a.
To prepare:
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
a.
Explanation of Solution
In the books of Company P:
Record transfer of assets and liabilities:
Date | Account | Debit ($) | Credit($) |
Cash | 30,000 | ||
Accounts Receivable | 60,000 | ||
Inventory | 160,000 | ||
Land | 30,000 | ||
Building and Equipment | 350,000 | ||
Bond Discount | 5,000 | ||
125,0001 | |||
Accounts payable | 10,000 | ||
Bonds payable | 150,000 | ||
Common Stock | 80,000 | ||
Additional Paid-in Capital | 520,000 | ||
(To record transfer of assets and liabilities) |
Table (1)
- Cash is an asset and it is increased by $30,000. Therefore, cash account is debited with $30,000.
- Accounts Receivable is an asset and it is increased by $60,000. Therefore, Accounts Receivable account is debited with $60,000.
- Inventory is an asset and it is increased by $160,000. Therefore, Accounts Inventory is debited with $160,000.
- Land is an asset and it is increased by $30,000. Therefore, Land is debited with $30,000.
- Building and equipment is an asset and it is increased by $350,000. Therefore, Building and equipment is debited with $350,000.
- Bond discount is an asset and it is increased by $5,000. Therefore, Bond discount is debited with $5,000.
- Goodwill is an asset and it is increased by $125,000. Therefore, Goodwill is debited with $125,000.
- Accounts Payable is a liability and it is increased by $10,000. Therefore, Accounts Payable account is credited with $10,000.
- Bonds Payable is a liability and it is increased by $150,000. Therefore, Bonds Payable account is credited with $150,000.
- Common Stock is equity and it is increased by $80,000. Therefore, Common Stock account is credited with $80,000.
- Additional paid in capital is equity and it is increased by $520,000. Therefore, Additional paid in capital account is credited with $520,000.
- Deferred stock issue cost is equity and it is increased by $9,000. Therefore, Deferred stock issue cost account is credited with $9,000.
Working Note:
- Calculation of goodwill:
Particulars | Amount |
Fair value of consideration given | $600,000 |
Fair value of net assets acquired | ($475,000) |
Goodwill | $125,000 |
Table (2)
b.
To prepare: Balance sheet immediately following the acquisition.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
b.
Explanation of Solution
The balance sheet immediately following the acquisition:
Company RCombined Balance SheetJanuary 1, 20X2 | |||||
Assets | Amount($) | Liabilities | Amount($) | Amount($) | |
Current Assets | Current Liabilities | ||||
Cash | 100,000 | Accounts payable | 60,000 | ||
Accounts receivables | 160,000 | Bonds payable | 450,000 | ||
Inventory | 360,000 | Less: Discount | (5,000) | 445,000 | |
Fixed Assets | |||||
Land | 80,000 | Common Stock | |||
Building and equipment | 950,000 | Common Stock | 280,000 | ||
Less: Accumulated | (250,000) | 700,000 | Additional Paid-in capital | 560,000 | |
Goodwill | 125,000 | 180,000 | |||
1,525,000 | 1,525,000 |
Table (3)
Want to see more full solutions like this?
Chapter 1 Solutions
ADVANCED FINAN.ACCT.(LOOSELEAF)>CUSTOM<
- E 1-5 Journal entries to record an acquisition with direct costs and fair value/book value differences On January 1, Pop Corporation pays $400,000 cash and also issues 36,000 shares of $10 par common stock with a market value of $660,000 for all the outstanding common shares of Son Corporation. In addition, Pop pays $60,000 for registering and issuing the 36,000 shares and $140,000 for the other direct costs of the business combination, in which Son Corporation is dissolved. Summary balance sheet information for the companies immediately before the merger is as follows (in thousands): Pop Book Value Son Book Value Son Fair Value Cash $ 700 $ 80 $ 80 Inventories 240 160 200 Other current assets 60 40 40 Plant assets—net 520 360 560 Total assets $1,520 $640 $880 Current liabilities $ 320 $ 60 $ 60 Other liabilities 160 100 80 Common stock, $10 par 840 400…arrow_forwardWe now examine consolidations in years after the acquisition has taken place. Continuing with the same example from above, assume that P acquires 100% of the stock of S for $1,000,000 cash on 1/1/21. S’s accounts at the acquisition date are as follows: Book Value Fair Value Difference Current assets $350,000 $350,000 -0- Land 300,000 400,000 100,000 Buildings (10-year life) 500,000 650,000 150,000 Equipment (5-year life) 200,000 150,000 (50,000) Liabilities (650,000) (650,000) -0- Net assets $700,000…arrow_forwardPLEASE PROVIDE SOLUTIONOn January 1, 2022, Lucas Company acquired 85% of outstanding shares of Luna Corp. The consideration transferred includes cash payment of P2,000,000 and issuance of 50,000 shares with a market price of P45 per share. The book value of Luna Corp.’s identifiable net assets approximate its fair value, except for the following: Merchandise inventory’s fair value is lower than the book balance by 150,000. Equipment-A, with 2 years remaining useful life, costing P300,000 is understated by P50,000. Land with a fair value of P500,000 is recognized in the books amounting to P350,000. The following events happened to Luna Corp. Equipment-A was sold in June 30, 2023 for P320,000. 60% of merchandise inventory were sold in 2022. There is no movement as to the ordinary shares of Luna Corp during the year. The unadjusted trial balance as of December 31, 2022 were as follows: Lucas Company Luna Corp Cash 2,240,000 1,800,000 Trade…arrow_forward
- Step Acquisition: Press Company acquires 15 percent of Secretary Company's common stock for P600,000 cash and carries the investment using the cost model. A few months later, Press purchases another 60 percent of Secretary Company's stock for P2,592,000. At that date, Secretary Company reports identifiable assets with a book value of P4,680,000 and a fair value of P6,120,000, and it has liabilities with a book value and fair value of P2,280,000. The fair value of the 25% non-controlling interest in Secretary Company is P1,080,000.Determine the following (at full fair value)GoodwillNon-Controlling Interest (NCI)arrow_forwardIf PROMDI Co., a new company would acquire the net assets of CARDO Co and SYANO Co. PROMDI Co will be issuing 30,000 shares to CARDO and 12,000 shares to SYANO. The following is the balance sheet of PROMDI Co, followed by the fair values and additional unpaid costs incurred by PROMDI in the acquisition: REQUIREMENTS: Consolidated Equity at the date of acquisitionarrow_forwardRoland acquires 70% of Felix on January 1, 2011. The terms of purchase are that Roland pays to Felix shareholders 70,000 shares of Roland common stock with a market value of $20 per share. The remaining 30,000 shares of Felix were traded at $15 both just before the acquisition date and right after the acquisition date. a. How much is the control premium per share b. How much is the total control premium paid by Roland c. Calculate business fair value d. Assume that 100% of the fair value of net assets acquired was S1,200,000. How much is goodwill e. How much goodwill is allocated to the controlling interest f. How much goodwill is allocated to the non-controlling interestarrow_forward
- Bronze Corporation agrees to acquire the net assets of Wall Corporation on January 1, 20X1. Wall has the following balance sheet on the date of acquisition: Wall Corporation Balance Sheet January 1, 20X1 Assets Liabilities and Equity Accounts receivable . . . . . . . . . $ 79,000 Current liabilities . . . . . . . . . . . . . . $145,000 Inventory . . . . . . . . . . . . . . . . . . 112,000 Bonds payable . . . . . . . . . . . . . . . 100,000 Other current assets . . . . . . . . . . 55,000 Common stock . . . . . . . . . . . . . . . . 200,000 Equipment (net) . . . . . . . . . . . . . 294,000 Paid-in capital in excess of par . . . 50,000 Trademark . . . . . . . . . . . . . . . . . 30,000 Retained earnings . . . . . . . . . . . . . 75,000 Total assets. . . . . . . . . . . . . . . $570,000 Total liabilities and equity . . . . . $570,000 An appraiser determines that in-process R&D exists and has an estimated value of $14,000. The appraisal indicates that the following assets have fair…arrow_forwardSD acquired the net assets of both GM and SR. Paying cash in the amount of P185,000 and by issuing 198,500 shares to GM. Paying cash in the amount of P 72,000 and by issuing 54,350 shares to SR. The par value of these shares is P35 per share and market value of P40 per share as of January 01, 2018. SD’s retained earnings has a balance of P 10,750,000 on January 01, 2018 immediately before the acquisition.1. As a result of the merger, what is the goodwill?arrow_forwardPit Coporation owns 75% of Stop Company's outstanding common stock. On 08/28/21, Pit sold inventory to Stop in exchange for $540,000 cash. Pit had purchased the inventory on 05/02/21 at a cost of $324,000. On 12/21/21, Stop sold 80% of the inventory to 3rd parties at a cash price of $720,000. The other 20% of the inventory remains on hand at 12/31/21. The Consolidation Entry at Year End would include:arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning