Chapter_5_hw - Other current assets $140,000 Plant Assets...

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CHAPTER 5 BUSINESS COMBINATIONS ANSWERS TO REVIEW QUESTIONS 2. A statutory merger is a business combination that is consummated in accordance with applicable state law. In a merger, one corporation the “survivor” acquires all the outstanding common stock of one or more other corporations, which are then liquidated. A statutory consolidation is similar to a merger in that it is consummated in accordance with applicable state law and involves the acquisition of two or more corporations' outstanding common stock. However, the survivor in a consolidation is a new corporation rather than an existing one. SOLUTIONS TO EXERCISES Ex. 5–3 Computation of amount of goodwill in the business combination of Master Corporation and Geo Company, Mar. 31, 2005: Total cost to Master of Geo's net assets except cash ($700,000 + $100,000) $800,000 Less: Current fair value of Geo's identifiable net assets:
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Unformatted text preview: Other current assets $140,000 Plant Assets 920,000 Current liabilities (80,000) Long-term debt (190,000 ) 790,000 Amount of goodwill $ 10,000 CASES Case 5–1 Solamente Corporation's accounting for the out-of-pocket costs of the business combination with Mika Company does not comply with generally accepted accounting principles. Direct out-of-pocket costs incurred by a combinor in a combination are included in the total cost of the combinee. Legal fees and other out-of-pocket costs of the combination paid by Mika on behalf of Solamente should have been recognized as an account receivable by Mika and an account payable by Solamente; legal and other expenditures on its own behalf with respect to the combination with Solamente should have been recognized as expenses by Mika....
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