On January 1, 2020 Psy Company purchased all the net assets of SM Ent. Company: Issuance of 20,000 unissued shares of its 10 par value ordinary share capital. As of this date, the shares of Psy were selling at 40 per share. Issuance of bonds with a face value of $300,000 but are currently at 110. A contingent payment of $200,000 cash on January 1, 2020, if the average income of SM Ent. Company during the two-year period (2020-2021) exceeds $250,000 per year. Psy estimates that there is a 20% chance or probability that the $200,000 payment will be required. Issuance of 5,000 additional shares on January 1, 2022 to the former shareholders of SM Ent. Company if the average income cover the next two years (2020-2021) equalled or exceeded $350,000. The additional 5,000 shares expected to be issued are valued at $75,000. Professional fees of $9,000 were also paid by Psy to its external auditors to finalize the business combination. As of the date of acquisition, SM Ent. Company reported the following book value and current market data: Book Value Fair Value Book Value Fair Value Cash 60,000 60,000 Accounts Payable 36,000 40,000 Inventory 120,000 180,000 Ordinary Share Capital 720,000 Buildings, net 500,000 560,000 Share Premium 164,000 Equipment, net 410,000 440,000 Retained Earnings 170,000 Psy’s asset has a book value of $10,460,00 and a fair market value of $11,500,000 and the book value of its liabilities amounted to $3,250,000 and the fair market value of $4,000,000. Compute the Consolidated Total Liabilities on January 1, 2020.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 23E

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On January 1, 2020 Psy Company purchased all the net assets of SM Ent. Company:

Issuance of 20,000 unissued shares of its 10 par value ordinary share capital. As of this date, the shares of Psy were selling at 40 per share.
Issuance of bonds with a face value of $300,000 but are currently at 110.
A contingent payment of $200,000 cash on January 1, 2020, if the average income of SM Ent. Company during the two-year period (2020-2021) exceeds $250,000 per year. Psy estimates that there is a 20% chance or probability that the $200,000 payment will be required.
Issuance of 5,000 additional shares on January 1, 2022 to the former shareholders of SM Ent. Company if the average income cover the next two years (2020-2021) equalled or exceeded $350,000. The additional 5,000 shares expected to be issued are valued at $75,000.
Professional fees of $9,000 were also paid by Psy to its external auditors to finalize the business combination.

As of the date of acquisition, SM Ent. Company reported the following book value and current market data:

	Book Value	Fair Value		Book Value	Fair Value
Cash	60,000	60,000	Accounts Payable	36,000	40,000
Inventory	120,000	180,000	Ordinary Share Capital	720,000
Buildings, net	500,000	560,000	Share Premium	164,000
Equipment, net	410,000	440,000	Retained Earnings	170,000

Psy’s asset has a book value of $10,460,00 and a fair market value of $11,500,000 and the book value of its liabilities amounted to $3,250,000 and the fair market value of $4,000,000.

Compute the Consolidated Total Liabilities on January 1, 2020.

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