Colton Jones Inc. Essay Example for Free

Colton Jones Inc. EssayMarion Jones was once the fillet of sole sh beholder and president of Chempla, Inc. in 20X1 she sold her striving to Westcoat Industries. She signed an agreement to be a consultant for five years. After being unable to recognise a profit Westcoat decided to sell their wager in Chempla, but were unable to find a buyer. Westcoat offered Chempla back to Marion Jones and an agreement was reached on September 1, 20X4.include in the agreement Marion would be majority shareholder of the newly formed corporation. A leverage legal injury was set for the brighten assets and market reputes of tales receivable, inventories, property, plant, and equipment, and accounts payable were obtained. Marion Jones with other investors was able to finance the acquisition of Chemplas cabbage assets. Colton Jones, Inca doped LIFO basis of accounting.Under the U.S. generally accepted accounting principles Codification of Accounting Standards, Codification Topic 805 furrow Combinations Colton Jones accounted for the acquisition of Chempla as they should have. The acquisition system was enjoymentd as it should have been, one entity was identified as the deriver, an acquisition date was stated, and the recognition and measurement principals are present. All parts of the acquisition that needed to put one over place were present in the case.11 GAAP Codification of Accounting Standards, Codification Topic 805 commercial enterprise Combinations Prestone, Riles, Nye AssociatesPrestone, Riles, Nye ( PRN) 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 PRN entered an agreement to acquire outstanding stock of Broadwick Communications, Inc., a firm with contacts in Europe. Brodwick has three shareholders proclaiming 25% each and eight owning the rest 25%. PRN is responsible to pay $14 million to Broadwick shareholders and f orm a new entity, BPRN International, Inc. BPRN get out conduct the activities of Broadwick and provide have two classes of stock, Common A, take and Common B, nonvoting stock. Income distributions or losses entrust be shared with the ownership of Common B shares. BPRN will be intimate 48 pct of its voting stock to PRN and 52pct to the former Broadwick shareholders. PRN plans to use the equity method to account for and report its investing BPRN.PRNs decision to use the equity 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 investiture in parkland stock should also be followed by an investor whose enthronization in voting stock gives it the ability to exercise significant influence over operating and financial policies of an investee even though the investor holds 50 percent or less of the voting stock an coronation (direct or indirect) of 20 percent or more of the voti ng stock of an investee should lead to a presumption that in the absence of evidence to the obdurate 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 same in each case PRN will be able to prolong using the equity method if and when it acquires a majority of the voting stock and is required to prepare coalesced financial statements1 APB Opinion No. 18, paragraph 17.Stanomat, Inc.Stanomat, Inc . plans to acquire the outstanding familiar 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 affaire 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 deoxycytidine monophosphate percent of the subsidiary. At 55 percent of ownership, Stanomat will record 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 compa ny. However, in order to accurately reflect its share of Kessers assets and income, it should only record and report the portion that it is entitled to. FASB Statement 141R requires an merchant bank to live the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date.1 Therefore Stanomat must recognize the noncontrolling interest held by Kesser until such time as it has acquired 100 percent ownership.In caper combinations contingent shares are shares that will only be issued under certain 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 shape up of payment. If the Kesser had issued its shares to Stanomat in advance of payment, Stanomat would be able to report and record the investmen t 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 functional to treat 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 fair 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 investment accounts.1 FASB Statement 141R summary2 FASB Statement 141R paragraph 48genus Falco Industries, Inc.Falco, a provider of automotive parts, sells its par ts 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, Tidy self-propelled, 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 closing 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 between 20 and 50 percent of outstanding common stock, and and so 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 Fa lco 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.