230,000	$1,345,500	$1,480,800

(At December 31)	2011	2012	2013
Revenues	$1,275,000	$1,380,000	$1,455,000
Expenses	1,162,500	1,260,000	1,314,000
Net income	$112,500	$120,000	$141,000

Dividends	$37,500	$52,500	$58,500

Review of pre-consolidation cost method (controlling investment in affiliate, fair value equals book value)
Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "investment in investee" account in the investor company's preconsolidation balance sheet on December 31, 2013?

A. $900,000

B. $750,000

C. $675,000

D. $1,480,800

Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's preconsolidation income statement for the year ended December 31, 2013?

A. $141,000

B.$82,500

C. $58,500

D. $112,500

Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $150,000 higher than the investee's recorded book value. The tangible fixed assets had a remaining useful life of 10 years. In addition, the acquisition resulted in goodwill in the amount of $300,000 recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's pre-consolidation income statement for the year ended December 31, 2013?

A. $126,000

B. $82,500

C. $67,500

D. $141,000

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ACCT 1B Lecture Notes - Lecture 27: Controlling Interest, Deferred Tax, Leveraged Buyout

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