Session A07 - preclass handout F14 - SESSION A7 RECORDING BUSINESS COMBINATIONS Poorly Behaved AAP Exercise A7-4 On January 1 2013 Petulant Company

Session A07 - preclass handout F14 - SESSION A7 RECORDING...

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S ESSION A7: R ECORDING B USINESS C OMBINATIONS Poorly Behaved AAP Exercise A7-4 On January 1, 2013, Petulant Company acquired 25,000 shares of the outstanding common stock of Splenetic Corporation by issuing Petulant common stock ($2 par value) to Splenetic stockholders in a 1:1 ratio. The market price of Petulant stock on the date of acquisition is $50 per share. As part of the acquisition, Petulant agreed to pay (on March 15, 2011) an extra $20 per share to Splenetic’s selling shareholders if Splenetic’s operations achieved $500,000 in net income during the year ended December 31, 2013. The fair value of this provision is $11 per share on January 1, 2013. Splenetic only earned $475,000 in net income during the year ended December 31, 2013, so the earn-out expired worthless. On December 10, 2012, Splenetic had declared a cash dividend of $1 per share to be paid at February 1, 2013 for stockholders of record at January 8, 2013. The stockholders equity section of Splenetic at January 1, 2013 is:
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  • Fall '15
  • MarcP.Picconi
  • Accounting, Business, Generally Accepted Accounting Principles, Splenetic, Poorly Behaved AAP, Exercise A7-4

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