Balance Sheet and Fair Value

Topics: Balance sheet, Goodwill, Asset Pages: 4 (807 words) Published: December 4, 2011
Allfoods Corp. (Allfoods) acquired 80 percent of the outstanding common stock of Baked Beans Corp. in a business combination. After value consideration transferred value of tangible and intangible assets acquired, libilities assumed, I recommend doing this consolidation general entry for the business combination: Dr.| Land| $ 21,000,000| | | |

Dr.| PPE| $ 7,000,000| | | |
Dr.| IPR&D| $ 15,000,000| | | |
Dr.| Trademark| $ 3,000,000| | | |
Dr.| Goodwill| $ 122,750,000| | | |
| | | Cr.| Cash| $40,000,000|
| | | Cr.| C/S| $70,000,000|
| | | Cr.| APIC| $ 5,000,000|
| | | Cr.| NCI| $ 33,750,000|

Here are the reasons that I suggest to make that general entry:

Determine Consideration Transferred

To acquire 80% of the outstanding common stock of Baked Beans Corp, the amount of consideration Allfoods Corp. transferred is: (in millions) (1) Cash 40
(2) Common Stock70
(3) Contingient Consideration20
(4) -------------------------------------------------
Cost of precobination option exchange 5

(2) Common stock (C/S) is 2 million shares at $35/share.
(3) Contingent consideration is recorded at fair value at acquisition-date. (ASC 805-30-Currently Viewing:805 Business Combinations25-5) In this case, the contingent consideration is classified as equity since it settled in shares. (ASC 815-40-25-4) The contingient consideration goes into additional paid in capital account (APIC) on the Allfoods’ balance sheet. (4) Exchange of share options in conjunction with a business combination is modification of share-based payment awards. The portion attributable to precombination service is part of the consideration transferred. (ASC 805-30-30) The underlying shares for stock options are not liabilities and there is no cash settlement, so the exchange of stock option is classified as an equity (ASC 718-10-25-11), and...
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