On January 1, 2021, Brooks Corporation exchanged $1,179,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,027,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $300,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year. In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value. On December 31, 2021, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period. Brooks Corp. Chandler Inc. Income Statement Revenues $ (672,000 ) $ (653,000 ) Cost of goods sold 236,000 225,000 Gain on bargain purchase (148,000 ) 0 Depreciation and amortization 142,000 150,000 Equity earnings from Chandler (228,000 ) 0 Net income $ (670,000 ) $ (278,000 ) Statement of Retained Earnings Retained earnings, 1/1 $ (1,745,000 ) $ (727,500 ) Net income (above) (670,000 ) (278,000 ) Dividends declared 100,000 40,000 Retained earnings, 12/31 $ (2,315,000 ) $ (965,500 ) Balance Sheet Current assets $ 396,500 $ 441,500 Investment in Chandler 1,515,500 0 Trademarks 119,000 207,000 Patented technology 392,000 444,000 Equipment 638,000 316,000 Total assets $ 3,061,000 $ 1,408,500 Liabilities $ (211,000 ) $ (143,000 ) Common stock (535,000 ) (300,000 ) Retained earnings, 12/31 (2,315,000 ) (965,500 ) Total liabilities and equity $ (3,061,000 ) $ (1,408,500 ) Note: Parentheses indicate a credit balance. a. Determine the following account balances: Gain on bargain purchase. Earnings from Chandler. Investment in Chandler.
On January 1, 2021, Brooks Corporation exchanged $1,179,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,027,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $300,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year. In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value. On December 31, 2021, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period. Brooks Corp. Chandler Inc. Income Statement Revenues $ (672,000 ) $ (653,000 ) Cost of goods sold 236,000 225,000 Gain on bargain purchase (148,000 ) 0 Depreciation and amortization 142,000 150,000 Equity earnings from Chandler (228,000 ) 0 Net income $ (670,000 ) $ (278,000 ) Statement of Retained Earnings Retained earnings, 1/1 $ (1,745,000 ) $ (727,500 ) Net income (above) (670,000 ) (278,000 ) Dividends declared 100,000 40,000 Retained earnings, 12/31 $ (2,315,000 ) $ (965,500 ) Balance Sheet Current assets $ 396,500 $ 441,500 Investment in Chandler 1,515,500 0 Trademarks 119,000 207,000 Patented technology 392,000 444,000 Equipment 638,000 316,000 Total assets $ 3,061,000 $ 1,408,500 Liabilities $ (211,000 ) $ (143,000 ) Common stock (535,000 ) (300,000 ) Retained earnings, 12/31 (2,315,000 ) (965,500 ) Total liabilities and equity $ (3,061,000 ) $ (1,408,500 ) Note: Parentheses indicate a credit balance. a. Determine the following account balances: Gain on bargain purchase. Earnings from Chandler. Investment in Chandler.
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 35P
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On January 1, 2021, Brooks Corporation exchanged $1,179,500 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,027,500. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $300,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.
In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent
On December 31, 2021, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.
| Brooks Corp. | Chandler Inc. | ||||||
| Income Statement | |||||||
| Revenues | $ | (672,000 | ) | $ | (653,000 | ) | |
| Cost of goods sold | 236,000 | 225,000 | |||||
| Gain on bargain purchase | (148,000 | ) | 0 | ||||
| 142,000 | 150,000 | ||||||
| Equity earnings from Chandler | (228,000 | ) | 0 | ||||
| Net income | $ | (670,000 | ) | $ | (278,000 | ) | |
| Statement of |
|||||||
| Retained earnings, 1/1 | $ | (1,745,000 | ) | $ | (727,500 | ) | |
| Net income (above) | (670,000 | ) | (278,000 | ) | |||
| Dividends declared | 100,000 | 40,000 | |||||
| Retained earnings, 12/31 | $ | (2,315,000 | ) | $ | (965,500 | ) | |
| Balance Sheet | |||||||
| Current assets | $ | 396,500 | $ | 441,500 | |||
| Investment in Chandler | 1,515,500 | 0 | |||||
| Trademarks | 119,000 | 207,000 | |||||
| Patented technology | 392,000 | 444,000 | |||||
| Equipment | 638,000 | 316,000 | |||||
| Total assets | $ | 3,061,000 | $ | 1,408,500 | |||
| Liabilities | $ | (211,000 | ) | $ | (143,000 | ) | |
| Common stock | (535,000 | ) | (300,000 | ) | |||
| Retained earnings, 12/31 | (2,315,000 | ) | (965,500 | ) | |||
| Total liabilities and equity | $ | (3,061,000 | ) | $ | (1,408,500 | ) | |
Note: Parentheses indicate a credit balance.
a. Determine the following account balances:
- Gain on bargain purchase.
- Earnings from Chandler.
- Investment in Chandler.
b. Prepare a December 31, 2021, consolidated worksheet for Brooks and Chandler.
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