Jones Corp issues 100,000 shares of its previously unissued shares of common stock for all of the outstanding stock of Smith and Smith is dissolved. Jones pays for the following costs and expenses related to this acquisition of Smith:
Registering and issuing securities
Accountants' and legal fees
Cost of closing duplicate facilities
Salaries of Jones' employees assigned to the implementation of the merger
Costs of shareholders' meeting to vote on the merger.
Under the acquisition method which of the following statements is correct?
1. All of the items listed above are treated as expenses of the purchase
2. All of the items listed above except the cost of registering and issuing the securities are expensed by the combined entity
3. Costs of registering and issuing the securities increase paid-in capital
4. Accountants' and legal fees would be part of consideration transferred
Although the FASB for Business Combinations: Applying the Acquisition Method?Joint ...
The solution answers the question and also provides a link to the FASB which hasn't been issued.
Discussion on Cash Flow, Assets and Liabilities, Sale Securities
1. Which statement is true about the cash flow statement?
A. the operations section (using the direct method) starts with net income
B. an increase in accounts receivable adds back cash using the indirect method
C. the financing section is the same under either the direct or indirect method
D. None of the above is a true statement
2. The Fantastic Company purchased 100% of the stock of the Stinky Company. Fantastic Company will record the Stinky assets and liabilities at?
A. The fair value of the consideration given up by Fantastic.
B. The fair value of the shares obtained from the owners of Fantastic.
C. It depends if we use the purchase or acquisition method
D. None of the above is correct
3. Which state is true regarding available for sale securities?
A. If FMV is greater than cost write up to market and recognize gain as part of operations in the income statement
B. Test available for sale securities for impairment
C. Subsequent increases in value (after adjusting down for impairment) are allowed
D. None of the above statements are true.