Solution to Subsequent to the Date of Business Combination (Ch 3)(1)

Solution to Subsequent to the Date of Business Combination (Ch 3)(1)

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Ch 3: Subsequent to the Date of Acquisition (100% ownership) ACCT 501, SP 12 1) Example 1: Accounting for Parent to record Investment - Equity Method Suppose Panda obtained 100% of Snail’s outstanding common stock on January 1, 2010, by issuing 1,000,000 shares of $15 par value common stock. Panda’s shares had a $75 per share fair value. Snail’s book value is $10 million. Book and fair values are the same except for equipment with fair value $15 million higher than book value. Snail has unreported identifiable intangibles valued at $2 million. Assume that Panda uses the equity method to account for its investment. Information for on the date of acquisition: Required: A). Is it goodwill or gain on bargain purchase recognized from this acquisition? What is the amount? Snail’s fair value (Consideration transferred by Panda) $75,000,000 Book value of Snail 10,000,000 Excess of fair value over Snail's book value 65,000,000 Allocation of Differences between fair value and book value: Equipment $15,000,000 Identifiable intangibles 2,000,000 17,000,000 Goodwill $48,000,000 Required: B). how should Panda record its acquisition of Snail’s common stock? Dr: Investment in Snail $75,000,000 Cr: Common Stock 15,000,000 Cr: APIC 60,000,000
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Ch 3: Subsequent to the Date of Acquisition ACCT 501, SP 12 2 Information for one year after the acquisition: Snail reports net income of $5 million and declares and pays cash dividends of $1 million to Panda in 2010. Revalued equipment has a remaining life of 20 years. Identifiable intangibles have 4 years of remaining life. Straight-line depreciation and amortization is used. Goodwill is not impaired. Panda prepares its internal reporting for the year ending December 31, 2010. Required: C). Determine the Annual Excess Amortization expense. Account Allocation Useful Life Annual Excess Amortization . Equipment $15,000,000 20 years $750,000 Identifiable intangibles $2,000,000 4 years 500,000 $1,250,000 Required: D). What is Panda’s Equity in Income balance in Snail for 2010? Snail's reported income for 2010 $5,000,000. Adjustments for excess amortization: Equipment (750,000) Identifiable intangibles (500,000) Equity in income of Snail $3,750,000
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Ch 3: Subsequent to the Date of Acquisition ACCT 501, SP 12 3 Required: E). how should Panda record its share of Snail’s net income for 2010?
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This note was uploaded on 02/22/2012 for the course ACCT 501 taught by Professor Ma during the Spring '11 term at South Carolina.

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Solution to Subsequent to the Date of Business Combination (Ch 3)(1)

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