AFS4-3 Various Acquisitions During 2005, eBay acquired 100% of four different co

Question

AFS4-3

Various Acquisitions

During 2005, eBay acquired 100% of four different companies as follows (assume all companies havea December 31 year-end). Net income amounts are stated in thousands of dollars; assume that the net

income is earned uniformly throughout the year 2005.

2005 Annual

Company Acquired on Net Income

Rent.com February 1, 2005 $12,000

International classified websites April 1, 2005 5,000

Shopping.com September 1, 2005 20,000

Skype October 14, 2005 120,000

Required:

A. How much of the income earned by each of these companies will be recorded in consolidated

net income in the year of acquisition?

B. In addition to reported earnings for the year of acquisition, GAAP requires certain pro forma

earnings disclosures for the consolidated entity. What amount of earnings from each of these acquisitions would be included in proforma earnings disclosures?

Explanation / Answer

A:

Consolidated net income in the year of acquisition =$47389.27 ('000)

Rent.com = $12,000 * 11/12 = $11000

International classified websites = $5,000 * 0.75 = $3750

Shopping.com = $20,000 * 1/3 = $6666.67

Skype = $ 120,000 * 79/365 = $25972.60

B. GAAP requires to disclose the intercompany booking of profit of each company to reduce the duplicacy of the profit for the consolidated entity. GAAP also requires to present the result in two parts a) for the whole year and b) for the period it is acquired.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.