CA answer Ch1

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School

California State University, Fullerton *

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Course

401

Subject

Accounting

Date

May 15, 2024

Type

docx

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Uploaded by PresidentFieldButterfly6

Q1. Internet Corporation is considering the acquisition of Homepage Corporation and has obtained the following audited condensed balance sheet: Homepage Corporation Balance Sheet December 31, 20X5 Assets Liabilities and Equity Current assets $ 40,000 Current Liabilities $ 60,000 Land 20,000 Capital Stock (50,000 Buildings (net) 80,000 shares, $1 par value) 50,000 Equipment (net) 60,000 Other Paid-in Capital 20,000 Retained Earnings 70,000 $200,000 $200,000 Internet also acquired the following fair values for Homepage's assets and liabilities: Current assets $ 55,000 Land 60,000 Buildings (net) 90,000 Equipment (net) 75,000 Current Liabilities (60,000 ) $220,000 Internet and Homepage agree on a price of $280,000 for Homepage's net assets. Prepare the necessary journal entry to record the purchase given the following scenarios: a. Internet pays cash for Homepage Corporation and incurs $5,000 of acquisition costs. (1) amount paid: 280,000 (2) fair value of net asset: 220,000 (55,000+60,000+90,000+75,000-60,000) (3) book value of net asset: 140,000 (200,000 – 60,000) Goodwill: 60,000 ANS: Debit Credit a. Current assets 55,000 Land 60,000 Buildings 90,000 Equipment 75,000 Goodwill 60,000 Acquisition expense 5,000 Current Liabilities 60,000 Cash 285,000 b. Internet issues its $5 par value stock as consideration. The fair value of the stock at the

acquisition date is $50 per share. Additionally, Internet incurs $5,000 of security issuance costs. How many shares were issued for the purchase of Homepage? Amount paid: 280,000/50 = 5,600 shares Debit Credit b. Current assets 55,000 Land 60,000 Buildings 90,000 Equipment 75,000 Goodwill 60,000 Current Liabilities 60,000 Common Stock (5,600*$5) 28,000 Other Paid-in Capital (5,600*$45) 252,000 Other Paid-in Capital 5,000 Cash 5,000 Q2. Poplar Corp. acquires the net assets of Sapling Company, which has the following balance sheet: Accounts Receivable $ 50,000 Inventory 80,000 Equipment, Net 50,000 Land & Building, Net 120,000 Total Assets $300,000 Bonds Payable $ 90,000 Common Stock 100,000 Retained Earnings 110,000 Total Liabilities and Stockholders' Equity $300,000

Fair values on the date of acquisition: Accounts Receivable $ 50,000 Inventory 100,000 Equipment 30,000 Land & Building 180,000 Customer List 30,000 Bonds Payable 100,000 Acquisition costs: $ 10,000 If Poplar paid $300,000 what journal entries would be recorded by both Poplar Corp. and Sapling Company? (1)amount paid: 300,000 (2)fair value of net asset: 290,000 (50,000+100,000+30,000+180,000+30,000-100,000) (3)book value of net asset: 210,000 (300,000 – 90,000) Goodwill: 10,000 What if amount paid is less than fair value of net assets, then “gain”. (1)amount received: 300,000 (2)book value of net asset: 210,000 (300,000 – 90,000) (3)gain: 90,000 ANS: Poplar Corp: Accounts Receivable 50,000 Inventory 100,000 Equipment 30,000 Land & Building 180,000 Customer List 30,000 Goodwill* 10,000 Acquisition expenses 10,000 Bonds Payable 90,000 Premium on Bonds Payable 10,000 Cash ($300,000 + $10,000) 310,000 *Goodwill: Price paid $300,000 – Fair value of net identifiable assets $290,000 = $10,000 Sapling Company: Cash 300,000 Bonds Payable 90,000 Accounts Receivable 50,000 Inventory 80,000 Equipment 50,000 Land & Building, net 120,000 Gain on Sale of Business 90,000

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