Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–30
P1-33 Goodwill Assigned to Multiple Reporting Units
a.
Goodwill to be reported by Rover Company:
Reporting Unit
A
B
C
Carrying value of goodwill
$70,000
$80,000
$40,000
Implied goodwill at year-end
90,000
50,000
75,000
Goodwill to be reported at year-end
70,000
50,000
40,000
$ 70,000
50,000
40,000
$160,000
Computation of implied goodwill
Reporting unit A
Fair value of reporting unit
$400,000
Fair value of identifiable assets
$350,000
Fair value of accounts payable
(40,000)
Fair value of net assets
(310,000)
Implied goodwill at year-end
$ 90,000
Reporting unit B
Fair value of reporting unit
$440,000
Fair value of identifiable assets
$450,000
Fair value of accounts payable
(60,000)
Fair value of net assets
(390,000)
Implied goodwill at year-end
$ 50,000
Reporting unit C
Fair value of reporting unit
$265,000
Fair value of identifiable assets
$200,000
Fair value of accounts payable
(10,000)
Fair value of net assets
(190,000)
Implied goodwill at year-end
$ 75,000
b.
Goodwill impairment of $30,000 ($80,000 – $50,000) must be reported in the
current period for reporting unit B.
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–31
P1-34 Journal Entries
(1)
Merger Expense
19,000
Cash
19,000
Record finder‘s fee and transfer costs.
(2)
Deferred Stock Issue Costs
9,000
Cash
9,000
Record audit fees and stock registration fees.
(3)
Cash
60,000
Accounts Receivable
100,000
Inventory
115,000
Land
70,000
Buildings and Equipment
350,000
Bond Discount
20,000
Goodwill
95,000
Accounts Payable
10,000
Bonds Payable
200,000
Common Stock
120,000
Additional Paid-In Capital
471,000
Deferred Stock Issue Costs
9,000
Record merger with Light Steel Company.
Fair value of consideration given (12,000 x $50)
$600,000
Fair value of net assets acquired ($695,000 – $10,000
– $180,000)
(505,000)
Goodwill
$ 95,000
Computation of additional paid-in capital
Number of shares issued
12,000
Issue price in excess of par value ($50 – $10)
x $40
Total
$480,000
Less: Deferred stock issue costs
(9,000)
Increase in additional paid-in capital
$471,000
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–32
P1-35 Purchase at More than Book Value
a. Journal entry to record acquisition of Stafford Industries net
assets:
Cash
30,000
Accounts Receivable
60,000
Inventory
160,000
Land
30,000
Buildings and Equipment
350,000
Bond Discount
5,000
Goodwill
125,000
Accounts Payable
10,000
Bonds Payable
150,000
Common Stock
80,000
Additional Paid-In Capital
520,000
b. Balance sheet immediately following acquisition:
Ramrod Manufacturing and Stafford Industries
Combined Balance Sheet
January 1, 20X2
Cash
$
100,000
Accounts Payable
$ 60,000
Accounts Receivable
160,000
Bonds Payable
$450,000
Inventory
360,000
Less: Discount
(5,000)
445,000
Land
80,000
Common Stock
280,000
Buildings and Equipment
950,000
Additional
Less: Accumulated
Paid-In Capital
560,000
Depreciation
(250,000)
Retained Earnings
180,000
Goodwill
125,000
$1,525,000
$1,525,000
Computation of goodwill
Fair value of consideration given (4,000 x $150)
$600,000
Fair value of net assets acquired ($630,000 – $10,000
– $145,000)
(475,000)
Goodwill
$125,000
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–33
P1-36 Business Combination
Journal entry to record acquisition of Toot-Toot Tuba net assets:
Cash
300
Accounts Receivable
17,000
Inventory
35,000
Plant and Equipment
500,000
Other Assets
25,800
Goodwill
86,500
Allowance for Uncollectibles
1,400
Accounts Payable
8,200
Notes Payable
10,000
Mortgage Payable
50,000
Bonds Payable
100,000
Capital Stock ($10 par)
90,000
Premium on Capital Stock
405,000
Computation of fair value of net assets acquired
Cash
$300
Accounts Receivable
17,000
Allowance for Uncollectible Accounts
(1,400)
Inventory
35,000
Plant and Equipment
500,000
Other Assets
25,800
Accounts Payable
(8,200)
Notes Payable
(10,000)
Mortgage Payable
(50,000)
Bonds Payable
(100,000)
Fair value of net assets acquired
$408,500
Computation of goodwill
Fair value of consideration given (9,000 x $55)
$495,000
Fair value of net assets acquired
(408,500)
Goodwill
$86,500
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–34
P1–37 Combined Balance Sheet
a. Balance sheet:
Bilge Pumpworks and Seaworthy Rope Company
Combined Balance Sheet
January 1, 20X3
Cash and Receivables
$110,000
Current Liabilities
$
100,000
Inventory
142,000
Capital Stock
214,000
Land
115,000
Capital in Excess
Plant and Equipment
540,000
of Par Value
216,000
Less: Accumulated
Retained Earnings
240,000
Depreciation
(150,000)
Goodwill
13,000
$770,000
$ 770,000
Fair value of consideration given (700 x $300)
$210,000
Fair value of net assets acquired ($217,000 – $20,000)
(197,000)
Goodwill
$13,000
b.
(1) Stockholders‘ equity with 1,100 shares issued:
Capital Stock [$200,000 + ($20 x 1,100 shares)]
$ 222,000
Capital in Excess of Par Value
[$20,000 + ($300 – $20) x 1,100 shares]
328,000
Retained Earnings
240,000
$ 790,000
(2) Stockholders‘ equity with 1,800 shares issued:
Capital Stock [$200,000 + ($20 x 1,800 shares)]
$
236,000
Capital in Excess of Par Value
[$20,000 + ($300 – $20) x 1,800 shares]
524,000
Retained Earnings
240,000
$1,000,000
(3) Stockholders‘ equity with 3,000 shares issued:
Capital Stock [$200,000 + ($20 x 3,000 shares)]
$ 260,000
Capital in Excess of Par Value
[$20,000 + ($300 – $20) x 3,000 shares]
860,000
Retained Earnings
240,000
$1,360,000
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–35
P1–38 Incomplete Data Problem
a. 5,200 = ($126,000 – $100,000)/$5
b. $208,000 = ($126,000 + $247,000) – ($100,000 + $65,000)
P1–39 Incomplete Data Following Purchase
a. 14,000 = $70,000/$5
b. $8.00 = ($70,000 + $42,000)/14,000
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–36
P1-40 Comprehensive Business Combination Problem
a. Journal entries on the books of Bigtime Industries to record the combination:
Merger Expense
135,000
Cash
135,000
Deferred Stock Issue Costs
42,000
Cash
42,000
Cash
28,000
Accounts Receivable
251,500
Inventory
395,000
Long-Term Investments
175,000
Land
100,000
Rolling Stock
63,000
Plant and Equipment
2,500,000
Patents
500,000
Special Licenses
100,000
Discount on Equipment Trust Notes
5,000
Discount on Debentures
50,000
Goodwill
109,700
Current Payables
137,200
Mortgages Payable
500,000
Premium on Mortgages Payable
20,000
Equipment Trust Notes
100,000
Debentures Payable
1,000,000
Common Stock
180,000
Additional Paid-In Capital — Common
2,298,000
Deferred Stock Issue Costs
42,000
Value of stock issued ($14 x 180,000)
$2,520,000
Fair value of assets acquired
$4,112,500
Fair value of liabilities assumed
(1,702,200)
Fair value of net identifiable assets
(2,410,300)
Goodwill
$ 109,700
Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities
1–37
P1-40 (continued)
b. Journal entries on the books of HCC to record the combination:
Investment in Bigtime Industries Stock
2,520,000
Allowance for Bad Debts
6,500
Accumulated Depreciation
614,000
Current Payables
137,200
Mortgages Payable
500,000
Equipment Trust Notes
100,000
Debentures Payable
1,000,000
Discount on Debentures Payable
40,000
Cash
28,000
Accounts Receivable
258,000
Inventory
381,000
Long-Term Investments
150,000
Land
55,000
Rolling Stock
130,000
Plant and Equipment
2,425,000
Patents
125,000
Special Licenses
95,800
Gain on Sale of Assets and Liabilities
1,189,900
Record sale of assets and liabilities.
Common Stock
7,500
Additional Paid-In Capital — Common Stock
4,500
Treasury Stock
12,000
Record retirement of Treasury Stock:*
$7,500 = $5 x 1,500 shares
$4,500 = $12,000 – $7,500
Common Stock
592,500
Additional Paid-In Capital — Common
495,500
Additional Paid-In Capital — Retirement
of Preferred
22,000
Retained Earnings
1,410,000
Investment in Bigtime
Industries Stock
2,520,000
Record retirement of HCC stock and
distribution of Integrated Industries stock:
$592,500 = $600,000 – $7,500
$495,500 = $500,000 – $4,500
1,410,000 = $220,100 + $1,189,900
*Alternative approaches exist.