Lauren Corporation acquired Sarah, Inc., on January 1, 2009, by issuing 13,000 s

Question

Lauren Corporation acquired Sarah, Inc., on January 1, 2009, by issuing 13,000 shares of common stock with a $10 per share par value and a $23 market value. This transaction resulted in recording $62,000 of goodwill. Lauren also agreed to compensate Sarah's former owners for any difference if Lauren's stock is worth less than $23 on January 1, 2010. On January 1, 2010, Lauren issues an additional 3,000 shares to Sarah's former owners to honor the contingent consideration agreement. Under SFAS 141R, which of the following is true? a. The fair value of the expected number of shares to be issued for the contingency increases the Goodwill account balance at the date of acquisition. b. The Investment account balance is not affected, but the parent's Additional Paid-In Capital is reduced by the par value of the extra 3,000 shares when issued. c. All of the subsidiary's asset and liability accounts must be revalued for consolidation purposes based on their fair values as of January 1, 2011. d. The additional shares are assumed to have been issued on January 1, 2009, so that a retrospective adjustment is required. (Hoyle 123) Hoyle, Joe Ben. Fundamentals of Advanced Accounting with Dynamic Accounting PowerWeband CPA Success SG Coupon, 3rd Edition. McGraw-Hill Learning Solutions, 2009. .

Explanation / Answer

Wilkom Corporation bought 100% of Szabo, Inc., on January 1, 2009, at a price in excess of subsidiary’s fair value. On that date, Wilkom’s equipment, (10-year life) has a book value of $300,000 but a fair value of $400,000. Szabo has equipment (10-year life) with book value of $200,000 but fair value of $300,000. Wilkom uses partial equity method to record its investment in Szabo. On December 31, 2011, Wilkom has equipment with a book value of $210,000 but a fair value of $330,000. Szabo has equipment with a book value of $140,000, but a fir value of $270,000. What is the consolidated balance for the equipment account as of December 31, 2011? D- $420,000 Willkom equipment book value—12/31/11 $210,000 Szabo book value—12/31/11 140,000 Original purchase price allocation to Szabo's equipment ($300,000 – $200,000) 100,000 Amortization of allocation ($100,000/10 years for 3 years) (30,000) Consolidated equipment $420,000 6. According to SFAS 142, “Goodwill and other tangible assets”, goodwill must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount which of the following is true? B – A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value. a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds it carrying amount. b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value. c. A goodwill impairment loss is recognized for the difference between the reporting unit’s fair value and carrying amount. d. The reporting unit reduces the values assigned to its long term assets (including any unrecognized intangibles) to reflect its fair value. 9. Lauren Corporation acquired Sarah, Inc., on January 1, 2009 by issuing 13,000 shares of common stock with a $10 per share par value and a $23 market value. This transaction resulted in recording $62,000 of goodwill. Lauren also agreed to compensate Sarah’s former owners for any difference if Lauren’s stock is worth less than $23 on January 1, 2010. On January 1, 2010, Lauren issues an additional 3,000 shares of Sarah’s former owners to honor the contingent consideration agreement. Under SFAS 141R, which of the following is true? A and B are true. a) The fair value of the expected number of shares to be issued for the contingency increase the goodwill account balance at the date of acquisition. b) The investment account balance is not affected, but the parent’s additional paid-in-capital is reduced by the par value of the extra 3,000 shares when issued. c) All of the subsidiary’s assets and liabilities accounts must be revalued for consolidation purposes based on their fair values as of January 1, 2011. d) The additional shares are assumed to hav

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