Advanced Accounting
Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Chapter 4, Problem 4.8.1P
To determine

Business combination:

Business combination refers to the combining of one or more business organizations in a single entity. The business combination leads to the formation of combined financial statements. After business combination, the entities having separate control merges into one having control over all the assets and liabilities. Merging and acquisition are types of business combinations.

Consolidated financial statements:

The consolidated financial statements refer to the combined financial statements of the entities which are prepared at the year-end. The consolidated financial statements are prepared when one organization is either acquired by the other entity or two organizations merged to form the new entity. The consolidated financial statements serve the purpose of both the entities about financial information.

Value analysis:

The value analysis in a business combination is an essential part of determining the worth of the acquired entity. The goodwill or gain on acquisition is computed in the value analysis. If the net worth of the acquired entity is less than the consideration paid, then it results in goodwill, and if the net worth of the acquired entity is more than the consideration paid, then it results in gain on the acquisition.

:

Prepare the value analysis and the determination and distribution of excess schedule for the investment in Company S.

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On July 1, 2016, Killearn Company acquired 120,000 of the outstanding shares of Shaun Company for $15 per share. This acquisition gave Killearn a 20 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.   As of July 1, 2016, the investee had assets with a book value of $7 million and liabilities of $148,000. At the time, Shaun held equipment appraised at $581,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,235,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.   Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $566,000 in 2016, $593,400 in 2017,…
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On July 1, 2016, Killearn Company acquired 80,000 of the outstanding shares of Shaun Company for $12 per share. This acquisition gave Killearn a 25 percent ownership of Shaun and allowed Killearn to significantly influence the investee's decisions.   As of July 1, 2016, the investee had assets with a book value of $3 million and liabilities of $938,000. At the time, Shaun held equipment appraised at $350,000 above book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $1,160,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun.   Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $585,000 in 2016, $617,600 in 2017,…
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