On January 1, 2013, the Sara Company entered into a transaction for acquisition of assets and liabilities of Ana Company. Sara issued P400 in long-term liabilities and 40 shares of common stock having a par value of P1 per share but a fair value of P10 per share. Sara paid P20 to lawyers, accountants and brokers for assistance in bringing about this purchase. Another P15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows: SaraAnaCashP180P 40Accounts receivable810180Inventory1,080280Land600360Buildings (net)1,260440Equipment (net)480100Accounts Payable( 450)( 80)Long-term liabilities(1,290)(400)Common stock, P1 par(330) Common stock, P20 par (240)Additional paid-in capital(1,080)(340)Retained earnings(1,260)(340) In Sara’s appraisal of Ana, three assets were deemed to be undervalued in the books of Ana: Inventory by P10, Land by P40 and Buildings by P60.If the transaction is accounted for as an acquisition, what is the amount of consideration transferred? Compute the amount of additional paid in capital after the combination.

An acquisition occurs when one firm buys the majority or all of the stock of another firm in order…

Answered: On January 1, 2013, the Sara Company…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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On January 1, 2013, the Sara Company entered into a transaction for acquisition of assets and liabilities of Ana Company. Sara issued P400 in long-term liabilities and 40 shares of common stock having a par value of P1 per share but a fair value of P10 per share. Sara paid P20 to lawyers, accountants and brokers for assistance in bringing about this purchase. Another P15 was paid in connection with stock issuance costs. Prior to these transactions, the balance sheets for the two companies were as follows:

	Sara	Ana
Cash	P180	P 40
Accounts receivable	810	180
Inventory	1,080	280
Land	600	360
Buildings (net)	1,260	440
Equipment (net)	480	100
Accounts Payable	( 450)	( 80)
Long-term liabilities	(1,290)	(400)
Common stock, P1 par	(330)
Common stock, P20 par		(240)
Additional paid-in capital	(1,080)	(340)
Retained earnings	(1,260)	(340)

In Sara’s appraisal of Ana, three assets were deemed to be undervalued in the books of Ana: Inventory by P10, Land by P40 and Buildings by P60.

If the transaction is accounted for as an acquisition, what is the amount of consideration transferred?

Compute the amount of additional paid in capital after the combination.

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