Chapter 1 - Intercorporate Acquisitions & Investments in other entitties

Question 1

Transferring Assets to Subsidiary

Answer 1

Use COST

*Don’t forget: Difference b/w Cost & BV is ACCUMULATED DEPRECIATION for Buildings & Equipment

Question 2

Subsidiary: Receipt of Assets & Liabilities

Answer 2

Accept at BOOK VALUE

• Don’t forget to break out
• Buildings & Equipment between cost & depreciation
• Allowance for Doubtful Accounts

Question 3

Book Value of Assets

Answer 3

Includes Contra Assets (Accumulated Depreciation, etc.)

Question 4

Value of an investment after a transfer

Answer 4

Equals Common Stock and APIC of the subsidiary

Question 5

Increase/ Decrease in Total Assets

Answer 5

BV of Total Assets - Investment in Subsidiary

Question 6

Merger Expenses

Answer 6

• Legal Fees for the transfer of Assets

Dr. Merger Expenses
Cr. Cash

Question 7

Record the costs of issuing stock

Answer 7

Dr. Deferred Stock Issuance Costs

Cr. Cash

Question 8

Record Purchase of Subsidiary (Parent’s J/E)

Answer 8

Acquire assets of Subsidiary @ FAIR VALUE (not cost)

Goodwill = Consideration - NIA

*Don’t forget to CR “Deferred Stock Issue Costs” when recording purchase

Question 9

Equity Method

Answer 9

Acquire more than 20% of shares

*Parent will report the same amount for Retained Earnings

Question 10

Calculating Depreciation of Subsidiary’s Assets after combination

Answer 10

Use FAIR VALUE