| Course | ACC-6020 Advanced Accounting |
|---|---|
| Module | Module 1 |
| Paper type | Written Assignment 1: introduction to business combinations |
| Length | About 745 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | M.S. in Management in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 6020 Module 1
Ridgewood Instruments Buys Lakeland Sensors: The Forms, Motives and First Measurements of a Business Combination
Student Name
M.S. in Management in Accounting, Thomas Edison State University
ACC-6020: Advanced Accounting
Mentor Name
Month Day, Year
Ridgewood Instruments Buys Lakeland Sensors: The Forms, Motives and First Measurements of a Business Combination
Question 1: Why do companies combine?
Companies combine to grow faster than they could on their own, to gain products, technologies or customers, to cut costs through scale, to secure supply or distribution and sometimes to reduce taxes or competition. Jeter and Chaney (2011) note that many combinations fail to deliver the expected gains, often because the buyer pays too much or cannot integrate the target. Ridgewood's motive is vertical: Lakeland makes the pressure sensors inside Ridgewood's gauges, and owning it secures supply and margins.
Question 2: What forms can a combination take?
Ridgewood is buying 80% of Lakeland's shares, so Lakeland survives as a subsidiary with its own books. Ridgewood will prepare consolidated statements that present the two as one economic entity, with the 20% it does not own reported as a noncontrolling interest.
| Form | What happens | Accounting result |
|---|---|---|
| Statutory merger | One company absorbs the other, which ceases to exist | One set of books; the acquirer records the target's assets and liabilities directly |
| Statutory consolidation | Both companies dissolve into a new company | The new company records both companies' net assets |
| Acquisition of stock | The acquirer buys a controlling interest; the target remains a separate legal entity | The parent records an investment, and consolidated statements combine the two |
Question 3: Why did the acquisition method replace pooling?
Until 2001, companies could account for some combinations as poolings of interests, simply adding the two companies' book values together and recognizing no goodwill. Pooling made combinations look costless and allowed acquirers to avoid amortizing goodwill, so companies structured deals to qualify. Critics argued that pooling hid the price paid and made similar transactions look different. Pooling was abolished in 2001, and the rules that followed require the buyer to put every identifiable asset and liability of the target at fair value, with goodwill absorbing whatever price is left over (Financial Accounting Standards Board [FASB], 2007).
Question 4: The acquisition computation
On January 1, 2026, Ridgewood paid $6,080,000 in cash for 80% of Lakeland and agreed to pay up to $800,000 more if Lakeland's sensor sales exceed targets over two years; the earnout's fair value at closing is $320,000. Ridgewood also paid $250,000 of legal and advisory fees. The fair value of the 20% noncontrolling interest, based on Lakeland's share price before the announcement, is $1,600,000. Lakeland's identifiable net assets have a fair value of $5,900,000.
The $250,000 of fees is expensed in 2026, not added to the cost of the investment, because under the acquisition method acquisition costs do not create value in the target. The earnout is recorded as a liability at fair value; if its value changes later because Lakeland performs better or worse than expected, the change goes to Ridgewood's income, not to goodwill.
The earnout is recorded at its acquisition-date fair value as part of the consideration.
| Measurement | Amount |
|---|---|
| Cash paid for 80% | $6,080,000 |
| Fair value of contingent consideration | 320,000 |
| Consideration transferred | 6,400,000 |
| Fair value of the noncontrolling interest | 1,600,000 |
| Total fair value of Lakeland | 8,000,000 |
| Fair value of identifiable net assets | (5,900,000) |
| Goodwill | $2,100,000 |
Question 5: What if the price had been lower?
If the consideration and the noncontrolling interest together had been worth less than $5,900,000, the combination would be a bargain purchase. The acquirer must first reassess whether it identified and measured all assets and liabilities correctly, then recognize any remaining difference as a gain in income. Bargain purchases are rare and usually arise from forced sales.
Question 6: What does goodwill represent?
The $2,100,000 left over pays for what cannot be listed separately: control of a sensor source, a trained team already in place and the worth of a running business over and above its itemized assets. Public acquirers leave it on the books unamortized and test it for impairment each year instead. Since the 20% held by outsiders went on the books at fair value, the goodwill is the whole company's, shared between Ridgewood and the minority holders. Research on acquisitions suggests caution: Moeller et al. (2005) found that a wave of large acquisitions between 1998 and 2001 destroyed substantial shareholder wealth for acquirers, much of it later reflected in goodwill write-offs.
A listed acquirer never writes goodwill down on a schedule. The yearly impairment test runs at the reporting unit, though a private company may opt to write goodwill off over ten years or fewer, a shortcut that many small buyers take.
References
Financial Accounting Standards Board. (2007). Business combinations (Statement of Financial Accounting Standards No. 141, revised 2007).
Jeter, D. C., & Chaney, P. K. (2011). Advanced accounting (5th ed.). John Wiley & Sons.
Moeller, S. B., Schlingemann, F. P., & Stulz, R. M. (2005). Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. The Journal of Finance, 60(2), 757-782. https://doi.org/10.1111/j.1540-6261.2005.00745.x
What the ACC 6020 Module 1 instructions ask for
In ACC-6020, nine written sets tied to the modules count for 50 percent, beside nine discussions and a closing research paper. Written Assignment 1 covers Module 1, the introduction to business combinations, using Jeter and Chaney's Advanced Accounting. Expect questions on reasons for combinations, legal forms, the history from pooling to the acquisition method, and computations of goodwill or bargain purchase gains with contingent consideration and acquisition costs. The data on this page are illustrative; it is built around one invented parent and subsidiary that the later assignments continue, so figures computed here, such as the fair value of Lakeland and goodwill, reappear in consolidation.
Inside the ACC 6020 Module 1 example
The answers follow the order of the questions. The first explains motives and ties one to the case. A table compares the three legal forms and their accounting results, and the paper identifies which applies. The pooling answer explains what it allowed and why it was eliminated. A table builds the price, earnout included, adds the outside owners' 20% at fair value and arrives at goodwill, then explains the treatment of fees and later changes in the earnout. Short answers cover bargain purchases and the meaning of goodwill, with research on whether acquisitions create value. The final part ties the earnout's measurement to the acquisition method. Each answer is numbered to match the prompt.
Where the marks sit in the ACC 6020 Module 1 rubric
These combination questions start the nine written assignments that decide half of the ACC-6020 grade. On this assignment, mentors check that the forms of combination are distinguished correctly, that the acquisition method is described accurately, that consideration includes contingent payments at fair value, that the noncontrolling interest is measured and goodwill computed correctly, and that acquisition costs are expensed. Clear explanations of why the rules apply, such as why earnout changes bypass goodwill, earn credit beyond the arithmetic. Tables that show each step make the computation easy to verify. Linking each motive for combining to the sensor deal, and showing how the earnout enters the consideration at fair value, turns a descriptive answer into an applied one.
ACC 6020 Module 1 help from the desk
Deal fees folded into goodwill, an earnout left out of the price and goodwill figured on the parent's 80% alone, when the minority stake is carried at fair value, are the slips that cost most. Work from the total fair value of the target, consideration plus the noncontrolling interest, and subtract the fair value of identifiable net assets. Remember that later changes in a liability-classified earnout go to income. Value the earnout on the closing date and say where later revisions are booked; no point is skipped more often. A free first sample of your own ACC-6020 Module 1 questions is available on request.
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ACC 6020 Module 1 questions, answered
Where can I find a free ACC 6020 Module 1 sample paper?
Ridgewood's acquisition of Lakeland is worked above: motives and forms of combination, the end of pooling, goodwill with an earnout and a noncontrolling interest, and bargain purchases.
How is goodwill calculated under the acquisition method?
Add the price paid to the fair value of the minority stake, then subtract the fair value of every identifiable asset less liabilities.
Are acquisition costs part of goodwill?
No. Legal, advisory and other acquisition costs are expensed when incurred; stock issuance costs reduce paid-in capital.
How is contingent consideration accounted for?
It is valued on the closing date and counted in the price; if the earnout is a liability, later revaluations run through earnings.
What happened to pooling of interests?
It was eliminated in 2001, so all business combinations are accounted for by the acquirer at fair value.