Chapter 1, Problem 1.37P

a.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where assets and liabilities of the two entities combine to form a new entity.

To Prepare: a balance sheet for the combined entity immediately following the merger.

Explanation of Solution

P Inc. and S Company
Combined Balance Sheet
January 1, 20X3
Cash and Receivable	$110,000$	Current Liabilities	$100,000$
Inventory	$142,000$	Capital Stock	$214,000$
Land	$115,000$	Capital in excess of par value	$216,000$
Plant and Equipment	$540,000$	Retained Earnings	$240,000$
Less: Accumulated Depreciation	$\left(150,000\right)$
Goodwill	$13,000$
Total	$770,000$	Total	$770,000$

Computation of Goodwill:

Fair value of the consideration given

  $\left(700\times \$300\right)=\$210,000$

Fair value of net assets acquired

  $\left(217,000-20,000\right)=\left(197,000\right)$

Goodwill

Fair value of consideration given lessfair value of net assets acquired

  $210,000-197,000=13,000$

b.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

To Prepare: stockholder’s equity section of the combined company’s balance sheet, assuming P Inc. acquires all of S Company net assets by issuing

1. $1,100$ shares of common

  $1,800$ shares of common

  $3,000$ shares of common

Explanation of Solution

(1)	Stockholder’s equity with $1,100$ shares issued:
	Capital Stock $\left(200,000+\left(\$20\times 1,100\text{ shares}\right)\right)$	$\$222,000$
	Capital in Excess of Par Value $\left(20,000+\left(\$300-\$20\right)\times 1,100\text{ shares}\right)$	$\$328,000$
	Retained Earnings	$\$240,000$
	Total	$\$790,000$
(2)	Stockholder’s equity with $1,800$ shares issued:
	Capital Stock $\left(200,000+\left(\$20\times 1800\text{ shares}\right)\right)$	$\$222,000$
	Capital in Excess of Par Value $\left(20,000+\left(\$300-\$20\right)\times 1,800\text{ shares}\right)$	$\$524,000$
	Retained Earnings	$\$240,000$
	Total	$\$1,000,000$
(3)	Stockholder’s equity with $3,000$ shares issued:
	Capital Stock $\left(200,000+\left(\$20\times 3000\text{ shares}\right)\right)$	$\$260,000$
	Capital in Excess of Par Value $\left(20,000+\left(\$300-\$20\right)\times 3000\text{ shares}\right)$	$\$860,000$
	Retained Earnings	$\$240,000$
	Total	$\$1,360,000$