Hey guys! I have two questions regarding business combos/consolidations. Both of these are mcqs from Wiley Test Bank:
1. A business combination is accounted for as a business acquisition. Which of the following should be deducted in determining the combined NI for the current period?
Direct costs of acquisition
General expenses related to the acquisition.
I answered General expenses related to the acquisition becuase the direct issuance costs I believe are debited to APIC. The correct answer is both are included as deductions to net income for the period. The explanation just states that all business acquisition costs are expensed as incurred.
2.On January 1, 2011, Neel Corp. issued 400,000 additional shares of $10 par value common stock in exchange for all of Pym Corp.'s common stock. Immediately before this business combination, Neel's stockholders' equity was $16,000,000 and Pym's stockholders' equity was $8,000,000. On January 1, 2011, the fair value of Neel's common stock was $20 per share, and the fair value of Pym's net assets was $8,000,000. Neel's net income for the year ended December 31, 2011, exclusive of any consideration of Pym, was $2,500,000. Pym's net income for the year ended December 31, 2011, was $600,000. During 2011 Neel paid dividends of $900,000. Neel had no business transactions with Pym in 2011.
Assuming that this business combination is appropriately accounted for as a business acquisition, consolidated stockholders' equity at December 31, 2011, should be
A: $17,600,000
B: $18,200,000
C: $26,200,000
D: $27,100,000
The ans is C. I chose A and I am not sure why the subsidary's equity is included. I thought with combined F/S; only the parent's equity is reported.
FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)
If it's important to you, you will find a way. If it isn't, you will find an excuse.
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