Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December
Question:
Presented below are the financial balances for the Boxwood Company and the Tranz Company as of December 31, 2017, immediately before Boxwood acquired Tranz. Also included are the fair values for Tranz Company's net assets at that date.
Boxwood | Tranz Co. | Tranz Co. | |
(all amounts in thousands) | |||
Book Value | Book Value | Fair Value | |
12/31/17 | 12/31/17 | 12/31/17 | |
Cash | $ 870 | $ 240 | $ 240 |
Receivables | 660 | 600 | 600 |
Inventory | 1,230 | 420 | 580 |
Land | 1,800 | 260 | 250 |
Buildings (net) | 1,800 | 540 | 650 |
Equipment (net) | 660 | 380 | 400 |
Accounts payable | ( 570) | ( 240) | ( 240) |
Accrued expenses | ( 270) | ( 60) | ( 60) |
Long-term liabilities | (2,700) | (1,020) | (1,120) |
Common stock ($20 par) | (1,980) | ||
Common stock ($5 par) | ( 420) | ||
Additional paid-in capital | ( 210) | ( 180) | |
Retained earnings | (1,170) | ( 480) | |
Revenues | (2,880) | ( 660) | |
Expenses | 2,760 | 620 |
Note: Parenthesis indicate a credit balance
Assume a business combination took place at December 31, 2017. Boxwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Tranz. 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 Tranz’s fair value, Boxwood promises to pay an additional $5.2 (in thousands) to the former owners if Tranz’s 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).
REFER TO: 02-07
11. Compute the investment to be recorded at the date of acquisition.
A) $1,750.
B) $1,755.
C) $1,725.
D) $1,760.
E) $1,765.
REFER TO: 02-07
12. Compute consolidated inventory immediately following the acquisition.
A) $1,650.
B) $1,810.
C) $1,230.
D) $ 580.
E) $1,830.
REFER TO: 02-07
13. Compute consolidated land immediately following the acquisition.
A) $2,060.
B) $1,800.
C) $ 260.
D) $2,050.
E) $2,070.
REFER TO: 02-07
14. Compute consolidated buildings (net) immediately following the acquisition.
A) $2,450.
B) $2,340.
C) $1,800.
D) $ 650.
E) $1,690.
REFER TO: 02-07
15. Compute consolidated goodwill immediately following the acquisition.
A) $440.
B) $442.
C) $450.
D) $455.
E) $452.
REFER TO: 02-07
16. Compute consolidated equipment immediately following the acquisition.
A) $ 400.
B) $ 660.
C) $1,060.
D) $1,040.
E) $1,050.
REFER TO: 02-07
17. Compute consolidated retained earnings as a result of this acquisition.
A) $1,160.
B) $1,170.
C) $1,265.
D) $1,280.
E) $1,650.
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer