Pond Ltd. and Stream Inc. have reached agreement in principle to combine their operations. However, the boards of directors are undecided as to the best way to accomplish the combination. Several alternatives are under consideration:
1. Pond acquires the net assets of Stream (including the liabilities) for $ 2,000,000 cash.
2. Pond acquires all of the assets of Stream (but not the liabilities) for $ 2,800,000 cash.
3. Pond acquires the net assets of Stream by issuing 120,000 shares in Pond, valued at $ 2,000,000.
4. Pond acquires all of the shares of Stream by exchanging them for 120,000 newly issued shares in Pond.
The reported carrying values of Pond and Stream are shown below, together with the fair values at the date of combination. Prior to the combination, Pond has 480,000 shares outstanding and Stream has 60,000 shares outstanding.

a) In a comparative, columnar format, show how the consolidated SFP of Pond Ltd. would appear immediately after the combination under each of the four alternatives using the acquisition method.
b) For each of the four alternatives, briefly state who owns the shares of each corporation and whether Pond Ltd. and Stream Inc. are relatedcompanies.

  • CreatedMarch 13, 2015
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