LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

LAB 2
BUSINESS COMBINATION

I. Multiple Choice
1. A transaction or other event in which an acquirer obtains control of one or more
business is the definition of... and regulate in PSAK….
a. Business Combination and PSAK 22
b. Consolidation and PSAK 21
c. Merger and PSAK 19
d. Joint Venture and PSAK 12

2. The cost of a 25 percent interest in the voting stock of an investee that is recorded
in the investment account includes:
a. Cash disbursed and the book value of other assets given or securities issued,
other than the cost of registering and issuing equity securities
b. Cash disbursed and the book value of other assets given or securities issued
c. Cash disbursed and the fair value of other assets given or securities issued,
other than the cost of registering and issuing equity securities
d. Cash disbursed and the fair value of other assets given or securities issued

3. The direct cost of a business combination other than those for account legal and
consultant fee are…
a. Added to the parent/investor company’s investment account
b. Record as Investment expense
c. Deducted from income in the period of combination
d. Reduction of additional paid-in capital

DINI – JOSEPHINE – LUMONGGA FATA 2017

LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

4. Mental Corporation acquired Physic Corporation and took over its assets and
operations, at the same time dissolving Physic Corporation. This type of business
combination is considered as a:
a. Consolidation
b. Merger
c. Pooling of interests
d. Subsidiary

5. The pooling of interest method was eliminated for the following reasons, except...
a. Provides less relevant information to statement users
b. Ignores economic value exchanged in the transaction and makes subsequent
performance evaluation impossible
c. Ignores economic value exchanged in the transaction and makes subsequent
performance evaluation possible
d. Comparing firms using the alternative method is difficult for investor

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LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

II. Mini Essay

1. On April 1, 2020, Hexagon Corporation acquired Pentagon Corporation by
issuing 4,500 common shares with par value of $18. The market value for those
common shares was $25 per share at the date of acquisition. Hexagon Corporation
incurred the cost of registering and issuing the securities for $543, cost of printing
the shares for $67, and cost of accountant for the business combination for $390.
Required:
Calculate the additional paid-in capital that should be recorded by Hexagon
Corporation from the transaction!

2. On January 1, Disney Inc. paid $1,164,000 by cash to acquire Marvel Inc. Marvel
Inc. was dissolved after the acquisition. The information of Marvel Inc. net assets
fair value is as follows (in $):
Fair Value Book Value
Cash 237,000 255,000
Account Receivable 388,000 390,000
Inventories 640,000 630,000
Plant Assets 863,000 880,000
Account Payable 249,000 220,000
Notes Payable 606,000 510,000
Required:
Calculate the goodwill or the gain from bargain purchase of the business
combination!

3. Rainbow Inc. issued 515,000 common shares of $13 at par, and paid $1,150,000
for the net assets of Sun Company on September 3rd, 2020. The market value of
Rainbow’s stocks was $24.5 per share. Sun Corporation was dissolved
immediately after the acquisition. In addition, Rainbow incurred the following
costs:
• Legal fees to arrange the business combination $80,000
• Cost of SEC registration $34,000
• Cost of printing and issuing net stock certificates $9,000

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• Indirect costs of combining, including allocated overhead and executive

salaries $84,000

The information related to Sun Corporation’s net assets is as follows (in $000):
Book Value Fair Value
Cash 3,000 3,000
Account Receivable 1,250 1,000
Inventories 4,250 4,000
Plant Assets 17,500 17,000
Account Payable 1,825 2,075
Notes Payable 5,750 6,125
Common stock, $13 par 6,925
Retained Earnings 11,500

Required: Prepare all journal entries to record the acquisition!

DINI – JOSEPHINE – LUMONGGA FATA 2017

LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

III. Grand Essay

Moon Corporation paid $14,000,000 for Star Corporation’s voting common stock on
January 1, 2020, and Star was dissolved. The purchase price consisted of 500,000
shares of Moon’s common stock with a market value of $11,000,000, plus
$3,000,000 cash. In addition, Moon paid $260,000 for registering and issuing the
500,000 shares of common stock and $400,000 for other costs of combination.
Balance sheet information for the companies immediately before the acquisition is
summarized as follows (in $000):
Moon Star
Book Value Book Value Fair Value
Cash 17,300 2,900 2,900
Account Receivable-net 11,000 2,440 2,300
Notes Receivable-net 9,730 1,200 1,200
Inventories 15,000 1,790 1,790
Other Current Assets 10,270 780 750
Land 15,800 1,390 1,840
Buildings-net 45,900 3,600 4,000
Equipment-net 63,000 3,700 3,300
Total Asset $188,000 $17,800 $18,080
Account Payable 12,500 1,000 1,000
Mortgage Payable 38,000 3,200 3,200
Capital Stock, $12 par 60,000 5,200
Additional Paid in Capital 42,400 5,200
Retained Earnings 35,100 3,200
Total Liabilities + Equities $188,000 $17,800

Required:
1. Prepare journal entries for Moon Corporation to record its acquisition of Star
Corporation, including all allocations to individual asset and liability accounts!
2. Prepare a Statement of Financial Position for Moon Corporation on January 1,
2020, immediately after the acquisition and dissolution of Star!

DINI – JOSEPHINE – LUMONGGA FATA 2017

LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

LAB 2
BUSINESS COMBINATION

SOLUTION

I. Multiple Choice
1. A
2. C
3. D
4. B
5. C

II. Mini Essay

1. April 1, 2020 :
Investment in Pentagon Corporation (4,500 × $25) $112,500
Common stock (4,500 × $18) $81,000
Additional Paid-in Capital $31,500

Investment expense (Accountant fee) $390

Additional Paid-in Capital ($543 + $67) $610
Cash $1,000

Additional Paid-in Capital that should be recorded by Hexagon Corporation:

$31,500 - $610 = $30,890

2. Cash $237,000
Account Receivable $388,000
Inventories $640,000
Plant Assets $863,000
Account Payable $249,000
Notes Payable $606,000
Gain from Bargain Purchase $109,000
Investment in Marvel Inc. $1,164,000
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LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

3. Journal entries on Rainbow’s books to record the acquisition (in $)

Investment in Sun {(515,000 x $24.5) + $1,150,000} 13,767,500
Common stock, $13 par 6,695,000
Additional paid-in capital 5,922,500
Cash 1,150,000
(To record issuance of 515,000 shares of $13 par common stock with a fair
value of $24.5 per share for the common stock and $1,150,000 cash of Sun in a
business combination.)

Additional paid-in capital 43,000

Investment expenses 80,000
Salary and overhead expenses 84,000
Cash 207,000
(To record costs of registering and issuing securities as a reduction of paid-in
capital, and record direct and indirect costs of combination as expenses.)

Cash 3,000,000
Account Receivable 1,000,000
Inventories 4,000,000
Plant assets 17,000,000
Account Payable 2,075,000
Notes Payable 6,125,000
Investment in Sun 13,767,500
Gain on Bargain Purchase 3,032,500
(To record allocation of the $13,767,500 cost of Sun Company to identifiable
assets and liabilities according to their fair values and gain on bargain purchase)

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LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

III. Grand Essay

1. Journal Entries in $
Investment in Star 14,000,000
Capital Stock (500,000*12) 6,000,000
Additional Paid-in Capital 5,000,000
Cash 3,000,000

Investment Expense 400,000

Additional Paid-in Capital 260,000
Cash 660,000

Cash 2,900,000
Account Receivable 2,300,000
Notes Receivable 1,200,000
Inventories 1,790,000
Other Current Assets 750,000
Land 1,840,000
Buildings 4,000,000
Equipment 3,300,000
Goodwill 120,000
Account Payable 1,000,000
Mortgage Payable 3,200,000
Investment in Star 14,000,000

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LATIHAN PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2017

2. Statement of Financial Position

Moon Corporation
Statement of Financial Position
At January 1, 20120
(After Business Combination) (in $000)
Assets
Current Assets
Cash (17,300 + 2,900 – 3,000 - 660) 16,540
Account Receivable-net (11,000 + 2,300) 13,300
Notes Receivable-net (9,730 + 1,200) 10,930
Inventories (15,000 + 1,790) 16,790
Other Current Assets (10,270 + 750) 11,020
Total Current Asset 68,580
Plant Assets
Land (15,800 + 1,840) 17,640
Buildings-net (45,900 + 4,000) 49,900
Equipment-net (63,000 + 3,300) 66,300
Total Plant Assets 133,840
Goodwill 120
Total Assets 202,540
Liabilities and Stockholders’ Equity
Liabilities

Account Payable (12,500 + 1,000) 13,500

Mortgage payable, 10% (38,000 + 3,200) 41,200
Total Liabilities 54,700
Stockholders’ Equity
Capital Stock, $12 par (60,000 + 6,000) 66,000
Additional paid-in Capital (42,400 + 5,000 - 260) 47,140
Retained Earnings ($35,100 - 400) 34,700
Total Stockholders’ Equity 147,840
Total Liabilities and Stockholders’ equity 202,540

DINI – JOSEPHINE – LUMONGGA FATA 2017