SOLUTION MANUAL
Advanced Accounting, 13th edition
M
By Floyd Beams, Joseph Anthony
PR
ES
SI
VE
G
R
AD
ES
, Table of Content
Business Combinations
Stock Investments–Investor Accounting and Reporting
An Introduction to Consolidated Financial Statements
M
Consolidation Techniques and Procedures
Intercompany Profit Transactions–Inventories
Intercompany Profit Transactions–Plant Assets
PR
Intercompany Profit Transactions–Bonds
Consolidations–Changes in Ownership Interests
Indirect and Mutual Holdings
ES
Subsidiary Preferred Stock, Consolidated Earnings per Share, and Consolidated Income
Taxation
Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
Derivatives and Foreign Currency: Concepts and Common Transactions
SI
Accounting for Derivatives and Hedging Activities
Foreign Currency Financial Statements
VE
Segment and Interim Financial Reporting
Partnerships–Formation, Operations, and Changes in Ownership Interests
Partnership Liquidation
Corporate Liquidations and Reorganizations
G
An Introduction to Accounting for State and Local Governmental Units
Accounting for State and Local Governmental Units–Governmental Funds
R
Accounting for State and Local Governmental Units–Proprietary and Fiduciary Funds
Accounting for Not-for-Profit Organizations
AD
Estates and Trusts
ES
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Chapter 1
BUSINESS COMBINATIONS
M
Answers to Questions
1 A business combination is a union of business entities in which two or more previously separate and
independent companies are brought under the control of a single management team. Three situations
PR
establish the control necessary for a business combination, namely, when one or more corporations become
subsidiaries, when one company transfers its net assets to another, and when each combining company
transfers its net assets to a newly formed corporation.
2 The dissolution of all but one of the separate legal entities is not necessary for a business combination. An
example of one form of business combination in which the separate legal entities are not dissolved is when
one corporation becomes a subsidiary of another. In the case of a parent-subsidiary relationship, each
ES
combining company continues to exist as a separate legal entity even though both companies are under the
control of a single management team.
3 A business combination occurs when two or more previously separate and independent companies are
brought under the control of a single management team. Merger and consolidation in a generic sense are
frequently used as synonyms for the term business combination. In a technical sense, however, a merger is
a type of business combination in which all but one of the combining entities are dissolved and a
SI
consolidation is a type of business combination in which a new corporation is formed to take over the
assets of two or more previously separate companies and all of the combining companies are dissolved.
4 Goodwill arises in a business combination accounted for under the acquisition method when the cost of the
investment (fair value of the consideration transferred) exceeds the fair value of identifiable net assets
VE
acquired. Under GAAP, goodwill is not amortized for financial reporting purposes and will have no effect
on net income, unless the goodwill is deemed to be impaired. If goodwill is impaired, a loss will be
recognized.
5 A bargain purchase occurs when the acquisition price is less than the fair value of the identifiable net assets
acquired. The acquirer records the gain from a bargain purchase as an ordinary gain during the period of the
acquisition. The gain equals the difference between the investment cost and the fair value of the identifiable
net assets acquired.
G
R
AD
ES
Copyright © 2018 Pearson Education, Inc.
1-1
, SOLUTIONS TO EXERCISES
Solution E1-1
M
1 a
2 b
3 a
4 d
PR
Solution E1-2 [AICPA adapted]
1 a
Plant and equipment should be recorded at the $220,000 fair value.
2 c
ES
Investment cost $1,600,000
Less: Fair value of net assets
Cash $ 160,000
Inventory 380,000
Property and equipment — net 1,120,000
Liabilities (360,000) 1,300,000
SI
Goodwill $ 300,000
Solution E1-3
VE
Stockholders’ equity — Pop Corporation on January 3
Capital stock, $10 par, 600,000 shares outstanding $ 6,000,000
Other paid-in capital
[$400,000 + $3,000,000 – $10,000] 3,390,000
Retained earnings [$1,200,000 - $20,000] 1,180,000
G
Total stockholders’ equity $10,570,000
Entry to record combination
R
Investment in Son 6,000,000
Capital stock, $10 par 3,000,000
Other paid-in capital 3,000,000
AD
Investment expense 20,000
Other paid-in capital 10,000
Cash 30,000
Check: Net assets per books (book value) $ 7,600,000
Goodwill and write-up of assets 3,000,000
Less: Expense of direct costs
ES
(20,000)
Less: Issuance of stock
(10,000)
$10,570,000
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Advanced Accounting, 13th edition
M
By Floyd Beams, Joseph Anthony
PR
ES
SI
VE
G
R
AD
ES
, Table of Content
Business Combinations
Stock Investments–Investor Accounting and Reporting
An Introduction to Consolidated Financial Statements
M
Consolidation Techniques and Procedures
Intercompany Profit Transactions–Inventories
Intercompany Profit Transactions–Plant Assets
PR
Intercompany Profit Transactions–Bonds
Consolidations–Changes in Ownership Interests
Indirect and Mutual Holdings
ES
Subsidiary Preferred Stock, Consolidated Earnings per Share, and Consolidated Income
Taxation
Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
Derivatives and Foreign Currency: Concepts and Common Transactions
SI
Accounting for Derivatives and Hedging Activities
Foreign Currency Financial Statements
VE
Segment and Interim Financial Reporting
Partnerships–Formation, Operations, and Changes in Ownership Interests
Partnership Liquidation
Corporate Liquidations and Reorganizations
G
An Introduction to Accounting for State and Local Governmental Units
Accounting for State and Local Governmental Units–Governmental Funds
R
Accounting for State and Local Governmental Units–Proprietary and Fiduciary Funds
Accounting for Not-for-Profit Organizations
AD
Estates and Trusts
ES
, jhgfdsa
Chapter 1
BUSINESS COMBINATIONS
M
Answers to Questions
1 A business combination is a union of business entities in which two or more previously separate and
independent companies are brought under the control of a single management team. Three situations
PR
establish the control necessary for a business combination, namely, when one or more corporations become
subsidiaries, when one company transfers its net assets to another, and when each combining company
transfers its net assets to a newly formed corporation.
2 The dissolution of all but one of the separate legal entities is not necessary for a business combination. An
example of one form of business combination in which the separate legal entities are not dissolved is when
one corporation becomes a subsidiary of another. In the case of a parent-subsidiary relationship, each
ES
combining company continues to exist as a separate legal entity even though both companies are under the
control of a single management team.
3 A business combination occurs when two or more previously separate and independent companies are
brought under the control of a single management team. Merger and consolidation in a generic sense are
frequently used as synonyms for the term business combination. In a technical sense, however, a merger is
a type of business combination in which all but one of the combining entities are dissolved and a
SI
consolidation is a type of business combination in which a new corporation is formed to take over the
assets of two or more previously separate companies and all of the combining companies are dissolved.
4 Goodwill arises in a business combination accounted for under the acquisition method when the cost of the
investment (fair value of the consideration transferred) exceeds the fair value of identifiable net assets
VE
acquired. Under GAAP, goodwill is not amortized for financial reporting purposes and will have no effect
on net income, unless the goodwill is deemed to be impaired. If goodwill is impaired, a loss will be
recognized.
5 A bargain purchase occurs when the acquisition price is less than the fair value of the identifiable net assets
acquired. The acquirer records the gain from a bargain purchase as an ordinary gain during the period of the
acquisition. The gain equals the difference between the investment cost and the fair value of the identifiable
net assets acquired.
G
R
AD
ES
Copyright © 2018 Pearson Education, Inc.
1-1
, SOLUTIONS TO EXERCISES
Solution E1-1
M
1 a
2 b
3 a
4 d
PR
Solution E1-2 [AICPA adapted]
1 a
Plant and equipment should be recorded at the $220,000 fair value.
2 c
ES
Investment cost $1,600,000
Less: Fair value of net assets
Cash $ 160,000
Inventory 380,000
Property and equipment — net 1,120,000
Liabilities (360,000) 1,300,000
SI
Goodwill $ 300,000
Solution E1-3
VE
Stockholders’ equity — Pop Corporation on January 3
Capital stock, $10 par, 600,000 shares outstanding $ 6,000,000
Other paid-in capital
[$400,000 + $3,000,000 – $10,000] 3,390,000
Retained earnings [$1,200,000 - $20,000] 1,180,000
G
Total stockholders’ equity $10,570,000
Entry to record combination
R
Investment in Son 6,000,000
Capital stock, $10 par 3,000,000
Other paid-in capital 3,000,000
AD
Investment expense 20,000
Other paid-in capital 10,000
Cash 30,000
Check: Net assets per books (book value) $ 7,600,000
Goodwill and write-up of assets 3,000,000
Less: Expense of direct costs
ES
(20,000)
Less: Issuance of stock
(10,000)
$10,570,000
jhgfdsagfds
