In this document of ACC 440 Week 2 Learning Team Assignment Ch. 1 Textbook Exercises you will find the next information:
E1-2
Multiple-Choice Questions on Recording Business
Combinations [AICPA Adapted]
Select the correct answer for each of the following questions.
1. Goodwill represents the excess of the sum of the consideration given over the:
2. In a business combination, costs of registering equity securities to be issued by the acquiring company are a(n):
3. Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock?
4. In a business combination, the fair value of the identifiable net assets acquired exceeds the fair value of the consideration given. The excess should be reported as a:
5. A and B Companies have been operating separately for five years. Each company has a minimal amount of liabilities and a simple capital structure consisting solely of voting common stock. A Company, in exchange for 40 percent of its voting stock, acquires 80 percent of the common stock of B Company. This is a “tax-free” stock-for-stock (type B) exchange for tax purposes. B Company assets have a total net fair market value of $800,000 and a total net book value of $580,000. The fair market value of the A stock used in the exchange is $700,000 and the fair value of the no controlling interest is $175,000. The goodwill reported following the acquisition would be:
a. Zero.
b. $60,000.
c. $75,000.
d. $295,000.
P1-31
Journal Entries to Record a Business Combination
On January 1, 20X2, Frost Company acquired all of TKK Corporation’s assets and liabilities by issuing 24,000 shares of its $4 par value common stock. At that date, Frost shares were selling at $22 per share. Historical cost and fair value balance sheet data for TKK at the time of acquisition were as follows:
Balance Sheet Item Historical Cost Fair Value
Cash and Receivables $ 28,000 $ 28,000
Inventory 94,000 122,000
Buildings and Equipment 600,000 470,000
Less: Accumulated Depreciation (240,000)
Total Assets $482,000 $620,000
Accounts Payable $ 41,000 $ 41,000
Notes Payable 65,000 63,000
Common Stock ($10 par value) 160,000
Retained Earnings 216,000
Total Liabilities and Equities $482,000
Frost paid legal fees for the transfer of assets and liabilities of $14,000. Frost also paid audit fees of $21,000 and listing application fees of $7,000, both related to the issuance of new shares.
Required
Prepare the journal entries made by Frost to record the business combination
