AKL1 Tugas
AKL1 Tugas
AKL1 Tugas
041911333141
AKL 1
2. Is dissolution of all but one of the separate legal entities necessary in order to have a
business combination? Explain
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 combining company continues to exist as a separate legal entity even
though both companies are under the control of a single management team.
3. What are the legal distinctions between a business combination, a merger, and a
consolidation?
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 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.
SOLUTION E1-2
1. (A) Plant and equipment should be recorded at the $220,000 fair value.
2. (C) 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
Goodwill $ 300,000
SOLUTION P1-1
To record issuance of 500,000 shares of $10 par common stock plus $1,000,000 cash in a
business combination with Sung Ltd.
To assign the cost of Sung Ltd to identifiable assets acquired and liabilities assumed on
the basis of their fair values and to recognize the gain from a bargain purchase.