Case 1.

Presented below are the financial balances for the BonGiovi Company and the Terens Company as of December 31, 2017, immediately before BonGiovi acquired Terens. Also included are the fair values for Terens Company's net assets at that date (thousands of US$).

Note: Parenthesis indicates a credit balance

Assume a business combination took place at December 31, 2017. BonGiovi issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Terens. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid to effect this acquisition transaction. To settle a difference of opinion regarding Terens fair value, BonGiovi promises to pay an additional $5.2 (in thousands) to the former owners if Terens earnings exceed a certain sum during the next year. Given the probability of the required contingency payment and utilizing a 4% discount rate, the expected present value of the contingency is $5 (in thousands).

1. Compute the investment to be recorded at the date of acquisition.

2. Compute consolidated inventory immediately following the acquisition.

3. Compute consolidated land immediately following the acquisition.

4. Compute consolidated buildings (net) immediately following the acquisition.

5. Compute consolidated goodwill immediately following the acquisition.

6. Compute consolidated equipment immediately following the acquisition.

7. Compute consolidated retained earnings as a result of this acquisition.

8. Compute consolidated revenues immediately following the acquisition.

9. Compute consolidated expenses immediately following the acquisition.

10. Compute the consolidated cash upon completion of the acquisition.

Transcribed Image Text:

Cash Receivables Inventory Land Buildings (Net) Equipment (net) Accounts Payable Accrued expenses Long term Liabilities Common Stock ($20par) Common Stock ($5 par) Additional paid in capital Retained earnings Revenue Expenses BonGiovi Book Value 31.12.2017 870 660 1,230 1,800 1,800 660 (570) (270) (2,700) (1,980) (210) (1,170) (2,880) 2,760 Terens Book Value 31.12.2017 240 600 420 260 540 380 (240) (60) (1,020) (420) (180) (480) (660) 620 Terens Fair Value 31.12.2017 240 600 580 250 650 400 (240) (60) (1,120) Cash Receivables Inventory Land Buildings (Net) Equipment (net) Accounts Payable Accrued expenses Long term Liabilities Common Stock ($20par) Common Stock ($5 par) Additional paid in capital Retained earnings Revenue Expenses BonGiovi Book Value 31.12.2017 870 660 1,230 1,800 1,800 660 (570) (270) (2,700) (1,980) (210) (1,170) (2,880) 2,760 Terens Book Value 31.12.2017 240 600 420 260 540 380 (240) (60) (1,020) (420) (180) (480) (660) 620 Terens Fair Value 31.12.2017 240 600 580 250 650 400 (240) (60) (1,120)

Answer rating: 100% (QA)

1The investment to be recorded at the date of acquisition would be 870000 The investment to be recorded at the date of acquisition would be 870000 Thi... View the full answer