F3- Acquisition Method.

Question 1

in business combination, consulting fee and registration for equity security issues belong to expense incurred?

Answer 1

fees of finders and consutant belong to expense in period incurred. registration fee of equity security issue stock holder equity (additional paid-in capital).

Question 2

what is the application formula of acquisition method?

Answer 2

fair value = acquisition price = investment in subsidiary.

Question 3

explain 2 characteritic acoounting method of acquisition method?

Answer 3

1. 100% of net asset acquired (regaredless of % acquired) are record as fair value, and any unallocated amount becomes goodwill.
2. When consolidated the sub’s equity (common stock, retain earning..) is eliminated (not report).

Question 4

Memorize “CAR INＢＩＧ”. what is that means?

Answer 4

CAR = common stock, A.P.I.C, and retain earning are eliminated (sub’s old book value), all eliminated CAR will debit on consolidated paperwork.
IN = 1. investment in sub is eliminated. credit will post on consolidated paperwork.
2. noncontrolling interest(NCI) is created (if not 100% owned) then this will be reported on seperate parent paper.
BIG = B, balance sheet is adjusted to fair value (100% asset & liability to fair value) even the parent acquire less then 100% of sub.
I = identifiable intangible assets of sub are record as their fair value.
G = goodwill or (gain) is required. If acquiring sub, the cost is higher than the fair value, then it is goodwill. if the acquisition cost is lower than the fair value, then it is gain.

Question 5

what is the general rule of assigning amounts to the inventories acquired？

Answer 5

With acquisition accounting the net assets acquired are based on fair market value. The fair value of finished goods and merchandise inventory are based upon the estimated selling price less disposal costs and a reasonable profit allowance.

Question 6

explain what’s goodwill in acquisition method?

Answer 6

goodwill is the excess amount of FV of the Sub over the fair market value of the net asset acquired.

Question 7

in the consolidated balance sheet prepared immediately after the acquisition, the consolidated stockholder’s equity should amount to :

Answer 7

common stock+retained earning(shareholder’s equity). at date of acquisition, the consolidated equity should be same as parent company’s plus the noncontrolling interest. the sub’s equity account is eliminated.

Question 8

Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquisition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?

Answer 8

When the acquisition price exceeds the fair value of net assets acquired, assets and liabilities should be presented at fair value.

Question 9

what happened in retained earning when consolidated under the acquisition method?

Answer 9

Consolidated retained earnings are the same as the parent company retained earnings, when financial statements are consolidated under the acquisition method.

Question 10

what happened in net income when consolidated under the acquisition method?

Answer 10

Consolidated net income is the same as parent company net income, when the equity method is used.

Question 11

On November 30, Year 1, Parlor, Inc. purchased for cash at $15 per share all 250,000 shares of the outstanding common stock of Shaw Co. At November 30, Year 1, Shaw’s balance sheet showed a carrying amount of net assets of $3,000,000. At that date, the fair value of Shaw’s property, plant and equipment exceeded its carrying amount by $400,000. In its November 30, Year 1, consolidated balance sheet, what amount should Parlor report as goodwill under U.S. GAAP?

Answer 11

Under U.S. GAAP, Goodwill is recorded in the acquisition. It is the fair value(purchase price) of the subsidiary less the fair market value of the net assets acquired. goodwill is the difference between the fair value of the subsidiary of $3,750,000 ($15 × $250,000) and fair market value of the net assets acquired, $3,400,000. $3,750,000 − $3,400,000 = $350,000.

Question 12

how to report NCI (noncontrolling Interest) to the consolidated report?

Answer 12

We must report NCI in consolidated EQUITY. The consolidated balance sheet will include 100% of sub’s asset and liabilities (no shareholder’s equity, no CAR). the NCI of sub’s share of asset need present on BS as shareholder’s equity, separately from parent’s equity.

Question 13

How to calculate NCI (noncontrolling Interest)?

Answer 13

1st - Acquisition date computation: FV of Sub * NCI interest % (% of not acquiring shares.)
2nd -

Question 14

what is the formula of IFRS’s partial goodwill method?

Answer 14

goodwill = acquisition cost - fair value of net assets acquired.

Question 15

How to calculate the fair value of the net asset?

Answer 15

The book value + FV adjustment (any amount was higher or lower the book value) + identifiable intangible ( FV of noncomplete agreement).

Question 16

how to calculate NCI(noncontrolling interest)?

Answer 16

under GAAP, NCI is calculated as: FV of Sub * % of NCI.

Or FV of Sub - acquisition cost.

Question 17

one more time, how to calculate goodwill?

Answer 17

acquisition cost minus FV of sub’s net asset acquired.
FV of net asset = current asset + PP&E + amount of excess or shortage of carrying value - liabilities. Do not count stockholder equity.

Question 18

How to calculate goodwill?

Answer 18

FV of sub minus FV of sub’s identifiable net assets.

Question 19

how to calculate the FV adjustment to balance sheet?

Answer 19

FV of sub’s identifiable net asset minus book value of the Sub.

Question 20

how to calculate NCI under “Full goodwill method”?

Answer 20

FV of Sub * NCI %.

Question 21

how to calculate NCI under “partial Goodwill Method”?

Answer 21

FV of sub’s NET IDENTIFIABLE ASSET * NCI%.

Question 22

how to calculate retained earning?

Answer 22

BE CAREFUL OF THE DATE THEY ARE ASKING.

Question 23

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company’s consolidated balance sheet?

Answer 23

no effect on retained earnings and a decrease in noncontrolling interest (NCI). However, 30% of the dividend would be paid to the noncontrolling shareholders and would reduce noncontrolling interest on the consolidated balance sheet because under the equity method, the ending noncontrolling interest is calculated as follows:
Beginning noncontrolling interest
\+ NCI share of subsidiary net income
- NCI share of subsidiary dividends
Ending noncontrolling interest

Question 24

Under IFRS, how to calculate partial goodwill method?

Answer 24

goodwill = acquisition method - FV of net assets acquired.

Question 25

how to record sub’s consolidated assets to parent balance sheet?

Answer 25

100% of the FV of Sub’s asset be recognized. therefore, the FV of sub’s asset must report with parent’s book plant value.

Question 26

how to calculate FV of Sub under acquisition method?

Answer 26

The acquisition cost (purchasing price) + NCI at FV.

Question 27

How to calculate Goodwill?

Answer 27

Goodwill is calculated as FV of SUb - FV of sub’s net assets (including FV of identifiable intangible assets).