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Subject Topic: business combination and consolidation (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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venchlu
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Joined: 18 Aug 2009
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Posted: 07 May 2010 at 14:15 | IP Logged  

In a business combination, Major Corporation issued nonvoting, nonconvertible preferred stock with a fair value of $8 million in exchange for all of the outstanding common stock of Minor Corporation. On the acqusition date, Minor had identifiable net assets with a carrying amount of $4 million and a fair value of $5 million. In addtion, Major issued perferred stock with a fair vaule of $800,000 to an individual as a finder's fee in arranging the transaction. As a result of this transaction, Major should record an increase in net assets of

A. 4,000,000

B. 5,000,000

C. 8,000,000

D. 8,800,000

The correct asnwer is C and I chose D...

I certainly know that the finder's fee would be expensed. So my JE for it-

Dr.Cash 800,000

Cr.P/S 800,000

Dr. Finder's fee exp 800,000

Cr. Cash 800,000

So i think we should add 800,000 to 8,000,000...where did i miss? Thanks



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Zeratul
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Posted: 07 May 2010 at 18:49 | IP Logged  

The 800,000 is not an increase in net assets. It's an expense. Net assets should only be increased by the fair value of consideration transferred (or fair value of net assets if the fair value of consideration transferred is less than fair value of net assets).
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