Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
E1-20 Computation of Shares Issued and Goodwill
a.
15,600 shares were issued, computed as follows:
Par value of shares outstanding following merger
$327,600
Paid-in capital following merger
650,800
Total par value and paid-in capital
$978,400
Par value of shares outstanding before merger
$218,400
Paid-in capital before merger
370,000
(588,400)
Increase in par value and paid-in capital
$390,000
Divide by price per share
÷ $25
Number of shares issued
15,600
b.
The par value is $7, computed as follows:
Increase in par value of shares outstanding
($327,600 – $218,400)
Divide by number of shares issued
$109,200
Par value
÷ 15,600
$ 7.00
c.
Goodwill of $34,000 was recorded, computed as follows:
Increase in par value and paid-in capital
$390,000
Fair value of net assets ($476,000 – $120,000)
(356,000)
Goodwill
$ 34,000
E1-21 Combined Balance Sheet
Adam Corporation and Best Company
Combined Balance Sheet
January 1, 20X2
Cash and Receivables
$ 240,000
$ 125,000
Inventory
460,000
235,000
Buildings and Equipment
840,000
244,000
Less: Accumulated Depreciation
(250,000)
556,000
Goodwill
75,000
205,000
$1,365,000
$1,365,000
Computation of goodwill
Fair value of compensation given
$480,000
Fair value of net identifiable assets
($490,000 – $85,000)
(405,000)
Goodwill
$ 75,000
Computation of APIC
Fair value of compensation given ($60 x 8,000 shares)
Less par value of shares issued ($8 x 8,000)
$480,000
(64,000)
Plus existing APIC from Adam’s books
140,000
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
Additional Paid-In Capital
$ 556,000
E1-22 Recording a Business Combination
Merger Expense
54,000
Deferred Stock Issue Costs
29,000
Cash
83,000
Cash
70,000
Accounts Receivable
110,000
Inventory
200,000
Land
100,000
Buildings and Equipment
350,000
Goodwill (1)
30,000
Accounts Payable
195,000
Bonds Payable
100,000
Bond Premium
5,000
Common Stock
320,000
Additional Paid-In Capital (2)
211,000
Deferred Stock Issue Costs
29,000
Fair value of consideration given (40,000 x $14)
$560,000
Fair value of assets acquired
$830,000
Fair value of liabilities assumed
(300,000)
Fair value of net assets acquired
(530,000)
Goodwill
$ 30,000
Computation of additional paid-in capital
Number of shares issued
40,000
Issue price in excess of par value ($14 – $8)
x $6
Total
$240,000
Less: Deferred stock issue costs
(29,000)
Increase in additional paid-in capital
$211,000
E1-23 Reporting Income
20X2:
Net income
=
$6,028,000 [$2,500,000 + $3,528,000]
Earnings per share
=
$5.48 [$6,028,000 / (1,000,000 + 100,000*)]
20X1:
Net income
=
$4,460,000 [previously reported]
Earnings per share
=
$4.46 [$4,460,000 / 1,000,000]
* 100,000 = 200,000 shares x ½ year
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
SOLUTIONS TO PROBLEMS
P1-24 Assets and Accounts Payable Transferred to Subsidiary
a. Journal entry recorded by Tab Corporation for its transfer of
assets and accounts payable to Collon Company:
Investment in Collon Company Common Stock
320,000
Accounts Payable
45,000
Accumulated Depreciation – Buildings
40,000
Accumulated Depreciation – Equipment
10,000
Cash
25,000
Inventory
70,000
Land
60,000
Buildings
170,000
Equipment
90,000
b. Journal entry recorded by Collon Company for receipt of assets
and accounts payable from Tab Corporation:
Cash
25,000
Inventory
70,000
Land
60,000
Buildings
170,000
Equipment
90,000
Accounts Payable
45,000
Accumulated Depreciation – Buildings
40,000
Accumulated Depreciation – Equipment
10,000
Common Stock
180,000
Additional Paid-In Capital
140,000
P1-25 Creation of New Subsidiary
a. Journal entry recorded by Eagle Corporation for transfer of assets
and accounts payable to Sand Corporation:
Investment in Sand Corporation Common Stock
400,000
Allowance for Uncollectible Accounts Receivable
5,000
Accumulated Depreciation
40,000
Accounts Payable
10,000
Cash
30,000
Accounts Receivable
45,000
Inventory
60,000
Land
20,000
Buildings and Equipment
300,000
b. Journal entry recorded by Sand Corporation for receipt of assets and
accounts payable from Eagle Corporation:
Cash
30,000
Accounts Receivable
45,000
Inventory
60,000
Land
20,000
Buildings and Equipment
300,000
Allowance for Uncollectible Accounts Receivable
5,000
Accumulated Depreciation
40,000
Accounts Payable
10,000
Common Stock
50,000
Additional Paid-In Capital
350,000
P1-26 Incomplete Data on Creation of Subsidiary
a. The book value of assets transferred was $152,000 ($3,000 + $16,000 + $27,000 + $9,000 +
$70,000 + $60,000 – $21,000 – $12,000).
P1–27 Acquisition in Multiple Steps
Deal Corporation will record the following entries:
(1)
Investment in Mead Company Stock
85,000
Common Stock – $10 Par Value
40,000
Additional Paid-In Capital
45,000
(2)
Merger Expense
3,500
Additional Paid-In Capital
2,000
Cash
5,500
(3)
Investment in Mead Company Stock
6,000
Gain on Increase in Value of Mead Company Stock
6,000
P1–28 Journal Entries to Record a Business Combination
Journal entries to record acquisition of TKK net assets:
(1)
Merger Expense
14,000
Cash
14,000
Record payment of legal fees.
(2)
Deferred Stock Issue Costs
28,000
Cash
28,000
Record costs of issuing stock.
(3)
Cash and Receivables
28,000
Inventory
122,000
Buildings and Equipment
470,000
Goodwill
12,000
Accounts Payable
41,000
Notes Payable
63,000
Common Stock
96,000
Additional Paid-In Capital
404,000
Deferred Stock Issue Costs
28,000
Record purchase of TKK Corporation.
Computation of goodwill
Fair value of consideration given (24,000 x $22)
$528,000
Fair value of net assets acquired
($620,000 – $104,000)
(516,000)
Goodwill
$ 12,000
P1-30 Business Combination with Goodwill
a. Journal entry to record acquisition of Zink Company net assets:
Cash
20,000
Accounts Receivable
35,000
Inventory
50,000
Patents
60,000
Buildings and Equipment
150,000
Goodwill
38,000
Accounts Payable
55,000
Notes Payable
120,000
Cash
178,000
b. Balance sheet immediately following acquisition:
Anchor Corporation and Zink Company
Combined Balance Sheet
February 1, 20X3
Cash
$ 82,000
Accounts Payable
$140,000
Accounts Receivable
175,000
Notes Payable
270,000
Inventory
220,000
Common Stock
200,000
Patents
140,000
Additional Paid-In
Buildings and Equipment
530,000
Capital
160,000
Less: Accumulated
Retained Earnings
225,000
Depreciation
(190,000)
Goodwill
38,000
$995,000
$995,000
Investment in Zink Company Common Stock
178,000
Cash
178,000
Computation of goodwill
Fair value of consideration given
$178,000
Fair value of net assets acquired
($20,000 + $35,000 + $50,000 + $60,000
+ $150,000 – $55,000 -$120,000)
(140,000)
Goodwill
$ 38,000
Required fair value of reporting unit:
Fair value of assets at year-end
Fair value of liabilities at year-end (given)
Fair value of net assets at year-end
Original goodwill balance
Required fair value of reporting unit to avoid recognition of
impairment of goodwill
P1-31 Bargain Purchase
Journal entries to record acquisition of Lark Corporation net assets:
Merger Expense
5,000
Cash
5,000
Cash and Receivables
50,000
Inventory
150,000
Buildings and Equipment (net)
300,000
Patent
200,000
Accounts Payable
30,000
Cash
625,000
Gain on Bargain Purchase of Lark Corporation
45,000
Computation of gain
Fair value of consideration given
$625,000
Fair value of net assets acquired
($700,000 – $30,000)
(670,000)
Gain on bargain purchase
$ 45,000
P1-32 Computation of Account Balances
a.
Liabilities reported by the Aspro Division at year-end:
Fair value of reporting unit at year-end
$930,000
Acquisition price of reporting unit
($7.60 x 100,000)
$760,000
Fair value of net assets at acquisition
($810,000 – $190,000)
(620,000)
Goodwill at acquisition
$140,000
Impairment in current year
(30,000)
Goodwill at year-end
(110,000)
Fair value of net assets at year-end
$820,000
Fair value of assets at year-end
$950,000
Fair value of net assets at year-end
(820,000)
Fair value of liabilities at year-end
$130,000