159) Rockport Refinery acquired all the outstanding common stock of Stellman Corporation for
$68,000 in cash. The book values and fair values of Stellman’s assets and liabilities were as
follows:
Book Value
Fair Value
Current assets
$24,000
$30,000
Property, plant, and equipment
44,000
56,000
Other assets
4,000
6,000
Current liabilities
16,000
16,000
Long-term liabilities
24,000
22,000
Required:
Calculate the amount Rockport would record for goodwill.
Acquisition price
Less:
Fair value of assets acquired
Less: fair value of liabilities assumed
Fair value of identifiable net assets
Goodwill
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160) During the current year, Brewer Company acquired all of the outstanding common stock of
Miller Inc. paying $12,000,000 cash. The book values and fair values of Miller’s assets and
liabilities acquired are listed below:
Fair Value
Accounts receivable
$ 1,625,000
Inventories
4,000,000
Property, plant, and equipment
11,625,000
Accounts payable
3,000,000
Bonds payable
4,125,000
Required:
Prepare the journal entry to record the acquisition by Brewer Company.
Accounts receivable
1,625,000
Inventory
4,000,000
Property, plant, and equipment
Goodwill
1,875,000
Accounts payable
3,000,000
Bonds payable
4,125,000
Cash
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161) On August 15, 2018, Willis Inc. acquired all of the outstanding common stock of Bork Inc.
paying $7,400,000 cash. The book values and fair values of Willis’ assets and liabilities are listed
below:
Fair Value
Accounts receivable
$ 975,000
Inventories
2,400,000
Property, plant, and equipment
6,975,000
Accounts payable
1,800,000
Bonds payable
2,475,000
Required:
Prepare the journal entry to record the acquisition by Willis Inc.
Accounts receivable
Inventory
Property, plant, and equipment
Goodwill
Accounts payable
Bonds payable
Cash
84
162) Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and
development costs totaled $8.2 million. Extraction activities began on July 1, 2018. After the
copper is extracted in approximately six years, Schefter is obligated to restore the land to its
original condition, including constructing a park. The company’s controller has provided the
following three cash flow possibilities for the restoration costs:
Cash Flow Probability
1. $700,000 30%
2. 800,000 25%
3. 900,000 45%
The company’s credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends on
December 31.
Required:
1. What is the initial cost of the copper mine? (Round computations to nearest whole dollar.)
2. How much accretion expense will Schefter report in its 2018 income statement?
3. What is the book value of the asset retirement obligation that Schefter will report in its 2018
balance sheet?
4. Assume that actual restoration costs incurred in 2024 totaled $860,000. What amount of gain
or loss will Schefter recognize on retirement of the liability?
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163) Calegari Mining paid $2 million to obtain the rights to operate a coal mine in Tennessee.
Costs of exploring for the coal deposit totaled $1,500,000, and development costs of $5 million
were incurred in preparing the mine for extraction, which began on January 2, 2018. After the
coal is extracted in approximately five years, Calegari is obligated to restore the land to its
original condition. The company’s controller has provided the following three cash flow
possibilities for the restoration costs:
Cash Flow Probability
1. $1,000,000 10%
2. 1,400,000 60%
3. 1,800,000 30%
The company’s credit-adjusted, risk-free rate of interest is 7%, and its fiscal year ends on
December 31.
Required:
1. What is the initial cost of the coal mine? (Round computations to nearest whole dollar.)
2. How much accretion expense will Calegari report in its 2018 and 2019 income statements?
3. What is the book value of the asset retirement obligation that Calegari will report in its 2018
and 2019 balance sheets?
4. Assume that actual restoration costs incurred in 2023 totaled $1,370,000. What amount of
gain or loss will Calegari recognize on retirement of the liability?
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87
164) During the current year, Peterson Data Corporation acquired all of the outstanding common
stock of Junior Jackson Inc. (JJI), paying $36 million in cash. Peterson recorded the assets
acquired as follows:
Accounts receivable
$2,500,000
Inventory
9,000,000
Property, plant, and equipment
25,500,000
Goodwill
6,000,000
The book value of JJI’s assets and owners’ equity before the acquisition were $22 million and
$18 million, respectively.
Required: Compute the fair value of JJI’s liabilities that Peterson assumed in the acquisition.
165) During the current year, Compton Crate Corporation acquired all of the outstanding
common stock of Little Lacy Ltd. (LLL), paying $60 million in cash. Compton recorded the
assets acquired as follows:
Accounts receivable
$5,500,000
Inventory
18,000,000
Property, plant, and equipment
45,500,000
Goodwill
22,000,000
The book value of LLL’s assets and owners’ equity before the acquisition were $50 million and
$30 million, respectively.
Required: Compute the fair value of LLL’s liabilities that Compton assumed in the acquisition.
88
166) On January 3, 2018, Michelson & Sons acquired a tract of land just outside the city limits.
The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and
signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on
December 31, 2019. An interest rate of 7% properly reflects the time value of money for this
type of loan agreement. Transfer taxes, title insurance, and other costs totaling $24,000 were paid
at closing.
During February, the old building was demolished at a cost of $120,000, and an additional
$100,000 was paid to clear and grade the land. Construction of a new building began on March 1
and was completed on October 30. Construction expenditures were as follows:
March 30 $800,000
June 30 1,200,000
July 30 1,200,000
September 1 600,000
Michelson did not borrow specifically for the construction project, but did have the following
debt outstanding throughout 2018:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
In December, the company purchased equipment and office furniture and fixtures for a lump–
sum price of $800,000. The fair values of the equipment and the furniture and fixtures were
$540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the
construction of parking lots and landscaping.
Required:
1. Determine the initial values of the various assets that Michelson acquired or constructed
during 2018.
2. How much interest expense will Michelson report in its 2018 income statement?
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90
167) Watson Company purchased assets of Holmes Ltd. at auction for $1,300,000. An
independent appraisal of the fair value of the assets acquired is listed below:
Land
$214,500
Building
357,500
Equipment
572,000
Inventories
286,000
Required:
Prepare the journal entry to record the purchase of the assets.
Values
Land
Building
Equipment
Inventory
Land
Building
Equipment
Inventory
Cash
92
168) Eli Company purchased assets of Whitney Inc. at auction for $1,560,000. An independent
appraisal of the fair value of the assets acquired is listed below:
Land
$171,600
Building
514,800
Equipment
600,600
Inventories
429,000
Required:
Prepare the journal entry to record the purchase of the assets.
Values
Land
Building
Equipment
Inventory
Land
Building
Equipment
Inventory
Cash
169) Cool Globe Inc. entered into two transactions, as follows:
1. Purchased equipment paying $20,000 at the date of purchase and signing a noninterest-bearing
note requiring the balance to be paid in four annual installments of $20,000 on the anniversary
date of the contract. Based on Cool Globe’s 12% borrowing rate for such transactions, the
implicit interest cost is $19,253.
2. Purchased a tract of land in exchange for $10,000 cash that was paid immediately and signed a
noninterest-bearing note requiring five $10,000 annual payments. The first annual payment of
the note is due in one year. The fair value of the land is $46,000.
Required:
Prepare the journal entries for these transactions.
170) Beacon Inc. received a gift of land and building in Twin Pines Park as an inducement to
relocate. The land and buildings have fair values of $45,000 and $455,000.
Required:
Prepare journal entries to record the above transactions.
94
171) On March 15, 2018, Ellis Corporation issued 5,000 shares of its no-par common stock in
exchange for a patent. On the date of the transaction, the market price of the common stock was
$22 per share. Ellis also received a tract of land from the City of Montrose as an enticement to
build a new office building on the site. The land had a fair value of $510,000 and Ellis was
required to pay only $200,000 to secure title to the land.
Required:
1. Prepare the journal entries to record the transactions under U.S. GAAP.
2. Prepare the entry to record the government grant assuming Ellis prepares its financial
statements according to International Financial Reporting Standards. Prepare the entry according
to each of the alternatives available under IFRS.