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Question(s) / Instruction(s):

24.     On May 31, 2006, Combinor Corporation issued $4,000,000 face amount of 20-year, 16% bonds to yield 20%, interest payable each May 31 and November 30, for all the net assets of Combinee Company. Also on May 31, 2006, Combinor paid the following out-of-pocket costs in connection with the combination:
          
Finder's, accounting, and legal fees relating to combination     $180,000
Cost associated with SEC registration statement      120,000
Total out-of-pocket costs of business combination     $300,000

          The separate balance sheet of Combinee on May 31, 2006, prior to the business combination included the following:

Carrying

Current

 

Amounts

Fair Values

Cash

$ 50,000

$ 50,000

Other current assets

650,000

780,000

Investments in marketable debt securities (held to maturity)

400,000

460,000

Plant assets (net)

940,000

2,060,000

Total assets

$2,040,000

$3,350,000

 

 

 

Current liabilities

$ 300,000

$ 300,000

Long-term debt

200,000

200,000

Total liabilities

$ 500,000

$ 500,000

Common stock

1,000,000

Retained earnings

540,000

Total liabilities & stockholders' equity

$2,040,000

 

 

 

 

 

Prepare journal entries for Combinor Corporation on May 31, 2006, to record the business combination with Combinee Company. Appropriate present value factors are as follows:

 

 

 

 

 

Present value of 1 due in 40 periods at 10%

0.022095

 

 

Present value of ordinary annuity of 1 for 40 periods at 10%

9.779051

Case

     25.     Paragraph 43 of FASB Statement No. 141, "Business Combination," reads in part as follows:
          
          The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed shall be recognized as an asset referred to as goodwill.
          
          What deficiencies, if any, do you perceive in the foregoing definition of goodwill? Explain.

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