Lecture 3 Handout 1 Acquisition Method for Consolidation in After negotiations with the owners of Smallport,...

Transcribed Image Text:

Lecture 3 Handout 1 Acquisition Method for Consolidation in After negotiations with the owners of Smallport, BigNet agrees to pay for 100% of Small Port's voting stocks, and the four separate scenarios are as follows: Senario 1. BigNet paid Cash of $550,000 and issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet paid cash $1,000,000 and issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet paid no cash but only issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet issued 26,000 shares, at the par value of $10, market value at $100 and agreed to pay an additional amount of $83,200 if Small reaches certain target in one year. The probability of Small reaching the target is 25%. The discount rate is 4% (Hint: this is a contingent consideration). Senario 2. Senario 3. Senario 4. viilided in 1800 The BigNet and Small Port's financial status on the date of acquisition is as follows. bl:bottom EXHIBIT 2.3 Basic Consolidation Information Current assets Computers and equipment (net) 10 Capitalized software (net) i Customer contracts Notes payable Net assets Common stock-$10 par value Common stock-$5 par value Additional paid-in capital Retained earnings, 1/1 Dividends declared Revenues Expenses Owners' equity 12/31 Retained earnings, 12/31 "Retained earnings balance after closing out revenues, expenses, and dividends. Scenario 1 Scenario 2 Scenario 3 Scenario 4 BigNet Company Book Values December 31 Consideration Transferred $ 1,100,000 1,300,000 500.000 -0- (300,000) $ 2,600,000 $ (1,600,000) (40,000) (870,000) 110,000 (1,000.000) 800,000 $(2,600,000) (960,000)* Smallport Company Book Values December 31 $ 300,000 400,000 100,000 -0- (200,000) $ 600,000 $(100,000) (20,000) mood (370.000) 10,000 Required: In the above scenarios, apply the acquisition method and answer: (500,000) 380,000 $(600,000) (480,000)* FV of Identifiable Net Asset Fair Values December 31 $ 300,000 600,000 1,200,000 700,000 (250,000) $2.550,000 Goodwill or Bargain Gain Lecture 3 Handout 1 Acquisition Method for Consolidation in After negotiations with the owners of Smallport, BigNet agrees to pay for 100% of Small Port's voting stocks, and the four separate scenarios are as follows: Senario 1. BigNet paid Cash of $550,000 and issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet paid cash $1,000,000 and issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet paid no cash but only issued 20,000 shares of its $10 par value common stock that is currently selling for $100 per share. BigNet issued 26,000 shares, at the par value of $10, market value at $100 and agreed to pay an additional amount of $83,200 if Small reaches certain target in one year. The probability of Small reaching the target is 25%. The discount rate is 4% (Hint: this is a contingent consideration). Senario 2. Senario 3. Senario 4. viilided in 1800 The BigNet and Small Port's financial status on the date of acquisition is as follows. bl:bottom EXHIBIT 2.3 Basic Consolidation Information Current assets Computers and equipment (net) 10 Capitalized software (net) i Customer contracts Notes payable Net assets Common stock-$10 par value Common stock-$5 par value Additional paid-in capital Retained earnings, 1/1 Dividends declared Revenues Expenses Owners' equity 12/31 Retained earnings, 12/31 "Retained earnings balance after closing out revenues, expenses, and dividends. Scenario 1 Scenario 2 Scenario 3 Scenario 4 BigNet Company Book Values December 31 Consideration Transferred $ 1,100,000 1,300,000 500.000 -0- (300,000) $ 2,600,000 $ (1,600,000) (40,000) (870,000) 110,000 (1,000.000) 800,000 $(2,600,000) (960,000)* Smallport Company Book Values December 31 $ 300,000 400,000 100,000 -0- (200,000) $ 600,000 $(100,000) (20,000) mood (370.000) 10,000 Required: In the above scenarios, apply the acquisition method and answer: (500,000) 380,000 $(600,000) (480,000)* FV of Identifiable Net Asset Fair Values December 31 $ 300,000 600,000 1,200,000 700,000 (250,000) $2.550,000 Goodwill or Bargain Gain

Answer rating: 100% (QA)

Youve provided an image of a handout that appears to be from a lecture on the acquisition method for consolidation of financial statements The handout outlines four scenarios in which BigNet Company a... View the full answer