Question

5)Sonny has the following account balances as of January 1, 2018 before an acquisition transaction takes place.

Inventory	$100,000
Land	400,000
Buildings (net)	500,000
Common stock	600,000
Additional paid in capital	200,000
Retained Earnings	200,000
Revenues	450,000
Expenses	250,000

The fair value of Sonny' Land and Buildings are $200,000 and $300,000, respectively. On January 1, 2018, Phillip Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Sonny' common stock. Phillip paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Phillip has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.

On January 1, 2018, what value is assigned to Phillip's investment account?
A. $150,000.
B. $300,000.
C. $750,000.
D. $760,000.
E. $1,350,000.

6)Acquired in-process research and development is considered as
A. an indefinite-lived asset subject to testing for impairment.

B. a definite-lived asset subject to testing for impairment.

C. an indefinite-lived asset subject to amortization.

D. a definite-lived asset subject to amortization.

E. a research and development expense at the date of acquisition.

7) Sonny has the following account balances as of January 1, 2018 before an acquisition transaction takes place.

Inventory	$100,000
Land	400,000
Buildings (net)	500,000
Common stock	600,000
Additional paid in capital	200,000
Retained Earnings	200,000
Revenues	450,000
Expenses	250,000

The fair value of Sonny' Land and Buildings are $200,000 and $300,000, respectively. On January 1, 2018, Phillip Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Sonny' common stock. Phillip paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Phillip has $700,000 in its common stock account and $300,000 in its additional paid-in capital account.

Immediately after the acquisition, what is the consolidated additional paid in capital?
A. $500,000.
B. $740,000.
C. $750,000.
D. $760,000.
E. $940,000.

Answer 1

Part 5)

The value assigned to Phillip's investment account is determined as below:

Value Assigned to Philip's Investment Account = Number of Shares Issued*Fair Value Per Share

Using the values provided in the question, we get,

Value Assigned to Philip's Investment Account on January 1 2008 = 30,000*25 = $750,000 (which is Option C)

_____

Part 6)

An indefinite-lived asset subject to testing for impairment. (which is Option A)

_____

Explanation:

As per the applicable accounting rules/standards, the value of in-process research and development is capitalized as an asset for the combined entity. It is treated as an intangible asset having an indefinite life and is subject to impairment.

_____

Part 7)

The value of consolidated additional paid in capital is arrived as below:

Value of Consolidated Additional Paid in Capital = Current Balance in Phillip's Additional Paid-In Capital Account + Increase in Additional Paid in Capital on the Date of Acquisition

Using the values provided in the question, we get,

Value of Consolidated Additional Paid in Capital = 300,000 + [30,000*(25 - 10) - 10,000] = $740,000 (which is Option B)