Question 4 20 marks

Realized inventory 7500 2019 adjustments to net income: Consolidated income statement 2019
Tax 30% -2250
5250 0.5 Realized inventory 5250 0.5 Revenue 85000+76000-42000 119000 1

Unrealized inventory 25000 Unrealized inventory- -3500 0.5 COGS 46000+54000-42000-7500+5000 55500 2
x .2
5000 Unrealized land -7000 0.5 Other income 38000+10000-25000-10000 13000 1.5
Tax 30% -1500
3500 1 realized equipment 2100 0.5 Depreciation 12000+8400+8000-3000 25400 1.5

Unrealized land 10000 -3150 2 Income tax 7200+31400+2250-1500-3000+900-2400 34850 3

Tax 30% -3000
7000 0.5 Net income 16250 9

Unrealized equipment 68000 Consolidated Retained Earnings 2019

-50000 Consolidated Balance Equipment
18000 18000/6 3000 Jan/1/19 180000+145000-75000-11200-5250-10500 223050 3
Tax 30% -5400 5400/6 -900 PAC 230,000
12600 2100 1 STL 151,000 0.5 Net income above 16250 0.5
3 unreal 18000 x 4/6 -12000 1
FVA 16000 0.5 Dividends -15000 0.5
385,000 2
Dec 31/19 224300 4
Question 3: 30 marks FVA table 2019
Acquisition analysis:
consideration transferred Jan1/16 300000 x 10 3000000 FVA I/S Beg R/E B/S

Net assets acquired: Receivables 25600 0.5

book value 900000+300000 1200000
Inventories -121600 0.5
FVA:
receivables (158000-190000)*.8 -25600 Equipment -2000 -4800 12000 1.5 20000/10=2000 per year
inventories (392000-240000)*.8 121600
equipment (740000-720000)*.8 16000 building -1400 -3360 22400 1.5 28000/20 = 1400 per year
land (190000-180000)*.8 8000
building (288000-260000)*.8 22400 Land 10000 0.5
goodwill -60000
LTD (440000-400000)*.8 -32000 goodwill 1689600 1
LTD 6500 20400 -8000 1.5

-1250400 IT/ DTL -1300 1600

400 -2400
goodwill 1749600 6 280 -4480
-620 -2000
-7280 2

2480 -83760 1718720 0

Consolidated Balance Sheet 2019

Cash 30000+60000 90000 0.5 Depn exp 40000+30000+2000+1400 73400 1.5

Receivables 305000+301000 606000 0.5 IT exp 7000+14000+620 21620 1

inventories 240000+210000 450000 0.5

Equipment 380000+630000+12000 1022000 1

Building 343000+420000+22400 785400 1

Land 470000+50000+10000 530000 1

Investment in SVI 3000000-3000000

Goodwill 60000+1689600 1749600 1

5233000

Current liabilites 15000+50000 65000 0.5

Long Term Liabilities 240000+400000+8000 648000 1

Deferred tax Liability 7280 1

Common Stock 1563000+900000-900000 1563000 1

Retained Earnings 2950000+381000-300000-83760+2480 2949720 3.5

5233000

0
Question 2: 25 marks

1 Proposal 1 ; a business combination has occurred since Alex controls the net assets that constitute the business of B
The acquirer is Alex since it paid cash and issued debt to acquire the net assets.

Proposal 2: a business combination has occurred since Alex controls the net assets of Blayne by owning 100% of the
Who is the acquirer?
Alex O/S share 34,000 No one group of shareholder holds more than 50% of shares o
30,000 Look at qualitative factors:
64,000 equal representation on the BOD
issued 64,000 Management will be absorbed but we don't know h
Total 128,000 Effected using Alex shares/
Alex is significantly larger
proposal for the takeover comes from Alex.
Conclusion: Alex is the acquirer

2 Proposal 1 cost is $446,400 +5,700 = 452,100 while Proposal 2 cost is 460,800 + 14,400 = 475,000 so Proposal 1 is po
Alex does not have the cas to pay under proposal 1 so will incurr borrowing costs
proposal 2 has less cash outlay
Proposal 2 giving up some level of ownership.
Proposal 2 responsible for hidden obligations other valid points
Conclusion - tied to discussion
0.5 1
3 consideration transferred 446400+PV(.1 x 50,000)3ys, 5%= 4712 451,112 1.5

Net assets acquired

Accounts receivable 68200 0.5
Inventory 148220 0.5
Land 222000 0.5
Building 36020 0.5
Equipment 27945 0.5

Current lialibities -53115 0.5

Noncurrent liabilities -167000 0.5
Research 60000 0.5
342270

goodwill 108,842 0.5

6
that constitute the business of Blayne 1

of Blayne by owning 100% of the shares 3 1 mark for calc

1 mark for qualitative
olds more than 50% of shares of the combined entity. 1 mark concl support

n on the BOD
e absorbed but we don't know how.

eover comes from Alex.

4

400 = 475,000 so Proposal 1 is potentially cheaper. 3 1 mark for each

max 2
1 mark concl support

Balance Sheet ADJ

Cash 152000 -5700 146300 1

A/R 179200 68200 247400 1
inventory 386120 148220 534340 1
Land 437000 222000 659000 1
Building net 262505 36020 298525 1
Equipment net 90945 27945 118890 1
Research 60000 60000 0.5
Goodwill 108842 108842 0.5
1507770 2173297

CL 145335 53115 198450 1

Contingent liabilty 4712 4712 0.5
NCL 167000+446400 613400 2
C/S 512000 512000 0.5
R/E 850435 -5700 844735 1
1507770 2173297
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