Colton Jones Inc. Essay

Marion Jones was once the sole shareholder and president of Chempla, Inc. in 20X1 she sold her standard to Westcoat Industries. She signed an agreement to be a adviser for five years. After being un able to defecate a put on Westcoat decided to sell their beguile in Chempla, but were unable to fetch 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 majority shareholder of the newly formed corporation. A purchase price was set for the give the sack assets and market values of casts receivable, inventories, property, plant, and equipment, and accounts collectable were obtained. Marion Jones with other investors was able to finance the acquisition of Chemplas net assets. Colton Jones, Inca narcotised LIFO basis of accounting.Under the U.S. GAAP codification of Accounting Standards, codification Topic 805 Business Combinations Colton Jones accounted for the acquisition of Chempla a s they should have. The acquisition mode was apply as it should have been, one entity was identified as the take aimr, an acquisition epoch was stated, and the recognition and measurement principals are present. All parts of the acquisition that unavoidable to take place were present in the suit of clothes.11 GAAP Codification of Accounting Standards, Codification Topic 805 Business Combinations Prestone, Riles, & Nye AssociatesPrestone, Riles, & Nye ( as needed) is a marketing communications company with offices throughout the US and a subsidiary in the unify Kingdom and they want to expand into Eastern Europe. In their efforts to do so pro re nata entered an agreement to acquire outstanding stock of Broadwick Communications, Inc., a satisfying with contacts in Europe. Brodwick has three shareholders owning 25% each and eight owning the remaining 25%. PRN is responsible to pay $14 million to Broadwick shareholders and form a new entity, BPRN International, Inc. BPRN leav e conduct the activities of Broadwick and get out have two classes of stock, harsh A, choose and Common B, non pick out stock. Income distributions or losses will be divided up with the ownership of Common B shares. BPRN will issue 48 partage of its voting stock to PRN and 52 share to the former Broadwick shareholders. PRN plans to use the legality method to account for and invoice its investiture BPRN.PRNs decision to use the comeliness method is supported by APB 18 The Equity Method of Accounting for Investments in Common Stock, which states, that the equity method of accounting for an investing in common stock should as well be followed by an investor whose investment in voting stock gives it the mogul to exercise significant influence over operating and monetary policies of an investee still though the investor holds 50 percent or less of the voting stock an investment (direct or indirect) of 20 percent or more of the voting stock of an investee should lead to a presumption that in the absence of proof to the contrary an investor has the ability to exercise significant influence over an investee.1 PRNs investment in BPRN meets these criteria.The reason for using the equity method is to accurately report PRNs share of net income from BPRN and for PRNs investment account to reflect 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 majority 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 corresponding in each case PRN will be able to continue using the equity method if and when it acquires a majority of the voting stock and is required to prepare consolidated financial statements1 APB judgement No. 18, paragraph 17.Stanomat, Inc.Stanomat, Inc. plans to acquire the out standing 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 four year period. Stanomat will issue a note to Kesser payable over four years for $20 million with interest 1.5 percent above prime. During the period of the note Stanomat will acquire unissued shares of Kesser and upon complete payment of the note Stanomat will own 100 percent of the subsidiary. At 55 percent of ownership, Stanomat will saucer its investment at 100 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 method 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 besides record and report the portion that it is entitled to. FASB Statement 141R requires an acquirer to earn the assets acquired, the liabilities assumed, and any noncontrolling interest 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 combinations contingent shares are shares that will solely be issued under indisputable circumstances or when certain conditions are met. A predetermined set of events must occur 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 get on with of payment. 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 r eceived.If Stanomat records the investment in Kesser at the 55 percent level it would not be appropriate or practical to continue the purchase as a step acquisition. Step acquisition is only necessary when the investor owns a noncontrolling interest in the investee and then acquires additional interest giving it significant influence. In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date exquisite value and recognize the resulting gain or loss, if any, in earnings.2 Stanomat will acquire a controlling interest in Kesser in the set-back 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 investment accounts.1 FASB Statement 141R summary2 FASB Statement 141R paragraph 48genus genus genus Falco Industries, Inc.Falco, a supplier of self-propelling parts, sells its parts to aftermarke t 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, Tidy Automotive, and in the same year acquired an additional 12 percent. Falco has a June 30 fiscal year and Tidy 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 less that its acquisition cost.During the year Falco acquired a total of 22 percent of outstanding common stock in Tidy, which gives Falco amongst 20 and 50 percent of outstanding common stock, and therefore Falcos interest in Tidy is significant. 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.