Business Combination

Question 1

Signif8cant influence - conditions?

Answer 1

1. Investor has to reperesent the board of directors
2. Participate in policy making
3. There has to be material transaction between investor and investee.
   4 Technological dependence by the investee on the investor
   5 No other investor has material ownership on the investee.

Question 2

How to account acquisition cost of net assets in business combination.

Answer 2

Expensed in the period in which it is incurred. As per ASC 805

Question 3

FAR2H503

On December 30, Cathing Co. acquired the equipment of Bali Co. in exchange for a noninterest-bearing note requiring 5 annual payments of $20,000. Cathing made the first payment on December 30. The interest rate of similar notes at the date of issuance was 5%. Use the following present value factors:
Number of Periods 5
Present Value of $1 at 5% - 0.78
PV of Annuity of $1 at 5% - 4.33

Number of Periods 4
Present Value of $1 at 5% - 0.82
PV of Annuity of $1 at 5% - 3.5

What amount should Cathing report as note payable as of December 31?

Answer 3

Cathing made the first payment on December 30 - so AP to be calculated only for 4 periods. Payment to be made Annually so so use PV of Annuity of $1 at 5% - 3.5 - 4 periods.

Ans 20,000X3.5 = 70,000

Question 4

Diff btwn equity and fair value method

Answer 4

Equity method _ should have sig inf. > 20% ownership. Investees increase in NI And Dividend Income increases the investment

Under Fair value option changes in the FV of the investment (stock price) will be reflected in income for the period, and any dividend received are reflected in the income for the period. It doesnt have any investment impact

Question 5

FAR1B001aicpa

Jane Co. owns 90% of the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On December 30, Dun and Beech each declared a cash dividend of $100,000 for the current year. What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech?

Answer 5

The 90% of Dun dividends and the 100% of Beech dividends will be eliminated in the consolidated financial statements of Jane. Therefore, only the 10% or $10,000 of Dun dividends that were paid to outside investors will appear in the consolidated financials.

Question 6

Bale co incurred 100000 of acquisition cost related to purchase of NA in dixon co.. The 100000 should be

Answer 6

As per sec 805 acquisition cost related to business combination has to be expensed the period in which it is incurred.

Question 7

How should an acquirer recognise a bargaining purchase option in a business acquisition

Answer 7

A gain in acquisition at the acquisition date.

Question 8

In a business combination, the closing date is the same as which of the following:
1 Settlement date
2 Acquisition date
3 Recording date
4 Planning date

Answer 8

The date on which the acquirer gains control of the acquired business, this is the closing date, which is officially the acquisition date.