# Accounting Chapter 1 Homework However, if the seller were to accept common stock of another

Type Homework Help
Pages 11
Words 2518
Authors Paul M. Fischer, Rita H. Cheng, William J. Tayler

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1–1
CHAPTER 1
UNDERSTANDING THE ISSUES
1. (a) Product extension—manufacturer ex-
pands product lines in boating industry.
distribution outlets
2. By accepting cash in exchange for the net
were sold.
3. Identifiable assets (fair value) .. \$600,000
Deferred tax liability
(\$200,000 × 40%) .................. (80,000)
4. (a) The net assets and goodwill will be
recorded at their full fair value on the
5. Puncho will record the net assets at their
fair value of \$800,000 on its books. Also,
a gain on the sale of business of \$500,000
(\$900,000 – \$400,000).
6. (a) Value Analysis:
Price paid ............................... \$800,000
Total ....................................... \$800,000
Customer list (fair value) ........ 20,000
Liabilities (fair value) .............. (100,000)
Gain ........................................ (70,000)
Total ....................................... \$450,000
(a) The equipment and building will be re-
stated at \$180,000 and \$550,000 on
for 2015 is for a half year. 2015 depre-
1–2
(c) Originally, depreciation on the building
is \$25,000 (\$500,000/20) per year.
It will be recalculated as \$27,500
8. Fair value of operating unit ...... \$1,200,000
Book value including goodwill .. 1,250,000
Goodwill is impaired.
9. (a) An estimated liability should have been
recorded on the purchase date. Any dif-
ference between that estimate and the
(c) Since this agreement is based on is-
suance of additional shares based on a
decrease in value, it is recorded as a
and possibly reduced in future periods.
Under IFRS, it would be amortized over
some number of future periods.
1–3 Ch. 1—Exercises
EXERCISES
EXERCISE 1-1
(1) Current Assets .......................................................................... 85,000
Land .......................................................................................... 90,000
Building ..................................................................................... 300,000
(2) Cash ......................................................................................... 875,000
Liabilities ................................................................................... 100,000
Accumulated Depreciation—Building ....................................... 200,000
(3) Investment in Crown Company ................................................ 875,000
Cash ................................................................................... 875,000
Ch. 1—Exercises 1–4
EXERCISE 1-2
Cash ................................................................................................. 100,000
Inventory .......................................................................................... 270,000
Equipment ........................................................................................ 220,000
Land ................................................................................................. 180,000
Buildings .......................................................................................... 300,000
Goodwill* .......................................................................................... 515,000
Discount on Bonds Payable ............................................................. 75,000
EXERCISE 1-3
Accounts Receivable ....................................................................... 100,000
Inventory .......................................................................................... 210,000
Equipment for Resale (\$200,000 less 10%) .................................... 180,000
Land ................................................................................................. 200,000
*Total consideration:
Common stock (100,000 shares × \$20) ..................................... \$2,000,000
Less fair value of net assets acquired:
Accounts receivable ............................................................. \$ 100,000
Inventory .............................................................................. 210,000
Equipment for resale (\$200,000 less 10%) .......................... 180,000
Land ..................................................................................... 200,000
Building ................................................................................ 450,000
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
EXERCISE 1-4
Accounts Receivable ....................................................................... 200,000
Inventory .......................................................................................... 270,000
Equipment ....................................................................................... 40,000
Cash ........................................................................................... 160,000
Current Liabilities ....................................................................... 80,000
1–7 Ch. 1—Exercises
EXERCISE 1-5
Final value of manufacturing plant ............................................................. \$700,000
Provisional value of manufacturing plant ................................................... 600,000
Total increase ............................................................................................ \$100,000
(2) Balance Sheet
December 31, 2015 (revised)
Current assets ............... \$ 300,000 Current liabilities ................... \$ 300,000
Equipment (net) ............. 600,000 Bonds payable ...................... 500,000
Plant assets (net) ........... 1,695,000 Common stock (\$1 par) ........ 50,000
EXERCISE 1-6
Machine = \$200,000
Deferred tax liability = \$16,800
In this tax-free exchange, depreciation on \$56,000 [(\$200,000 appraised value) – (\$144,000*
net book value)] of the machine’s value is not deductible on future tax returns. The additional tax
EXERCISE 1-7
Current Assets ................................................................................. 100,000
Equipment ........................................................................................ 200,000
Building ............................................................................................ 270,000
Deferred Tax Asset .......................................................................... 90,000
1–9 Ch. 1—Exercises
EXERCISE 1-8
(1) Estimated Liability for Contingent Consideration (original account) 40,000
Loss on Estimated Contingent Consideration........................... 20,000
(2) Paid in Capital, Contingent Share Agreement (original account) 40,000
Common stock, \$1 par ........................................................ 12,000
(3) Estimated Liability for Contingent Consideration (original account) 40,000
Loss on Estimated Contingent Consideration ..................... 60,000
EXERCISE 1-9
(1) Purchase price ................................................................................................. \$600,000
(2) (a) Estimated fair value of business unit ......................................................... \$520,000
Book value of Anton net assets, including goodwill ................................... \$500,000
No impairment exists.
(b) Estimated fair value of business unit ......................................................... \$400,000
Ch. 1—Exercises 1–10
APPENDIX EXERCISE
EXERCISE 1A-1
(1) Calculation of Earnings in Excess of Normal:
Average operating income:
2011 ........................................................................ \$ 90,000
2012 ........................................................................ 110,000
2013 ........................................................................ 120,000
Less normal return on assets at fair value:
Accounts receivable ........................................... \$100,000
Inventory ............................................................. 125,000
Land ................................................................... 100,000
(b) Capitalize the perpetual yearly earnings at 12%:
Goodwill = Rate tionCapitaliza
Earnings Excess Yearly
(c) Present value of a \$5,000 annuity capitalized at 16%. The correct present value factor
is found in the “present value of an annuity of \$1” table, at 16% for 5 periods. This factor
(2) The goodwill recorded would be \$15,000. The journal entry (not required) would be as
follows:
Accounts Receivable ................................................................ 100,000
1–11 Ch. 1—Problems
PROBLEMS
PROBLEM 1-1
(1) Acquisition price \$540,000
Total consideration:
Cash ..................................................................................... \$540,000
Less fair value of net assets acquired:
Accounts receivable ............................................................. \$ 79,000
Inventory .............................................................................. 98,000
Other current assets ............................................................. 55,000
Equipment ............................................................................ 340,000
Journal Entry:
Accounts Receivable ............................................................ 79,000
Inventory .............................................................................. 98,000
Other Current Assets ........................................................... 55,000
Equipment ............................................................................ 340,000
Problem 1-1, Concluded
(2) Acquisition price \$350,000
Total consideration:
Cash ..................................................................................... \$350,000
Less fair value of net assets acquired:
Accounts receivable ............................................................. \$ 79,000
Inventory .............................................................................. 98,000
Other current assets ............................................................. 55,000
Equipment ........................................................................... 340,000
1–13 Ch. 1—Problems
PROBLEM 1-2
Total consideration for Vicker:
Common stock (30,000 shares × \$40) ....................................... \$1,200,000
Less fair value of net assets acquired:
Accounts receivable ................................................................... \$ 200,000
Inventory .................................................................................... 190,000
Land ........................................................................................... 300,000
Buildings..................................................................................... 450,000
Problem 1-2, Concluded
Total consideration for Kendal:
Common stock (15,000 shares × \$40) ....................................... \$600,000
Less fair value of net assets acquired:
Accounts receivable ................................................................... \$ 80,000
Inventory .................................................................................... 100,000
Land ........................................................................................... 80,000
Bar entry to record the purchase of Kendal:
Accounts Receivable .................................................................. 80,000
Inventory .................................................................................... 100,000
Land ........................................................................................... 80,000
PROBLEM 1-3
(1) Total consideration for Yount:
Cash ..................................................................................... \$730,000
Less fair value of net assets acquired:
Cash equivalents .................................................................. \$ 100,000
Accounts receivable ............................................................. 120,000
(2) Pro Forma Income:
Combined Income
Sales ..................................................................................................... \$ 200,000
Less:
Cost of goods sold (\$120,000 + \$20,000 additional for inventory
valuation) .................................................................................... (140,000)
PROBLEM 1-4
(1) \$500,000 consideration
Total consideration for Williams:
Common stock (20,000 shares × \$25) ................................. \$500,000
Less fair value of net assets acquired:
Accounts receivable ............................................................. \$ 50,000
Inventory .............................................................................. 250,000
Land ..................................................................................... 40,000
(2) \$385,000 consideration
Total consideration for Williams:
Cash ..................................................................................... \$385,000
Less fair value of net assets acquired:
Accounts receivable ............................................................. \$ 50,000
Inventory .............................................................................. 250,000
Land ..................................................................................... 40,000
1–17 Ch. 1—Problems
PROBLEM 1-5
Total consideration for Jack:
Common stock (18,000 shares × \$270) ..................................... \$4,860,000
Less fair value of net assets acquired:
Investments ................................................................................ \$ 400,500
Accounts receivable ................................................................... 925,000
Inventory .................................................................................... 1,200,000
Journal Entry:
Investments ................................................................................ 400,500
Accounts Receivable .................................................................. 925,000
Inventory .................................................................................... 1,200,000
Prepaid Insurance ...................................................................... 18,000

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