WORKSHOP PROBLEM 864
Company A and Company B combine on 1 January 20×5 via statutory merger in to achieve operating economies of $5,000 per year. Company A issues 2 shares of common stock for every one share of Company B. Company A is the surviving company.
The most recent balance sheets and income statements of these companies are presented on the next page, together with other financial information.
Prepare 1 January 20×5 projected balance sheets and 20×5 projected income statements for the combined company under current GAAP, assuming that the board of directors and senior management of the combined company are dominated by the directors and senior management of (a) Company A; and (b) Company B. Cite paragraphs by number and letter from the FASB Codification to support your solution.
- Use the Financial Accounting Standards Codification (ASC) to solve this problem. You may access the ASC from the website of the American Accounting Association at http://www2.aaahq.org/ascLogin.cfm. Your User ID is AAA51097; your password is 8DHB3gq; both are case sensitive. You cannot access the ASC from the FASB website.
- The link http://guides.newman.baruch.cuny.edu/FASB_Codification includes an explanation (prepared by Library Professor Rita Ormsby) of the ASC and an implementation guide on how to use it. This is the most up-to-date guide available.
- Submit your solution on Monday, 27 April 2015, on no more than two pages. The financial statements should be on one page. Your discussion, in complete sentences, should be on the other page, double-spaced, 12-point font, one-inch margins, maximum 200 words. To facilitate xeroxing, the page should be unstapled, unreduced, uncut, unpunched, uncreased, unsmudged, wrinkle-free 8-1/2″ x 11″ 20-pound weight. Print your name (last name first) in the upper right-hand corner of each page. Use a laser or ink jet printer.
- To save space in the discussion of your solution, your citations should be parenthetically in the text, not in a footnote or a separate section, as follows: (ASC 210-10-05-5) or (EITF 98-9 para. 7).
- Content and writing skills will be graded equally. Sloppiness, illegibility, and departures from these guidelines will be penalized. (Pretend you are doing a special project for your boss, a very busy individual who insists that you neatly summarize the whole project on no more than 200 words on one page using this prescribed format.) This problem may involve one or more ambiguities. For any ambiguity, choose the most reasonable assumption, specify what it is, and prepare your solution consistent with that assumption.