Chapter 16 - Solution Manual

339 case 16 2 a whit company should allocate the

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339 Case 16-2 a. Whit Company should allocate the purchase price to the assets acquired and liabilities assumed. First, all identifiable assets acquired, either individually or by type, and liabilities assumed in the business combination, whether or not shown in the financial statements of Berry Company, should be assigned a portion of the cost of Berry Company, normally equal to their fair values at the date of acquisition. Goodwill is determined as the excess of the purchase price over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed. b. In deciding upon consolidation policy, the aim should be to make the financial presentation that is most meaningful in the circumstances. Berry Company should be included in the entity's consolidated financial statements from the date of the purchase. The usual condition for consolidation is control as evidenced by ownership of a majority voting interest. Therefore, as a general rule, ownership by one company, directly or indirectly, of over fifty percent of the outstanding voting shares of another company is a condition pointing toward consolidation. Case 16-3 a. Under FASB ASC 280,t here are three basic tests to be applied to segments of an industry to see if they are significant enough to be separately reportable. If a segment meets any one of the tests it is deemed significant and reportable. The first test is based upon revenue. If a segment's revenue from sales to unaffiliated customers and intersegment sales and transfers is equal to 10 percent or more of the enterprise's combined revenues, the segment is reportable. The second test is based upon operating profits or losses. There are two subtests in this category based upon absolute amounts of operating profits or losses. A segment is deemed reportable if the operating profit or loss shown by the segment is equal to or greater than 10 percent of the higher of the following two absolute amounts: (a) Sum of all operating profits for all segments reporting operating profits. (b) Sum of all operating losses for all segments reporting operating losses. Third, a segment is significant and reportable if the identifiable assets of the segment equal or exceed 10 percent of the combined identifiable assets of all of the industry segments within the enterprise. Finally, all segments, whether deemed reportable or not, must be reviewed from the standpoint of interperiod comparability, because the primary purpose of presenting segment information is to aid the financial statement reader. b. Statement of Financial Accounting Standards No. 14 states that enough industry segments must be separately reported so that the total of revenues from sales to unaffiliated customers for the reportable segments equals or exceeds 75 percent of the combined revenues from sales to
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340 unaffiliated customers for the entire enterprise. If applying the prescribed tests does not yield the required percentage of revenues described above, additional segments must be reported on until the 75 percent test is met. The Financial Accounting Standards Board has stated that if an
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