On February 1, 2022, ABC Limited, a public company, decided to buy most of the net...

  

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On February 1, 2022, ABC Limited, a public company, decided to buy most of the net assets of XYZ Inc. for $1,200,000 paid for with the issuance of 80,000 of its own shares and a building that is fair valued at $300,000. This building is included in PP&E at a net book value of $200,000. ABC will not be acquiring the cash or the financial assets that XYZ has. In addition, ABC has agreed to pay an additional $200,000 if the patent of XYZ generates more than $1,000,000 in revenues by 2026. It has been determined that the fair value of this contingent consideration is $150,000 at February 1, 2022. ABC incurred $5,000 of fees to pay its lawyers and $3,000 for the underwriters, payable in 30 days. The balances showing on the statement of financial position for the two companies at February 1, 2022, just prior to the acquisition are as follows: Assets Cash Accounts receivable Right of use asset Financial assets PPE-net Liabilities Accounts payable Bonds payable Equity Common shares ($10/ share) Retained earnings ABC S 45,000 65,000 50,000 0 3.590,000 3.750.000 665,000 1,350,000 950,000 785,000 3.750.000 XYZ $ 30,000 25,000 140,000 45,000 820,000 1.060.000 190,000 300,000 250,000 320,000 1.060.000 After a review of the assets and liabilities, ABC determines that some of the assets of XYZ have fair values different from their carrying values. These items are listed below: PP&E - fair value is $1,150,000 Internally Developed Patent - fair value is $200,000 Customer list -fair value is $145,000 Required: 1. Discuss whether a business combination has occurred and determine the acquirer on February 1, 2022. 2. Determine the amount of goodwill that will be recorded on the business combination. On February 1, 2022, ABC Limited, a public company, decided to buy most of the net assets of XYZ Inc. for $1,200,000 paid for with the issuance of 80,000 of its own shares and a building that is fair valued at $300,000. This building is included in PP&E at a net book value of $200,000. ABC will not be acquiring the cash or the financial assets that XYZ has. In addition, ABC has agreed to pay an additional $200,000 if the patent of XYZ generates more than $1,000,000 in revenues by 2026. It has been determined that the fair value of this contingent consideration is $150,000 at February 1, 2022. ABC incurred $5,000 of fees to pay its lawyers and $3,000 for the underwriters, payable in 30 days. The balances showing on the statement of financial position for the two companies at February 1, 2022, just prior to the acquisition are as follows: Assets Cash Accounts receivable Right of use asset Financial assets PPE-net Liabilities Accounts payable Bonds payable Equity Common shares ($10/ share) Retained earnings ABC S 45,000 65,000 50,000 0 3.590,000 3.750.000 665,000 1,350,000 950,000 785,000 3.750.000 XYZ $ 30,000 25,000 140,000 45,000 820,000 1.060.000 190,000 300,000 250,000 320,000 1.060.000 After a review of the assets and liabilities, ABC determines that some of the assets of XYZ have fair values different from their carrying values. These items are listed below: PP&E - fair value is $1,150,000 Internally Developed Patent - fair value is $200,000 Customer list -fair value is $145,000 Required: 1. Discuss whether a business combination has occurred and determine the acquirer on February 1, 2022. 2. Determine the amount of goodwill that will be recorded on the business combination.

Answer rating: 100% (QA)

SOLUTION Determining if a Business Combination has Occurred and the Acquirer A business combination has occurred because ABC Limited has acquired most ... View the full answer