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    20 Marks 2019 Adjustments To Net Income: Consolidated Income Statement 2019

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    Jax Teller
    1. A business combination has occurred between Alex and B as Alex now controls the net assets of B's business. Alex is the acquirer as it paid cash and issued debt to acquire the net assets. 2. Proposal 1 has a lower total cost than Proposal 2, making it more preferable. However, Alex does not have enough cash to pay under Proposal 1 so will incur borrowing costs. Proposal 2 requires less upfront cash outlay despite a higher total cost. 3. The consideration transferred for the acquisition is $451,112. The fair value of the net assets acquired is $342,270, resulting in goodwill of $108,842.

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    20 Marks 2019 Adjustments To Net Income: Consolidated Income Statement 2019

    Uploaded by

    Jax Teller
    56 views4 pages
    1. A business combination has occurred between Alex and B as Alex now controls the net assets of B's business. Alex is the acquirer as it paid cash and issued debt to acquire the net assets. 2. Proposal 1 has a lower total cost than Proposal 2, making it more preferable. However, Alex does not have enough cash to pay under Proposal 1 so will incur borrowing costs. Proposal 2 requires less upfront cash outlay despite a higher total cost. 3. The consideration transferred for the acquisition is $451,112. The fair value of the net assets acquired is $342,270, resulting in goodwill of $108,842.

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    1. A business combination has occurred between Alex and B as Alex now controls the net assets of B's business. Alex is the acquirer as it paid cash and issued debt to acquire the net assets. 2. Proposal 1 has a lower total cost than Proposal 2, making it more preferable. However, Alex does not have enough cash to pay under Proposal 1 so will incur borrowing costs. Proposal 2 requires less upfront cash outlay despite a higher total cost. 3. The consideration transferred for the acquisition is $451,112. The fair value of the net assets acquired is $342,270, resulting in goodwill of $108,842.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    56 views4 pages

    20 Marks 2019 Adjustments To Net Income: Consolidated Income Statement 2019

    Uploaded by

    Jax Teller
    1. A business combination has occurred between Alex and B as Alex now controls the net assets of B's business. Alex is the acquirer as it paid cash and issued debt to acquire the net assets. 2. Proposal 1 has a lower total cost than Proposal 2, making it more preferable. However, Alex does not have enough cash to pay under Proposal 1 so will incur borrowing costs. Proposal 2 requires less upfront cash outlay despite a higher total cost. 3. The consideration transferred for the acquisition is $451,112. The fair value of the net assets acquired is $342,270, resulting in goodwill of $108,842.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Question 4 20 marks

    Realized inventory 7500 2019 adjustments to net income: Consolidated income statement 2019
    Tax 30% -2250
    5250 0.5 Realized inventory 5250 0.5 Revenue 85000+76000-42000 119000 1

    Unrealized inventory 25000 Unrealized inventory- -3500 0.5 COGS 46000+54000-42000-7500+5000 55500 2
    x .2
    5000 Unrealized land -7000 0.5 Other income 38000+10000-25000-10000 13000 1.5
    Tax 30% -1500
    3500 1 realized equipment 2100 0.5 Depreciation 12000+8400+8000-3000 25400 1.5

    Unrealized land 10000 -3150 2 Income tax 7200+31400+2250-1500-3000+900-2400 34850 3


    Tax 30% -3000
    7000 0.5 Net income 16250 9

    Unrealized equipment 68000 Consolidated Retained Earnings 2019


    -50000 Consolidated Balance Equipment
    18000 18000/6 3000 Jan/1/19 180000+145000-75000-11200-5250-10500 223050 3
    Tax 30% -5400 5400/6 -900 PAC 230,000
    12600 2100 1 STL 151,000 0.5 Net income above 16250 0.5
    3 unreal 18000 x 4/6 -12000 1
    FVA 16000 0.5 Dividends -15000 0.5
    385,000 2
    Dec 31/19 224300 4
    Question 3: 30 marks FVA table 2019
    Acquisition analysis:
    consideration transferred Jan1/16 300000 x 10 3000000 FVA I/S Beg R/E B/S

    Net assets acquired: Receivables 25600 0.5


    book value 900000+300000 1200000
    Inventories -121600 0.5
    FVA:
    receivables (158000-190000)*.8 -25600 Equipment -2000 -4800 12000 1.5 20000/10=2000 per year
    inventories (392000-240000)*.8 121600
    equipment (740000-720000)*.8 16000 building -1400 -3360 22400 1.5 28000/20 = 1400 per year
    land (190000-180000)*.8 8000
    building (288000-260000)*.8 22400 Land 10000 0.5
    goodwill -60000
    LTD (440000-400000)*.8 -32000 goodwill 1689600 1
    LTD 6500 20400 -8000 1.5

    -1250400 IT/ DTL -1300 1600


    400 -2400
    goodwill 1749600 6 280 -4480
    -620 -2000
    -7280 2

    2480 -83760 1718720 0

    Consolidated Balance Sheet 2019

    Cash 30000+60000 90000 0.5 Depn exp 40000+30000+2000+1400 73400 1.5

    Receivables 305000+301000 606000 0.5 IT exp 7000+14000+620 21620 1

    inventories 240000+210000 450000 0.5

    Equipment 380000+630000+12000 1022000 1

    Building 343000+420000+22400 785400 1

    Land 470000+50000+10000 530000 1

    Investment in SVI 3000000-3000000

    Goodwill 60000+1689600 1749600 1


    5233000

    Current liabilites 15000+50000 65000 0.5

    Long Term Liabilities 240000+400000+8000 648000 1

    Deferred tax Liability 7280 1

    Common Stock 1563000+900000-900000 1563000 1

    Retained Earnings 2950000+381000-300000-83760+2480 2949720 3.5

    5233000

    0
    Question 2: 25 marks

    1 Proposal 1 ; a business combination has occurred since Alex controls the net assets that constitute the business of B
    The acquirer is Alex since it paid cash and issued debt to acquire the net assets.

    Proposal 2: a business combination has occurred since Alex controls the net assets of Blayne by owning 100% of the
    Who is the acquirer?
    Alex O/S share 34,000 No one group of shareholder holds more than 50% of shares o
    30,000 Look at qualitative factors:
    64,000 equal representation on the BOD
    issued 64,000 Management will be absorbed but we don't know h
    Total 128,000 Effected using Alex shares/
    Alex is significantly larger
    proposal for the takeover comes from Alex.
    Conclusion: Alex is the acquirer

    2 Proposal 1 cost is $446,400 +5,700 = 452,100 while Proposal 2 cost is 460,800 + 14,400 = 475,000 so Proposal 1 is po
    Alex does not have the cas to pay under proposal 1 so will incurr borrowing costs
    proposal 2 has less cash outlay
    Proposal 2 giving up some level of ownership.
    Proposal 2 responsible for hidden obligations other valid points
    Conclusion - tied to discussion
    0.5 1
    3 consideration transferred 446400+PV(.1 x 50,000)3ys, 5%= 4712 451,112 1.5

    Net assets acquired


    Accounts receivable 68200 0.5
    Inventory 148220 0.5
    Land 222000 0.5
    Building 36020 0.5
    Equipment 27945 0.5

    Current lialibities -53115 0.5


    Noncurrent liabilities -167000 0.5
    Research 60000 0.5
    342270

    goodwill 108,842 0.5

    6
    that constitute the business of Blayne 1

    of Blayne by owning 100% of the shares 3 1 mark for calc


    1 mark for qualitative
    olds more than 50% of shares of the combined entity. 1 mark concl support

    n on the BOD
    e absorbed but we don't know how.

    eover comes from Alex.


    4

    400 = 475,000 so Proposal 1 is potentially cheaper. 3 1 mark for each


    max 2
    1 mark concl support

    Balance Sheet ADJ

    Cash 152000 -5700 146300 1


    A/R 179200 68200 247400 1
    inventory 386120 148220 534340 1
    Land 437000 222000 659000 1
    Building net 262505 36020 298525 1
    Equipment net 90945 27945 118890 1
    Research 60000 60000 0.5
    Goodwill 108842 108842 0.5
    1507770 2173297

    CL 145335 53115 198450 1


    Contingent liabilty 4712 4712 0.5
    NCL 167000+446400 613400 2
    C/S 512000 512000 0.5
    R/E 850435 -5700 844735 1
    1507770 2173297
    12

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