“Business Combinations,” and amends or supersedes a number of interpretations of
APB No. 16. Statement No. 141 eliminates the pooling-of-interest method of ac-
counting for business combinations in the United States except for qualifying busi-
ness combinations initiated prior to January 1, 2001. However, it carries forward
without reconsideration the guidance in APB No. 16 related to the purchase method
of accounting. Statement No. 142 supersedes APB Opinion No. 17, “Intangible As-
sets.” Under Statement No. 142, goodwill and indefinite-lived intangible assets are
no longer amortized but are reviewed at least annually for impairment. This section
will concentrate on the accounting standards set forth in SFAS No. 141, “Business
Combinations.”
Statement No. 141 states that “business combination occurs when an entity ac-
quires net assets that constitute a business or acquires equity interests of one or more
other entities and obtains control over that entity or entities. For the purpose of this
statement, the formation of a joint venture is not considered a business combination.
Since the Statement requires the purchase method to be used, it becomes neces-
sary to identify the acquiring entity in each business combination. Identifying the ac-
quirer is relatively straightforward when the combination is effected solely through
the distribution of cash, other assets, or incurring debt. It can be difficult in a stock-
for-stock transaction when the combining companies are of relatively the same size.
Accordingly, the Statement points out that “in identifying the acquiring entity in a
combination effected through an exchange or equity interests, all pertinent facts and
18.6 BUSINESS COMBINATIONS 18 • 17Assume the same facts as in Exhibit 18.2 except that instead of the $1,200,000 cash being
paid to MNO, Packer Corp. issued the stockholders of Summit Corp. 120,000 shares of Packer
Corp. common stock on December 31, 2001. On that date the common stocks of Packer
Corp. were selling for $10 per share.
Solution: The Packer Corp. would make the following entry to record the pooling on its books:
Cash 100,000
Accounts receivable 400,000
Inventories 650,000
Property, plant and equipment 1,150,000
Accounts payable 530,000
Long-term debt 790,000
Other liabilities 50,000
Retained earnings 120,000
Common stock 120,000
Additional paid-in capital 690,000The individual assets and liabilities of Summit Corp. are recorded at book values. The $10 fair
market value of Packer Corp. common stock is irrelevant even though the stockholders of
Summit will receive common stock with a fair value of $1,200,000 just as they did when they
received cash in Exhibit 18.2. The stock issued by Packer in the business combination is
recorded at its $1 par value. The credit to additional paid-in capital represents the difference
between par value of the stock issued by Packer and the $810,000 of stated capital on the
books of Summit. It should also be noted that since this is a pooling no goodwill was recorded
as part of the entry recording the business combination. It should also be noted that the
$120,000 retained earnings of Summit is carried over to the books of the combined compa-
nies. This is consistent with the assumption that Packer and Summit interest have been fused,
rather than being an acquisition of Summit by Packer.
Exhibit 18.3. Pooling-of-Interest Method.