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Allfoods Corp. (Allfoods) acquired 80 percent of the outstanding common stock of Baked Beans Corp. in a business combination. After value consideration transferred value of tangible and intangible assets acquired, libilities assumed, I recommend doing this consolidation general entry for the business combination: Dr. | Land| $ 21,000,000| | | | Dr. | PPE| $ 7,000,000| | | | Dr. | IPR&D| $ 15,000,000| | | | Dr. | Trademark| $ 3,000,000| | | | Dr. | Goodwill| $ 122,750,000| | | | | | | Cr. | Cash| $40,000,000| | | | Cr. C/S| $70,000,000| | | | Cr. | APIC| $ 5,000,000| | | | Cr. | NCI| $ 33,750,000| Here are the reasons that I suggest to make that general entry: Determine Consideration Transferred To acquire 80% of the outstanding common stock of Baked Beans Corp, the amount of consideration Allfoods Corp. transferred is: (in millions) (1) Cash 40 (2) Common Stock70 (3) Contingient Consideration20 (4) ————————————————- Cost of precobination option exchange 5 Total135 (2) Common stock (C/S) is 2 million shares at $35/share. 3) Contingent consideration is recorded at fair value at acquisition-date. (ASC 805-30-Currently Viewing:805 Business Combinations25-5) In this case, the contingent consideration is classified as equity since it settled in shares. (ASC 815-40-25-4) The contingient consideration goes into additional paid in capital account (APIC) on the Allfoods’ balance sheet. (4) Exchange of share options in conjunction with a business combination is modification of share-based payment awards. The portion attributable to precombination service is part of the consideration transferred. ASC 805-30-30) The underlying shares for stock options are not liabilities and there is no cash settlement, so the exchange of stock option is classified as an equity (ASC 718-10-25-11), and goes into additional paid-in-capital account (APIC) on the Allfoods’ balance sheet. Acquistion related cost other than cost to issue debt or equity securities are expensed in the periods in which the costs are incurred. (ASC 805-10-25-23) Fair Value of Assets Acquired and Liabilities Assumed The value of the Chino manufacturing facility should be measure at its acquisition fair values . ASC 805-20-30-1) In addition, a fair value measurement assumes the highest and best use of the asset by market participants at the measurement date. (820-10-35-10) In use Fair Value (in millions) Manufacturing Facility (in total) 36 Land 21 PPE 7 Other 8 In exchange Land, net of demolition cost + scrap30 PPE (moveable) at an auction 2 Total 32 In this case, the highest and best use of Chino manufacturing facility is $36 million in use for industrial purpose. Valuation of Intangible Assets The in-process research and development (IPR&D) and trademark an be identified as intangible assets since they meet the separability criterion. “The separability criterion means that an acquired intangible asset is capable of being separated or divided from the acquiree and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability. ” (ASC 805-20-55-3) > Recognizing Particular Assets Acquired and Liabilities Assumed>> Identifiable Intangible AssetsIdentifiable intangible assets acquired in a business combination should be recognized separately from goodwill (ASC 805-20-25-10).

Even though Allfoods Corp. decide not to use and sell the Baked Beans Corp trademark, it should measure the trademarkt at fair value (ASC 350-30-55-1, ASC805-20-Currently Viewing:30-6)805 Business Combinations 20 Identifiable Assets and Liabilities, and Any Noncontrolling Interest 30 Initial Measurement General > Measuring the Fair Values of Particular Identifiable Assets and a Noncontrolling Interest in an Acquiree >> Assets that the Acquirer Intends Not to Use or to Use in a Way Other than Their Highest and Best Use

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Caculation of Non-controlling Interest (NCI) Allfoods Corp. transferred $ 135 million consideration to acquire 80% outstanding common stock of Baked Beans Corp (BB). $135 million consideration transferred could be the total of 80% fair value of BB and control premium. (1) If there is no control premium exists, the fair value of BB is $135 million devided by 80%, which is $168. 75 million. The value of NCI is $168. 75 million minus $135 million, equals to $33. 75 million. (2) If there is control premium, the fair value of BB must be less than $168. 5 million, thus NCI is less than $33. 75. (3) The maximum amount of NCI in this case is $33. 75 million without taking control premium in to consideration. Since there is no further information about the control premium, the general entry above use the available number with assuming Allfoods Corp. did not pay control premium in the business combination. For all the above reasons, I suggest Allfoods to make the general entry on page 1 of this memo. Please let me know if you have any further questions.

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