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Consolidated Financial Accounting Assignment

Free Company acquired Dom, Inc. for $495,000 cash. Dom will remain a separate legal entity. Several of Dom's accounts have fair values that differ from book values, and it has unrecorded internally developed assets. Niqu Company acquired all of Bay Company's assets and liabilities for cash. At acquisition, several accounts had differing book and fair values. Denzel paid $300,000 cash for all of Sam Company's assets and liabilities. Sam will cease to exist. Several of Sam's accounts had differing book and fair values or unrecorded assets. Denzel must record the acquisition using the acquisition method of accounting.

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20 views2 pages

Consolidated Financial Accounting Assignment

Free Company acquired Dom, Inc. for $495,000 cash. Dom will remain a separate legal entity. Several of Dom's accounts have fair values that differ from book values, and it has unrecorded internally developed assets. Niqu Company acquired all of Bay Company's assets and liabilities for cash. At acquisition, several accounts had differing book and fair values. Denzel paid $300,000 cash for all of Sam Company's assets and liabilities. Sam will cease to exist. Several of Sam's accounts had differing book and fair values or unrecorded assets. Denzel must record the acquisition using the acquisition method of accounting.

Uploaded by

Enat Endawoke
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Rift Valley University

Advanced Financial Accounting

Individual Assignment

Instruction: Answer the following questions clearly and neatly s required.

1. Free Company acquired all of Dom, Inc.’s outstanding shares on December 31, 2011, for
$495,000 cash. Free will operate Dom as a wholly owned subsidiary with a separate legal and
accounting identity. Although many of Dom’s book values approximate fair values, several of its
accounts have fair values that differ from book values. In addition, Dom has internally developed
assets that remain unrecorded on its books. In deriving the acquisition price, Free assessed
Dom’s fair and book value differences as follows:

At December 31, 2011, the following financial information is available for consolidation:

Prepare a consolidated balance sheet for Free and Dom as of December 31, 2011.

2. Niqu Company acquires all Bay Company’s assets and liabilities for cash on January 1, 2011, and
subsequently formally dissolves Bay. At the acquisition date, the following book and fair values
were available for the Bay Company accounts:

1
Using the acquisition method, prepare Niqu’s entry to record its acquisition of Bay in its
accounting records assuming the following cash exchange amounts:
a. $145,000.
b. $110,000
3. On June 30, 2011, Sam Company reported the following account balances:

On June 30, 2011, Denzel paid $300,000 cash for all assets and liabilities of Sam, which will cease
to exist as a separate entity. In connection with the acquisition, Denzel paid $10,000 in legal
fees. Denzel also agreed to pay $50,000 to the former owners of Sam contingent on meeting
certain revenue goals during 2012. Denzel estimated the present value of its probability
adjusted expected payment for the contingency at $15,000.

In determining its offer, Denzel noted the following pertaining to Sam:

 It holds a building with a fair value $40,000 more than its book value.
 It has developed a customer list appraised at $22,000, although it is not recorded in its
financial records.
 It has research and development activity in process with an appraised fair value of $30,000.
However, the project has not yet reached technological feasibility and the assets used in the
activity have no alternative future use.
 Book values for the receivables, inventory, equipment, and liabilities approximate fair
values.

Prepare Denzel’s accounting entry to record the combination with Sam using the Acquisition
method.

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