5Sonny has the following account balances as of January 1 20

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

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.

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.

Solution

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)

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Part 6)

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

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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.

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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)