Answered: Sambo Company Balance Sheet December…

Corporate Financial Accounting

15th Edition

ISBN:9781337398169

Author:Carl Warren, Jeff Jones

Publisher:Carl Warren, Jeff Jones

Chapter14: Financial Statement Analysis

Section: Chapter Questions

Problem 14.6EX: a. (1) Current year working capital. 1,090,000 Current position analysis The following data were...

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Holt Corporation is contemplating the acquisition of Sambo Company’s net assets on December 31, 2015. It is considering making an offer, which would include a cash payout of $225,000 along with giving 15,000 shares of its $2 par value common stock that is currently selling for $20 per share. Holt
also agrees that it will pay an additional $50,000 on January 1, 2018, if the average net income of Sambo’s business unit exceeds $80,000 for 2016 and 2017. The likelihood of reaching that target is estimated to be 60%. The balance sheet of Sambo Company is given below, along with
estimated fair values of the net assets to be acquired.

1. Do value analysis and prepare the entry on the books of Holt Corporation to record the acquisition of Sambo Company.
2. Assume that the net income of the Sambo business unit is $120,000 for 2016. As a result, the likelihood of paying the contingent consideration is believed to be 90%. What, if any, adjusting entry is required as of December 31, 2016?

Sambo Company
Balance Sheet
December 31,2015
Book Value
Fair Value
Book Value
Fair Value
Current assets:
Current liabilities:
$ 33,000
80,000
15,000
$128,000
$ 36,000
$ 33,000
80,000 Taxes payable..
15,000
$ 63,000
$ 63,000
15,000
3,000
$ 81,000
Notes receivable .
Accounts payable
15,000
Inventory
Prepaid expenses
Interest payable.
3,000
$128,000
$ 55,000
Total current assets.
Total current liabilities
$ 81,000
Investments
Fixed assets:
Other liabilities:
$ 15,000
115,000
$ 90,000
170,000
Bonds payable
Discount on bonds payable ..
Land. .
$250,000
$250,000
Buildings
(18,000)
(30,000)
Equipment.
Vehicles .
256,000
250,000
32,000
25,000
Total other liabilities...
Stockholders' equity:
Total fixed assets
$418,000
$535,000
$232,000
$220,000
Intangibles:
Franchise..
$ 56,000
$ 70,000
Common stock. .
$ 50,000
Paid-in capital in excess of par
Retained earnings .
200,000
75,000
Total equity
$325,000
$638,000
Total assets...
$638,000
$788,000
Total liabilities and equity
.....

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