Colton Jones Inc. Essay

Marion Jones was once the mend sh atomic number 18holder and president of Chempla, Inc. in 20X1 she interchange her armory to Westcoat Industries. She signed an stipulation to be a consultant for five course of instructions. after(prenominal) being unable to make a profit Westcoat decided to sell their disport in Chempla, but were unable to recoup a buyer. Westcoat offered Chempla back to Marion Jones and an agreement was reached on September 1, 20X4.Included in the agreement Marion would be bulk shareholder of the impertinently leaped corporation. A purchase damage was set for the net assets and market determine of names receivable, inventories, property, plant, and equipment, and accounts payable were obtained. Marion Jones with other investors was able to pay the learning of Chemplas net assets. Colton Jones, Inca drugged LIFO basis of invoice.Under the U.S. generally accepted accounting principles Codification of accounting system Standards, Codification takin gs 805 Business Combinations Colton Jones accounted for the acquisition of Chempla as they should hand. The acquisition rule was phthisisd as it should imbibe been, one entity was identified as the attainr, an acquisition date was stated, and the recognition and measurement principals are present. All parts of the acquisition that strike to take place were present in the case.11 GAAP Codification of Accounting Standards, Codification Topic 805 Business Combinations Prestone, Riles, & Nye AssociatesPrestone, Riles, & Nye ( pro re nata) is a marketing communications company with offices passim the US and a subsidiary in the United Kingdom and they want to wave into Eastern Europe. In their efforts to do so as required entered an agreement to acquire superior personal credit line of Broadwick Communications, Inc., a firm with contacts in Europe. Brodwick has three shareholders owning 25% each and eightsome owning the remaining 25%. as required is responsible for(p) to pa y $14 million to Broadwick shareholders and form a new entity, BPRN International, Inc. BPRN bequeath demand the activities of Broadwick and go out have two classes of well-worn, special K A, voting and Common B, nonvoting transmission line. Income distributions or losings allow be shared with the self-command of Common B shares. BPRN get out figure 48 part of its voting stock to PRN and 52 per centum to the spring Broadwick shareholders. PRN plans to use the integrity regularity to account for and report its coronation BPRN.PRNs decision to use the beauteousness mode is supported by APB 18 The Equity Method of Accounting for Investments in Common Stock, which states, that the justness method of accounting for an enthronisation in common stock should also be followed by an investor whose enthronement in voting stock gives it the chore leader to exercise crucial influence everyplace operating and financial policies of an investee even though the investor hold s 50 per centum or little of the voting stock an investing (direct or indirect) of 20 percent or more(prenominal) of the voting stock of an investee should lead to a presumption that in the absence of picture to the contrary an investor has the ability to exercise crucial influence over an investee.1 PRNs enthronization in BPRN meets these criteria.The yard for employ the equity method is to accurately report PRNs share of net income from BPRN and for PRNs investiture account to bounce its share of BPRNs net assets. We agree with PRNs decision to account for and report its investment in BPRN using the equity method since it meets the requirements of GAAP as stated above. PRN also plans to acquire a legal age of the voting stock in BPRN, at which time it will become a subsidiary of PRN. Since the basic accounting procedures for applying the equity method are the same in each case PRN will be able to continue using the equity method if and when it acquires a majority of t he voting stock and is required to overdress unite financial statements1 APB doctrine No. 18, paragraph 17.Stanomat, Inc.Stanomat, Inc. plans to acquire the superior common stock of Kesser Instruments and make it a subsidiary. An agreement is made that allows Stanomat to acquire 55 percent in two months and will purchase additional shares and outstanding shares will be purchased over a iv year period. Stanomat will issue a none to Kesser payable over four-spot years for $20 million with avocation group 1.5 percent above prime. During the period of the note Stanomat will acquire unissued shares of Kesser and upon complete defrayment of the note Stanomat will own snow percent of the subsidiary. At 55 percent of ownership, Stanomat will reputation its investment at hundred percent ownership.We do not believe it is appropriate for Stanomat to record its investment in Kesser based on the 100 percent ownership that it has committed to purchase. Stanomat will use the equity m ethod to account for its investment in Kesser and prepare consolidated financial statements since it owns more than 50 percent of the company. However, in order to accurately reflect its share of Kessers assets and income, it should exactly record and report the portion that it is entitled to. FASB logical argument 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling pastime in the acquiree at the acquisition date.1 thus Stanomat must recognize the noncontrolling interest held by Kesser until such time as it has acquired 100 percent ownership.In business crews contingent shares are shares that will only be issued under certain spate or when certain conditions are met. A predetermined set of events must number before the shares would be issued to investors. In this case, shares of Kesser stock will only be issued to Stanomat when a payment has been made. Deferred payment shares are issued to the investors in advance of pay ment. If the Kesser had issued its shares to Stanomat in advance of payment, Stanomat would be able to report and record the investment based on the 100 percent of shares it had received.If Stanomat records the investment in Kesser at the 55 percent level it would not be appropriate or practical to enshroud the purchase as a beat acquisition. Step acquisition is only inevitable when the investor owns a noncontrolling interest in the investee and then(prenominal) acquires additional interest giving it epochal influence. In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date bewitching value and recognize the resulting gain or loss, if any, in earnings.2 Stanomat will acquire a controlling interest in Kesser in the first transfer of stock. Therefore it will be using the equity method to record the investment. Upon acquiring additional shares there will be no need to adjust its investm ent accounts.1 FASB bid 141R summary2 FASB Statement 141R paragraph 48genus genus genus genus Falco Industries, Inc.Falco, a supplier of simple machinemotive parts, sells its parts to aftermarket segments of the auto industry, including the manufacturer, rebuilder, warehouse distributor, mass merchandiser, and specialist. Falco acquired 10 percent voting common stock in an automotive store, respectable Automotive, and in the same year acquired an additional 12 percent. Falco has a June 30 fiscal year and sizable has a year end of October 31st. At year-end Falco Industries wanted to use the equity method to account for the investment in Tidy Automotive Stores. The market value of the investment in common stock on June 30th was 6 percent little that its acquisition cost.During the year Falco acquired a total of 22 percent of outstanding common stock in Tidy, which gives Falco between 20 and 50 percent of outstanding common stock, and therefore Falcos interest in Tidy is significa nt. To account for this type of investment, Falco would need to use the equity method. The interest in Tidy would not be significant if Falco had acquired less that 20 percent, in this case Falco would need to use the cost method to account for the investment. If Falco had acquired more than 50 percent they would have to issue consolidated financial statements.