CHAPTER 5 BUSINESS COMBINATIONS

The title of each problem is followed by the estimated time in minutes required for completion and by a difficulty rating. The time estimates are applicable for students using the partially filled-in working papers. Pr. 51 La Salle Corporation (15 minutes, easy) Journal entries for business combination (acquisition of net assets except cash), with bargainpurchase excess. Lionel Corporation (20 minutes, easy) Journal entries for business combination (acquisition of net assets) in ol ing issuance of bonds, with goodwill recogni!ed. Wabash Corporation (20 minutes, easy) "i en #ournal entries for a statutory merger business combination in ol ing issuance of bonds, prepare #ournal entries assuming the issuance of common stock. Combinor Corporation (20 minutes, easy) Journal entries for business combination in ol ing the acquisition of net assets, with goodwill recogni!ed. Consol Corporation (20 minutes, medium) Journal entries for statutory consolidation, with goodwill recogni!ed. Silva Corporation (30 minutes, medium) $rom condensed balance sheets of sur i ing corporation prior to and subsequent to a statutory merger, reconstruct the issuer%s #ournal entries for the business combination. Solomon Corporation (30 minutes medium) &repare #ournal entries for statutory merger, under assumption of a business combination in ol ing a bargain-purchase excess. 'ntercompany recei able and payable are in ol ed. Value Corporation (20 minutes, easy) (ccounting for business combination in ol ing acquisition of combinee%s net assets. )argainpurchase excess must be allocated in accordance with FASB Statement No. 141, *)usiness +ombinations., Stave Corporation (50 minutes, medium) Journal entries for statutory merger business combination that in ol es recognition of goodwill. Coolidge Corporation (40 minutes, medium) (ccounting for a business combination in ol ing acquisition of net assets, contingent consideration, and bargain-purchase excess. +omputation of and accounting for additional shares of common stock issued to settle contingent consideration. Solo Corporation (80 minutes, strong) +omputation of historical and pro#ected net income and basic earnings per share for merger business combination. &ro forma combined balance sheet following business combination.

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Pr. 53

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Pr. 55 Pr. 56

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ANSWERS TO REVIEW QUESTIONS

-. .. ( business combination occurs when an entity acquires net assets that constitute a business or acquires interests of one or more other entities and obtains control o er the entity or entities. ( statutory merger is a business combination that is consummated in accordance with applicable state law. 'n a merger, one corporationthe *sur i or,acquires all the outstanding common stock of one or more other corporations, which are then liquidated. ( statutory conso idation is
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similar to a merger in that it is consummated in accordance with applicable state law and in ol es the acquisition of two or more corporations% outstanding common stock. 1owe er, the sur i or in a consolidation is a new corporation rather than an existing one. 3ne or both of the following methods are used to determine an appropriate price to pay in a business combination4 +apitali!ation of expected a erage earnings of the combinee at a desired rate of return 5etermination of current fair alue of the combinee%s net assets (including goodwill) The constituent company that issues cash, other assets, or debt instruments in a business combination is the combinor. 'n a business combination in ol ing the issuance of common stock, the combinor generally is the constituent company whose former common stockholder interests either retain or recei e the larger portion of the oting rights of the combined enterprise. The following out-of-pocket costs are included in the determination of the total cost of the combinee4 (a) &rinting costs of proxy statement mailed to combinor%s stockholders (b) 8egal fees for negotiating the merger (f) +&( firm%s fees for ad ice on income tax aspects of the merger The following out-of-pocket costs are offset against paid-in capital in excess of par of combinor common stock issued in the merger4 (c) +&( firm%s fees for auditing financial statements in 9:+ registration statement co ering shares of common stock issued in the merger (d) &rinting costs for common stock certificates issued in the merger (e) 8egal fees for 9:+ registration statement co ering shares of common stock issued in the merger !ood"i is the alue assigned to the expectation of abo e-a erage or superior earnings from the identifiable assets of a combinee. 'n accounting for a business combination, goodwill is the excess of the total cost of the combinee o er the current fair alues assignable to its identifiable net assets. #egati$e good"i is a residual deferred credit in a business combination in which the cost of the combinee is less than the current fair alues assignable to the combinee%s identifiable net assets. The deficiency first is allocated pro rata to specified assets< any amount remaining after reducing the alues of these assets to !ero is recogni!ed as an extraordinary gain. %ontingent consideration is additional cash, other assets, or securities that may be issuable in the future contingent on specified future e ents or transactions, such as a specified le el of earnings, or a designated market price for a debt or an equity security issued to effect the business combination. The total cost of a combinee in a business combination is allocated first to the identifiable assets acquired and liabilities assumed, based on their current fair alues. (ny excess of total cost o er the amounts assigned is recogni!ed as goodwill. (ny excess of amounts assigned o er total cost is applied pro rata to reduce the amounts otherwise assignable to certain assets specified by the $(9). Preac&uisition contingencies are contingent assets (other than potential income tax benefits of a loss carryforward), contingent liabilities, or contingent impairments of assets that existed prior to completion of a business combination. The following combinee intangible assets other than goodwill are gi en accounting recognition in a business combination4 (ssets arising from contractual or legal rights, such as patents, copyrights, and franchises. 3ther assets that are separable from the combinee entity and can be sold, licensed, exchanged, and the like, such as customer lists and unpatented technology.

SOLUTIONS TO EXERCISES
'(. 51 -. .. 2. 6. c # # c 7. ;. /. 0. d a # e
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Journal entries for 9al +orporation, Jan. 2-, .>>74 'n estment in ?el +ompany +ommon 9tock (27,>>> x @.>) +ommon 9tock (27,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in ?el +ompany +ommon 9tock &aid-in +apital in :xcess of &ar +ash +urrent (ssets 3ther (ssets "oodwill +urrent 8iabilities 8ong-Term 5ebt 'n estment in ?el +ompany +ommon 9tock />>,>>> 27,>>> ;;7,>>> 6>,>>> />,>>> -->,>>> -.>,>>> 07>,>>> =>,>>> 0>,>>> .6>,>>> /6>,>>>

'(. 53

+omputation of amount of goodwill in the business combination of ?aster +orporation and "eo +ompany, ?ar. 2-, .>>74 Total cost to ?aster of "eo%s net assets except cash (@/>>,>>> A @->>,>>>) 8ess4 +urrent fair alue of "eo%s identifiable net assets4 3ther current assets &lant (ssets +urrent liabilities 8ong-term debt (mount of goodwill @0>>,>>> @-6>,>>> =.>,>>> (0>,>>>) (-=>,>>>)

/=>,>>> @ ->,>>>

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Journal entries for +ombinor +ompany, Jan. 2-, .>>74 'n estment in Bet (ssets of +ombinee +ompany 5iscount on ;C )onds &ayable ;C )onds &ayable 'n estment in Bet (ssets of +ombinee +ompany )ond 'ssue +osts +ash +urrent (ssets &lant (ssets 3ther (ssets "oodwill +urrent 8iabilities 8ong-Term 5ebt 'n estment in Bet (ssets of +ombinee +ompany Journal entries for +ombinor +ompany, ?ar. 2-, .>>74 'n estment in Bet (ssets of +ombinee +ompany (->>,>>> x @7) +ommon 9tock (->>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in Bet (ssets of +ombinee +ompany &aid-in +apital in :xcess of &ar +ash +urrent (ssets &lant (ssets 3ther (ssets "oodwill +urrent 8iabilities 8ong-Term 5ebt 'n estment in Bet (ssets of +ombinee +ompany ;.7,.7/ /6,/62 />>,>>> 0>,>>> -->,>>> -=>,>>> 2.>,>>> ;0>,>>> -.>,>>> 07,.7/ .>>,>>> 2>>,>>> />7,.7/ 7>>,>>> ->>,>>> 6>>,>>> />,>>> 7>,>>> -.>,>>> .;>,>>> 60>,>>> -7>,>>> .>,>>> 0>,>>> .;>,>>> 7/>,>>> 7;>,>>> 7;>,>>> ;>,>>> ;>,>>> 2>>,>>> /0>,>>> -2>,>>> 2>,>>> ;.>,>>> ;.>,>>>

'(. 55

'(. 56

Journal entries for )yers +orporation, ?ay 2-, .>>74 'n estment in Bet (ssets of 9ellers +ompany +ash 'n estment in Bet (ssets of 9ellers +ompany +ash 3ther +urrent (ssets &lant (ssets 'ntangible (ssets "oodwill 8iabilities 'n estment in Bet (ssets of 9ellers +ompany

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'(. 57

Journal entries for (cquirer +orporation, 9ept. .;, .>>74 'n estment in Bet (ssets of 5isposer +ompany +ash 'n estment in Bet (ssets of 5isposer +ompany +ash 3ther +urrent (ssets &lant (ssets D@-7>,>>> E (@->,>>> x -7F.>)G 'ntangible (ssets D@7>,>>> E (@->,>>> x 7F.>)G 5iscount on 8ong-Term 5ebt (@;>,>>> E @7>,>>>) +urrent 8iabilities 8ong-Term 5ebt 'n estment in Bet (ssets of 5isposer +ompany Journal entries for +ombinor +ompany, 5ec. 2-, .>>74 'n estment in +ombinee +ompany +ommon 9tock (->>,>>> x @7) +ommon 9tock (->>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in +ombinee +ompany +ommon 9tock &aid-in +apital in :xcess of &ar +ash +urrent (ssets &lant (ssets 3ther (ssets "oodwill +urrent 8iabilities 8ong-Term 5ebt 'n estment in +ombinee +ompany +ommon 9tock Journal entries for +ombinor +ompany, 9ept. .6, .>>74 'n estment in +ombinee +ompany +ommon 9tock (->>,>>> x @2>) +ommon 9tock (->>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in +ombinee +ompany +ommon 9tock &aid-in +apital in :xcess of &ar +ash +urrent (ssets &lant (ssets 3ther (ssets Hesearch and 5e elopment :xpense "oodwill +urrent 8iabilities 8ong-Term 5ebt 'n estment in +ombinee +ompany +ommon 9tock -;>,>>> -;>,>>> ->,>>> ->,>>> -.>,>>> -6.,7>> 6/,7>> ->,>>> =>,>>> ;>,>>> -/>,>>>

'(. 58

7>>,>>> ->>,>>> 6>>,>>> />,>>> 7>,>>> -.>,>>> .>>,>>> 6>>,>>> -6>,>>> -/>,>>> 0>,>>> .;>,>>> 7/>,>>>

'(. 59

2,>>>,>>> ->>,>>> .,=>>,>>> -2>,>>> 7>,>>> -0>,>>> .>>,>>> />>,>>> ->>,>>> 6>>,>>> .,-2>,>>> ->>,>>> 2>>,>>> 2,-2>,>>>

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'(. 510

Journal entries for )ragg +orporation, $eb. .0, .>>74 'n estment in Bestor +ompany +ommon 9tock (;>>,>>> x @.) +ommon 9tock (;>>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in Bestor +ompany +ommon 9tock +ash +urrent (ssets &lant (ssets 3ther (ssets "oodwill +urrent 8iabilities 8ong-Term 5ebt &remium on 8ong-term 5ebt 'n estment in Bestor +ompany +ommon 9tock -,.>>,>>> ;>>,>>> ;>>,>>> 0,>>> 0,>>> 7.>,>>> -,>7>,>>> 2->,>>> ->0,>>> 2>>,>>> 6>>,>>> 0>,>>> -,.>0,>>>

'(. 511

Journal entries for 9orrel +orporation, 5ec. 2-, .>>74 'n estment in ?axim +ompany +ommon 9tock (0>>,>>> x @2) +ommon 9tock (0>>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in ?axim +ompany +ommon 9tock &aid-in +apital in :xcess of &ar +ash +urrent (ssets &lant (ssets 3ther (ssets "oodwill +urrent 8iabilities 'n estment in ?axim +ompany +ommon 9tock .,6>>,>>> 0>>,>>> -,;>>,>>> 2>,>>> 6>,>>> />,>>> 7>>,>>> -,7>>,>>> .>>,>>> 72>,>>> 2>>,>>> .,62>,>>>

'(. 512

Journal entries for +ombinor +orporation, (ug. 2-, .>>74 'n estment in +ombinee +ommon 9tock (->>,>>> x @.>) +ommon 9tock (->>,>>> x @-) &aid-in +apital in :xcess of &ar 'n estment in +ombinee +ommon 9tock &aid-in +apital in :xcess of &ar +ash +urrent (ssets &lant (ssets "oodwill +urrent 8iabilities 8ong-term 5ebt 'n estment in +ombinee +ompany +ommon 9tock .,>>>,>>> ->>,>>> -,=>>,>>> ->>,>>> -7>,>>> .7>,>>> ;>>,>>> .,0>>,>>> ->>,>>> 6>>,>>> -,>>>,>>> .,->>,>>>

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a. 9ulli an +orporation separate net income for .>>7 (dd4 ?ears 5i ision net income, two months ended 5ec. 2-, .>>7 9ulli an total net income for .>>7 #. 9ulli an +orporation net income for .>>7 Ieighted-a erage number of shares of 9ulli an common stock outstanding during .>>74 .>>,>>> shares x - year 7>,>>> shares x -F; year 9ulli an basic earnings per share for .>>7 (@77>,>>> .>0,222) c. 9ulli an +orporation separate retained earnings, 5ec. 2-, .>>7 (dd4 ?ears 5i ision net income, two months ended 5ec. 2-, .>>7 9ulli an retained earnings, 5ec. 2-, .>>7 Journal entry for Tucker +orporation, 5ec. 2-, .>>;4 &aid-in +apital in :xcess of &ar (;>,>>> x @.) +ommon 9tock to be 'ssued for +ontingent +onsideration To record additional shares of common stock to be issued under terms of 5ec. 2-, .>>7, acquisition of net assets of 8oring +ompany, as follows4 Hequired alue of common stock issued in acquisition @-,;>>,>>> 8ess4 ?arket alue of common stock, 5ec. 2-, .>>; (->>,>>> x @->) -,>>>,>>> ?arket alue of additional common stock to be issued @ ;>>,>>> Bumber of additional shares of common stock to be ;>,>>> issued (@;>>,>>> @->)

@ 7>>,>>> 7>,>>> @ 77>,>>> @ 77>,>>> .>>,>>> 0,222

.>0,222 @..;6 @-,>0>,>>> 7>,>>> @-,-2>,>>>

'(. 514

-.>,>>> -.>,>>>

CASES
%ase 51 9olamente +orporation%s accounting for the out-of-pocket costs of the business combination with ?ika +ompany does not comply with generally accepted accounting principles. 5irect out-of-pocket costs incurred by a combinor in a combination are included in the total cost of the combinee. 8egal fees and other out-of-pocket costs of the combination paid by ?ika on behalf of 9olamente should ha e been recogni!ed as an account recei able by ?ika and an account payable by 9olamente< legal and other expenditures on its own behalf with respect to the combination with 9olamente should ha e been recogni!ed as expenses by ?ika. T34 The )oard of 5irectors, 9oftware +ompany $H3?4 JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ, +ontroller 5(T:4 JJJJJJJJJJJJJJJJJJJJJJJJ 9K)J:+T4 &ossible Hecognition of "oodwill in &roposed (cquisition of &art of a &roduct 8ine of ?idge +ompany "oodwill is not to be recogni!ed in the sub#ect proposed acquisition, despite pro#ections that the acquisition cost will exceed the current fair alue of identifiable net assets to be acquired. "oodwill is recogni!ed only in the acquisition of an entire entity in a business combination< it traditionally is associated with the acquired entityLs superior earnings compared with other enterprises in the industry. 'f the portion of the acquisition cost that exceeds the current fair alue of the ?idge +ompany identifiable net assets to be acquired cannot be assigned to sometimes-o erlooked intangible assets such as an agreement not to compete or a customer
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list, it must be recogni!ed as a loss of the accounting period in which the acquisition of the assets is completed. The #ournal entry prepared by 9hane +orporationLs controller to record the transaction in ol ing ?erlo +ompany is incorrect in its recognition of common stock to be issued, because the contingency had not been resol ed on the date of the business combination. ( consequence of this error is the inappropriate recognition of goodwill and the o erstatement of one or more assets other than goodwill. 8ikewise, the #ournal entry to record the transaction in ol ing ?erlo 'ndustries inappropriately recogni!es contingent consideration4 the payable to "eorge ?erlo amount. : en if it were appropriate to record such payable, the @.7>,>>> amount would ha e to be discounted to its present alue on $ebruary .0, .>>7, at an appropriate fair interest rate. (gain, the goodwill of @-7>,>>> should not ha e been recogni!ed, and one or more assets should be written down for the @->>,>>> bargain purchase excess (@27>,>>> E @.7>,>>> M @->>,>>>). 3ne other point should be noted with respect to the controller%s #ournal entry for the ?erlo 'ndustries, 'nc., transaction. The controller should consider whether "eorge ?erlo%s agreement not to compete with 9hane +orporation is an intangible asset with a current fair alue on the date of the combination. 'f so, part of the @.7>,>>> cost should be debited to the Bon-+ompete (greement ledger account and amorti!ed o er the fi e-year term of the agreement. 'n the business combination of $rank :lectronics, 'nc., and 8ester :nterprises, 'nc., $rank :lectronics clearly is the combinor. (fter the issuance of -.,>>> shares of 8ester :nterprises common stock, Hobert $rank would own 76.7C D-.,>>> (->,>>> A -.,>>>) M >.767G of 8ester :nterpriseLs outstanding common stock. The 7,>>> shares of 8ester :nterpriseLs unissued common stock to which "eorge 8ester had subscribed are not outstanding< further, many accountants belie e that the balance of the +ommon 9tock 9ubscriptions Hecei able account should be offset against the balance of the +ommon 9tock 9ubscribed account< for 8ester :nterprises, 'nc.< this would result in ero paid-in capital from stock subscriptions. (ccordingly, e en though 8ester :nterprises, 'nc., is the survivor in the proposed merger with $rank :lectronics, 'nc., the latter is the combinor, and its net assets must be recogni!ed at !arrying value in the post-merger balance sheet of 8ester :nterprises. ( further problem in the merger as proposed was the assignment of a @6> per share fair alue for the -.,>>> shares of 8ester :nterprises common stock to be issued to Hobert $rank. )ecause 8ester :nterprises is a *shell corporation, with no operating assets, the fair alue of the -.,>>> shares to be issued to Hobert $rank should not exceed the @=.7> D(@0>,>>> A @--,>>> A @6,>>>) ->,>>> M @=.7>G !arrying amount (book alue) per share of the ->,>>> shares of outstanding common stock of 8ester :nterprises, 'nc. This issue is moot, howe er, gi en that $rank :lectronics, not 8ester :nterprises, is the combinor in the merger of the two corporations. 9tudents who agree with the $(9)Ls conclusion that core goodwill meets the $(9)Ls definition of asset might be persuaded by the analysis of the components of !ore good"ill (as defined in paragraph )->7 of FASB Statement No. 141. $ew accountants would quarrel with a definition of goodwill that encompassed the fair alue of the *going concern, element of the combineeLs existing business and the fair alues of the expected synergies and other benefits of the business combination. 9tudents who disagree with the $(9)Ls conclusion that core goodwill meets the $(9)Ls definition of asset might not be persuaded that the $(9)Ls discussion of probable future economic benefits of goodwill in paragraphs )--- through )--6 of FASB Statement No. 141 clearly supports the conclusion that goodwill has such benefits. Thus, FASB Statement No. 141 likely will not still the contro ersy of recognition of goodwill as an asset.

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-7 ?inutes, :asy La Salle Corporation La Salle Corporation "o#rnal Entrie$

20 05 Jan 31 Investment in Net Assets of De Soto Company Cash To record ac !isition of net assets of De Soto Company 31 Investment in Net Assets of De Soto Company Cash To record payment of costs inc!rred in ac !isition of net assets of De Soto Company# 31 $ther C!rrent Assets %&ant assets '()*4+000 , -(30+000 . 0#/201 Intan2i3&e Assets '(*"+000 , -(30+000 . 0#0)01 4ia3i&ities Investment in Net Assets of De Soto Company -(540+000 5 ("0+0000 To a&&ocate tota& cost of net assets ac !ired to identifia3&e net assets+ 6ith e.cess of c!rrent fair va&!e of the net assets over tota& cost prorated to nonc!rrent assets in the ratio of )*47*"+ or /287)8# -Income ta. effects are disre2arded#0

Pr. 5 !

5 4 0 0 0 0 5 4 0 0 0 0

" 0 0 0 0 " 0 0 0 0

3 0 0 0 0 0 ) 4 " 4 0 0 * 3 " 0 0 " 2 0 0 0 0 " 0 0 0 0 0

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.> ?inutes, :asy Lionel Corporation Lionel Corporation "o#rnal Entrie$

20 05 A!2 31 Investment in Net Assets of Cooper Company '-(1+000+000 . 0#25)41/0 5 -(50+000 . 10#5/401401 Disco!nt on 9onds %aya3&e 9onds %aya3&e To record ac !isition of net assets of Cooper Co# 31 9ond Iss!e Costs Investment in Net Assets of Cooper Company Cash To record payment of costs inc!rred in ac !isition of net assets of Cooper Company# 31 C!rrent Assets %&ant Assets Intan2i3&e Assets Disco!nt on 4on2:Term De3t -(200+000 , (1/0+0000 ;ood6i&& C!rrent 4ia3i&ities 4on2:Term De3t Investment in Net Assets of Cooper Co# -(*))+120 5 (40+0000 To a&&ocate tota& cost of net assets investment to identifia3&e assets and &ia3i&ities+ 6ith remainder to 2ood6i&&# Amo!nt of 2ood6i&& is comp!ted as fo&&o6s7 Tota& cost of investment ()2)+120 4ess7 C!rrent fair va&!e of identifia3&e net assets -(1+010+000 , (2*0+0000 *40+000 Amo!nt of 2ood6i&& ( ))+120 -income ta. effects are disre2arded#0

Pr. 5 %

* ) ) 1 2 0 2 1 1 ) ) 0 1 0 0 0 0 0 0

" 0 0 0 0 4 0 0 0 0 1 0 0 0 0 0

2 2 0 * 0 0 / 0 1 0 ) )

0 0 0 0 1

0 0 0 0 2

0 0 0 0 0 ) 0 0 0 0 2 0 0 0 0 0 ) 2 ) 1 2 0

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.> ?inutes, :asy Wa&a$' Corporation Wa&a$' Corporation "o#rnal Entrie$

20 05 Dec 31 Investment in Indiana Company Common Stoc< -1+000+000 . (100 Common Stoc< 31 Investment in Indiana Company Common Stoc< Common Stoc< Cash 31 C!rrent Assets %&ant Assets '(/+/00+000 , -(10+250+000 , (10+150+00001 C!rrent 4ia3i&ities Investment in Indiana Company Common Stoc<

Pr. 5 (

10 0 0 0 0 0 0 10 0 0 0 0 0 0 1 5 0 0 0 0 5 0 0 0 0 2 0 0 0 0 0 3 * 0 0 0 0 0 / ) 0 0 0 0 0 3 3 5 0 0 0 0 10 1 5 0 0 0 0

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.> ?inutes, :asy Co)&inor Corporation Co)&inor Corporation "o#rnal Entrie$

20 05 $ct 31 Investment in Net Assets of Com3inee Company -100+000 . (130 Common Stoc< -100+000 . (100 %aid:in Capita& in =.cess of %ar To record ac !isition of net assets of Com3inee Company 31 Investment in Net Assets of Com3inee Company %aid:in Capita& in =.cess of %ar Cash To record payment of costs inc!rred in ac !isition of net assets of Com3inee Company# 4e2a&+ acco!ntin2+ and finder>s fees in connection 6ith the ac !isition are recorded as an investment cost? other o!t:of:poc<et costs are recorded as a red!ction in the proceeds from iss!ance of common stoc<# 31 Cash $ther C!rrent Assets %&ant Assets -net0 Disco!nt on 4on2:Term De3t -(250+000 , (240+0000 ;ood6i&& -(1+4)0+000 , (1+140+0000 C!rrent 4ia3i&ities 4on2:Term De3t Investment in Net Assets of Com3inee Co# -(1+300+000 5 (1)0+0000 To a&&ocate tota& cost of net assets investment to identifia3&e assets and &ia3i&ities+ 6ith remainder to 2ood6i&&# -Income ta. effects are disre2arded#0

Pr. 5 *

1 3 0 0 0 0 0 1 0 0 0 0 0 0 3 0 0 0 0 0

1 ) 0 0 0 0 1 2 0 0 0 0 3 0 0 0 0 0

" 0 5 0 0 1 0 0 0 1 0 3 4 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0 1 ) 0 0 0 0 2 5 0 0 0 0 1 4 ) 0 0 0 0

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.> ?inutes, :asy Con$ol Corporation Con$ol Corporation "o#rnal Entrie$

20 05 J!&y 31 Investment in Conner Company and Capso& Company Common Stoc< -*5+000 . (140 Common Stoc< -*5+000 . (100 %aid:in Capita& in =.cess of %ar To record stat!tory conso&idation of Conner Company and Capso& Company# 31 Assets -()00+000 5 ("*0+0000 ;ood6i&& -(1+050+000 , ()*0+0000 4ia3i&ities -(300+000 5 (300+0000 Investment in Conner Co# and Capso& Company Common Stoc< To a&&ocate tota& cost of investment in Conner Company and Capso& Company to identifia3&e assets and &ia3i&ities+ 6ith remainder to 2ood6i&&# Assets and &ia3i&ities of Capso& -the com3inor0 are recorded at carryin2 amo!nts? assets and &ia3i&ities of Conner -the com3inee0 are recorded at c!rrent fair va&!e# -Income ta. effects are disre2arded#0

Pr. 5 5

1 0 5 0 0 0 0 * 5 0 0 0 0 3 0 0 0 0 0

1 4 * 0 0 0 0 1 ) 0 0 0 0 " 0 0 0 0 0 1 0 5 0 0 0 0

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2> ?inutes, ?edium Sil+a Corporation Sil+a Corporation "o#rnal Entrie$

20 05 @ar 1 Investment in @arve& Company Common Stoc< Common Stoc< -(*00+000 , (400+0000 Additiona& %aid:in Capita& 1 Investment in @arve& Company Common Stoc< -(50+000 , (20+0000 Additiona& %aid:in Capita& '()"0+000 , (310+0000 , (5*0+0001 Cash 1 C!rrent Assets '-()50+000 , (500+0000 5 (50+000 cash paid1 %&ant Assets -(1+)00+000 : (1+000+0000 C!rrent 4ia3i&ities -("00+000 : (350+0000 %remi!m on 4on2:term De3t -(150+000 , (100+0000 Investment in @arve& Company Common Stoc< -()*0+000 5 (30+0000

Pr. 5 ,

) * 0 0 0 0 3 0 0 0 0 0 5 * 0 0 0 0

3 0 0 0 0 2 0 0 0 0 5 0 0 0 0

4 0 0 0 0 0 ) 0 0 0 0 0 2 5 0 0 0 0 5 0 0 0 0 / 0 0 0 0 0

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2> ?inutes, ?edium Solo)on Corporation Solo)on Corporation "o#rnal Entrie$

20 05 $ct 31 Investment in @id&and Company Common Stoc< -20+000 . (200 Common Stoc< -20+000 . (10 %aid:in Capita& in =.cess of %ar To record mer2er 6ith @id&and Company# 31 Investment in @id&and Company Common Stoc< %aid:in Capita& in =.cess of %ar Cash To record payment of costs inc!rred in mer2er 6ith @id&and Company# Direct costs of the com3ination are recorded as an investment cost? costs of re2isterin2 and iss!in2 common stoc< are recorded as a red!ction in the proceeds received from iss!ance of common stoc<# 31 Inventories $ther C!rrent Assets %&ant Assets -net0 ;ood6i&& -(420+)*0 , (3*0+0000 Aeceiva3&e from @id&and Company $ther 4ia3i&ities Investment in @id&and Company Common Stoc< -(400+000 5 (20+)*00 To a&&ocate tota& cost of @id&and Company investment to identifia3&e assets and &ia3i&ities+ 6ith the remainder to 2ood6i&&+ and to offset receiva3&e from @id&and a2ainst @id&and>s re&ated paya3&e# -Income ta. effects are disre2arded#0

Pr. 5 -

4 0 0 0 0 0 2 0 0 0 0 3 ) 0 0 0 0

2 0 ) * 0 3 1 1 3 0 5 2 0 0 0

1 * ) 4 2 5

0 0 0 0

0 0 0 )

0 0 0 *

0 0 0 0 * 5 0 0 0 2 2 5 0 0 0 4 2 0 ) * 0

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.> ?inutes, :asy Val#e Corporation Val#e Corporation "o#rnal Entrie$

20 05 Apr 1 Investment in Net Assets of =d2ar Company '-50+000 . (140 5 (225+0001 Cash Common Stoc< -50+000 . (140 To record iss!ance of cash and 50+000 shares of common stoc< for net assets of =d2ar Company# 1 Investment in Net Assets of =d2ar Company -acco!nt: in2+ &e2a&+ and finders> fees0 Common Stoc< -iss!e costs0 Cash To record payment of o!t:of:poc<et costs inc!rred in ac !isition of net assets of =d2ar Company# 1 C!rrent Assets %&ant Assets -net0 -(1+200+000 , (/"+0000 %atent -net0 -(50+000 , (4+0000 C!rrent 4ia3i&ities 4on2:Term De3t %remi!m on 4on2:Term De3t Investment in Net Assets of =d2ar Company -(/25+000 5 (50+0000 To a&&ocate tota& cost of net assets investment to identifia3&e assets and &ia3i&ities+ 6ith (100+000B e.cess of c!rrent fair va&!e of the net assets over tota& cost prorated to nonc!rrent assets in ratio of (1+200+0007(50+000+ or /"8748# -Income ta. effects are disre2arded#0 BC!rrent fair va&!e of =d2ar>s identifia3&e net assets '-(5*5+000 5 (1+200+000 5 (50+0000 , -(300+000 5 (450+00001 4ess7 Tota& cost of Ca&!e>s investment -(/25+000 5 (50+0000 =.cess of c!rrent fair va&!e of net assets over tota& cost

Pr. 5 .

/ 2 5 0 0 0 2 2 5 0 0 0 * 0 0 0 0 0

5 0 0 0 0 * 5 0 0 0 1 2 5 0 0 0

5 * 5 0 0 0 1 1 0 4 0 0 0 4 " 0 0 0 3 0 0 0 0 0 4 0 0 0 0 0 5 0 0 0 0 / * 5 0 0 0

(1+0*5+000 /*5+000 ( 100+000

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Modern Advanced Accountin , !0"e

7> ?inutes, ?edium Sta+e Corporation Sta+e Corporation "o#rnal Entrie$

20 05 Apr 30 Investment in @o&o Company Common Stoc< Cash 108 9onds %aya3&e To record mer2er 6ith @o&o Company as a p!rchase# 30 Investment in @o&o Company Common Stoc< 9ond Iss!e Costs Cash To record payment of o!t:of:poc<et costs inc!rred in mer2er 6ith @o&o Company# 30 C!rrent Assets %&ant Assets %atents -net0 ;ood6i&& -(20+015+000 , (15+""0+0000 4ia3i&ities Investment in @o&o Company Common Stoc< -(20+000+000 5 (15+0000 To a&&ocate tota& cost of @o&o Company investment to identifia3&e assets and &ia3i&ities+ 6ith remainder to 2ood6i&&# -Income ta. effects are disre2arded#0

Pr. 5 /

20 0 0 0 0 0 0 3 1 0 0 0 0 0 1" / 0 0 0 0 0

1 5 0 0 0 1 0 0 0 0 2 5 0 0 0

3 4 0 14 0 0 3 " 4 3 5

0 0 0 5

0 0 0 0

0 0 0 0

0 0 0 0 2 1 0 0 0 0 0 20 0 1 5 0 0 0

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6> ?inutes, ?edium Cooli01e Corporation Cooli01e Corporation "o#rnal Entrie$ a.

20 05 Sept 30 Investment in Net Assets of Doover Company '-50+000 . (200 5 ()50+0001 Common Stoc< -50+000 . (100 %aid:in Capita& in =.cess of %ar Cash To record iss!ance of cash and 50+000 shares of common stoc< for net assets of Doover Company# 30 Investment in Net Assets of Doover Company -(35+000 5 (15+0000 %aid:in Capita& in =.cess of %ar Cash To record payment of o!t:of:poc<et costs inc!rred in ac !isition of net assets of Doover Company# 30 Trade Acco!nts Aeceiva3&e -net0 Inventories Short:Term %repayments Investment in Tr!man Company Common Stoc< 4and -("50+000 , (32+0000 $ther %&ant Assets -net0 -(1+250+000 , ("2+5000 %atent -net0 -(100+000 , (5+0000 Disco!nt on 4on2:Term De3t -(500+000 , (4)0+0000 C!rrent 4ia3i&ities 4on2:Term De3t Investment in Net Assets of Doover Company -(1+)50+000 5 (50+0000 To a&&ocate tota& cost of net assets investment to identifia3&e assets and &ia3i&ities+ 6ith (100+000 e.cess of c!rrent fair va&!e of the net assets over tota& cost prorated to nonc!rrent assets+ other than investment in mar<eta3&e sec!rities+ in ratio of ("50+0007 (1+250+0007(100+000 or 32 E87"2 E8758#

Pr. 5 !2

1 ) 5 0 0 0 0 5 0 0 0 0 0 5 0 0 0 0 0 ) 5 0 0 0 0

5 0 0 0 0 * 5 3 5 0 1 2 5 3 5 0

3 0 0 " ) 0 2 0 1 ) 0 " 1 * 1 1 ) * / 5 2 0

0 0 0 0 5 5 0 0

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 * 0 0 0 0 0 5 0 0 0 0 0 1 / 0 0 0 0 0

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Modern Advanced Accountin , !0"e

Cooli01e Corporation 34on4l#0e05 Cooli01e Corporation "o#rnal Entrie$ b.

20 0" Sept 30 %aid:in Capita& in =.cess of %ar Common Stoc< -12+500 . (100 To record iss!ance of additiona& shares of common stoc< in sett&ement of contin2ent consideration provision of 3!siness com3ination 6ith Doover Co#+ as fo&&o6s7 A2reed mar<et va&!e of common stoc<+ Sept# 30+ 200" -50+000 . (200 (1+000+000 4ess7 @ar<et va&!e+ Sept# 30+ 200"+ of shares of common stoc< iss!ed Sept# 30+ 2005 -50+000 . (1"0 )00+000 @ar<et va&!e of additiona& shares of common stoc< to 3e iss!ed ( 200+000 @ar<et va&!e per share+ Sept# 30+ 200" ( 1" Additiona& 6ho&e shares of common stoc< to 3e iss!ed -(200+000 (1"0 12+500 1 2 5 0 0 0

Pr. 5 !2

1 2 5 0 0 0

0> ?inutes, 9trong Solo Corporation a. Solo Corporation Net In4o)e an0 Earnin1$ per S'are 6or 7ear En0e0 O4to&er (!8 %22(
So&o Corporation net income N!m3er of shares of common stoc< o!tstandin2 9asic earnin2s per share -(1)0+000 "0+0000 b. Solo Corporation Net In4o)e an0 Earnin1$ per S'are 6or 7ear En0in1 O4to&er (!8 %22, So&o Corporation net income7 Fear ended $ct# 31+ 200" -same for 20050 Interest e.pense -(200+000 . 0#150 @ono Company net income7 Fear ended $ct# 31+ 200" -same for 20050 AdG!stments for p!rchased assets7 Cost of 2oods so&d -(230+000 , (200+0000 Depreciation -(40+000 50 4easeho&d amortiHation -(20+000 40 ;ood6i&& impairment &oss Com3ined net income N!m3er of shares of common stoc< o!tstandin2 -"0+000 5 15+0000 9asic earnin2s per share -(1/*+000 *5+0000

Pr. 5 !!

( 1 ) 0 0 0 0 " 0 0 0 0 ( 3 00

( 1 ) 0 0 0 0 - 3 0 0 0 0 0 ( / 0 0 0 0 - 3 0 0 0 0 0 - ) 0 0 0 0 - 5 0 0 0 0 : 0 :

( 1 5 0 0 0 0

4 * 0 0 0 ( 1 / * 0 0 0 * 5 0 0 0 ( 2 "3

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Solo Corporation Solo Corporation Pro 6or)a Co)&ine0 Balan4e S'eet$ c.

A$$et$ -("))+000 5 (30+000 , (100+0000

Pr. 5 !!

O4to&er (!8 %225

C!rrents assets

" 1 ) 0 0 0 2 " 0 0 0 0 0 4 2 0 0 0 0 5 5 0 0 0

%&ant assets -net0 -(2+500+000 5 (100+0000 $ther assets ;ood6i&& Tota& assets Lia&ilitie$ 9 Sto4:'ol0er$; E<#it= -(400+000 5 (100+0000 -(1+)00+000 5 (200+0000 -*5+000 . (100 -(100+000 5 (150+000 , (*+0000 -(200+000 , no adG!stment necessary0 -(300+000 5 (120+0000 -("05+000 , (550+0000

(3 " / 3 0 0 0

C!rrent &ia3i&ities 4on2:term de3t Common stoc<

5 0 0 0 0 0 2 0 0 0 0 0 0 * 5 0 0 0 0 2 4 3 0 0 0 2 0 0 0 0 0

%aid:in capita& in e.cess of par Aetained earnin2s

Tota& &ia3i&ities I stoc<ho&ders> e !ity

(3 " / 3 0 0 0

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Modern Advanced Accountin , !0"e