Question

On January 1, 2018, Brooks Corporation exchanged $1,373,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,180,000. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $318,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.

In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.

On December 31, 2018, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.

	Brooks Corp.				Chandler Inc.
Income Statement
Revenues	$	(642,000	)		$	(559,000	)
Cost of goods sold		200,000				171,000
Gain on bargain purchase		(125,000	)			0
Depreciation and amortization		129,000				163,000
Equity earnings from Chandler		(172,000	)			0
Net income	$	(610,000	)		$	(225,000	)
Statement of Retained Earnings
Retained earnings, 1/1	$	(1,705,000	)		$	(880,000	)
Net income (above)		(610,000	)			(225,000	)
Dividends declared		250,000				30,000
Retained earnings, 12/31	$	(2,065,000	)		$	(1,075,000	)
Balance Sheet
Current assets	$	108,000			$	423,000
Investment in Chandler		1,640,000				0
Trademarks		102,000				237,000
Patented technology		313,000				460,000
Equipment		631,000				359,000
Total assets	$	2,794,000			$	1,479,000
Liabilities	$	(194,000	)		$	(104,000	)
Common stock		(535,000	)			(300,000	)
Retained earnings, 12/31		(2,065,000	)			(1,075,000	)
Total liabilities and equity	$	(2,794,000	)		$	(1,479,000	)

Note: Parentheses indicate a credit balance.

a. Determine the following account balances:

• Gain on bargain purchase.
• Earnings from Chandler.
• Investment in Chandler.

b. Prepare a December 31, 2018, consolidated worksheet for Brooks and Chandler.

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605