1 advanced accounting autumn 2015 class 2 review (chapter 1) bill myer – autumn 2015

1

Advanced Accounting

Autumn 2015

• Class 2 Review• (Chapter 1)

Bill Myer – Autumn 2015

2Bill Myer – Autumn 2015

Homework

• Make sure you review the PPTs on

advancedaccounting.yolasite.com

• If you have not done so already, send me an email with the following information:

Name (pin yin)

Student number

English name

Email address

Province you're from

Pseudonym (false name)


Homework

• Read Chapter 1: Business Combinations

• Read Chapter 2: Stock Investments – Investor Accounting and Reporting

• Exercises page 19-20, E1-1 (1, 2, 4); E1-2; E1-4; E1-5

• Problems P1-1, P1-2

• Do P1-2 for homework

• On Thursday, we will have a PRACTICE QUIZ for Chapter 1


Review

• We have been discussing… How to record acquisition costs How to record an investment How to allocate the cost of an investment to assets and

liabilities How to calculate goodwill How to calculate a bargain purchase gain How to prepare a “Day 1” balance sheet

We left off on slide 58


Balance Sheet – Review

• Below is the beginning balance sheet for Acquirer Corporation

• Suppose Acquirer Corp issues $10,000,000 of stock with no par value to acquire a company…

• …and does not dissolve the acquired company• What are the journal entries?• What does the new balance sheet look like?

Assets Liabilities & Shareholders’ Equity

Cash 5,000,000 Current Liabilities 5,000,000

Inventory 10,000,000

Property 15,000,000 APIC 30,000,000

Intangible Assets 5,000,000


Income Statement – Review

• Below is the income statement for ABC Corporation

• Suppose ABC Corp has $10 million of revenues (all received in cash) and $7 million of expenses (all paid in cash)

• What are the journal entries?• What does the income statement look like?• What is the effect on the balance sheet?

Income Statement

Revenues ???

Expenses ???

Net Income ???


Practice Exercises for Chapter 1 - #1

• Journal entries for acquisition costs

• Perris Corporation buys Systems Corporation in a transaction that is accounted for as a business combination

• As a result of the transaction, Perris Corporation pays RMB20 million for registering and issuing securities

• Perris Corporation also pays RMB30 million for other costs of combination

• Prepare the journal entries to record the acquisition costs

DR Business combination expense 30,000,000

DR Additional paid-in capital 20,000,000

CR Cash 50,000,000


Practice Exercises for Chapter 1 - #2

• Recording an acquisition – target company is not dissolved• Parrot Corporation buys Sparrow Corporation in a transaction that is

accounted for as a business combination. The total consideration paid by Parrot is RMB40 million, which includes RMB20 million in cash, RMB15 million in 10 million shares of Parrot’s common stock with a par value of $1 per share, and a RMB5 million note payable. Parrot Corporation does not dissolve Sparrow Corporation

• Prepare the journal entries on Parrot’s books to record the acquisition of Sparrow

DR Investment in Sparrow 40,000,000

CR Cash 20,000,000

CR Common Stock (Par Value) 10,000,000

CR APIC 5,000,000

CR Note Payable 5,000,000


Practice Exercises for Chapter 1 - #3• Recording an acquisition – target company is dissolved• Peanut Corporation buys Sandwich Corporation in a transaction that

is accounted for as a business combination. The total consideration paid is RMB55 million, all in cash

• Prepare the journal entries on Peanut’s books to record the acquisition of Sandwich, assuming that Sandwich is dissolved

DR Investment in Sparrow 55,000,000

CR Cash 55,000,000

DR Cash 5,000,000

DR Inventory 15,000,000

DR Equipment 20,000,000

DR Goodwill 25,000,000

CR Accounts Payable 10,000,000

CR Investment in Sparrow 55,000,000


Practice Exercises for Chapter 1 - #4A• Calculating goodwill & bargain purchase gain• Parrot Corporation buys Sparrow Corporation in a transaction that is

accounted for as a business combination.• The total consideration paid by Parrot is RMB40 million.• The book value of Sparrow Corporation’s net assets is RMB30

million.• The fair value of Sparrow Corporation’s net assets is RMB45 million.• What is the amount of goodwill? What is the amount of bargain

purchase gain?

1. Consideration paid < FV of net assets Bargain Purchase Gain

40 million

(45 million)

5 million bargain purchase gain


Practice Exercises for Chapter 1 - #4B• Calculating goodwill & bargain purchase gain• Pillow Corporation buys Sofa Corporation in a transaction that is

accounted for as a business combination• The total consideration paid by Pillow is RMB55 million• The book value of Sofa Corporation’s net assets is RMB35 million• The fair value of Sofa Corporation’s net assets is RMB45 million• What is the amount of goodwill? What is the amount of bargain

purchase gain?

1. Consideration paid > FV of net assets Goodwill

55 million

(45 million)

10 million goodwill


Chapter 1 – P1-1 (page 21)• Pine purchases Sain by issuing 30,000 shares with a $20 per share

market value• Pine pays $40,000 in acquisition costs• Prepare the balance sheet after the acquisition

1) Record acquisition costs

DR Acquisition expenses 25,000

DR APIC 15,000

CR Cash 40,000

2) Record investment

DR Investment in Sain 600,000

CR Common Stock (Par) 300,000

CR APIC 300,000


Chapter 1 – P1-1 (page 21)3) Dissolve Sain

DR Current Assets 100,000

DR Land 100,000

DR Buildings 400,000

DR Equipment 240,000

CR Current Liabilities 60,000

CR Investment in Sain 600,000

CR Bargain Purchase Gain 180,000

Check Bargain Purchase Gain:

600,000 investment

(780,000) FV of net assets acquired

180,000 bargain purchase gain


Chapter 1 – P1-1 (page 21)4) Prepare Balance Sheet

Pine SainEffects of

Acquisition

Day 1 Balance Sheet

Current assets

Land

Buildings – net

Equipment – net

Total assets

Current liabilities

Capital stock, $10 par

Paid-in capital

Retained earnings

Total liabilities & equity



Pine SainEffects of

Acquisition

Day 1 Balance Sheet

Current assets $130

Land 50

Buildings – net 300

Equipment – net 220

Total assets $700

Current liabilities $ 50

Capital stock, $10 par 500

Paid-in capital 50

Retained earnings 100

Total liabilities & equity $700



Pine SainEffects of

Acquisition

Day 1 Balance Sheet

Current assets $130 $100

Land 50 100

Buildings – net 300 400

Equipment – net 220 240

Total assets $700 $840

Current liabilities $ 50 $ 60


Paid-in capital 50

Retained earnings 100




Pine SainEffects of

Acquisition

Day 1 Balance Sheet

Current assets $130 $100 ($40)

Land 50 100






Paid-in capital 50 (15)

Retained earnings 100 (25)




Pine Sain ExpensesStock

Issuance

Day 1 Balance Sheet

Current assets $130 $100 ($40)

Land 50 100





Capital stock 500 300

Paid-in capital 50 (15) 300

Retained earnings 100 (25)

Total L & OE $700



Pine Sain ExpensesStock

Issuance

Day 1 Balance Sheet

Current assets $130 $100 ($40) $190

Land 50 100 150

Buildings – net 300 400 700

Equipment – net 220 240 460

Total assets $700 $840 ($40) $1,500

Current liabilities $ 50 $ 60 $110

Capital stock 500 300 800

Paid-in capital 50 (15) 300 335

Retained earnings 100 (25) 75

Total L & OE $700 $ 60 ($40) $600 $1,320

Does this balance? Why not?



Pine Sain Expenses

Stock Issuance & Gain

Day 1 Balance Sheet

Current assets $130 $100 ($40) $190

Land 50 100 150

Buildings – net 300 400 700

Equipment – net 220 240 460

Total assets $700 $840 ($40) $1,500

Current liabilities $ 50 $ 60 $110

Capital stock 500 300 800

Paid-in capital 50 (15) 300 335

Retained earnings 100 (25) 180 255

Total L & OE $700 $ 60 ($40) $780 $1,500

Does this balance?

1 advanced accounting autumn 2015 class 2 review (chapter 1) bill myer – autumn 2015

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