Homework SourseFollowing are preacquisition financial balances for Padre Co
Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also included are fair values for Sol Company accounts.
Sol Company
Note: Parentheses indicate a credit balance.
On December 31, Padre acquires Sol’s outstanding stock by paying $228,000 in cash and issuing 14,500 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $22,400 as well as $10,000 in stock issuance costs.
Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed.
Worksheet
Inventory$
Land$
Buildings and equipment $
Franchise agreements $
Goodwill $
Revenues $
Additional paid-in capital $
Expenses $
Retained earnings, 1/1 $
Retained earnings, 12/31 $
| Padre Company | Sol Company | ||||||||||||||
| Book Values | Book Values | Fair Values | |||||||||||||
| 12/31 | 12/31 | 12/31 | |||||||||||||
| Cash | $ | 354,750 | $ | 56,700 | $ | 56,700 | |||||||||
| Receivables | 242,250 | 312,000 | 312,000 | ||||||||||||
| Inventory | 482,500 | 174,000 | 229,900 | ||||||||||||
| Land | 720,000 | 194,000 | 171,200 | ||||||||||||
| Building and equipment (net) | 837,500 | 332,000 | 395,300 | ||||||||||||
| Franchise agreements | 242,000 | 252,000 | 290,800 | ||||||||||||
| Accounts payable | (352,000 | ) | (152,000 | ) | (152,000 | ) | |||||||||
| Accrued expenses | (189,000 | ) | (54,500 | ) | (54,500 | ) | |||||||||
| Longterm liabilities | (1,132,500 | ) | (532,500 | ) | (532,500 | ) | |||||||||
| Common stock—$20 par value | (660,000 | ) | |||||||||||||
| Common stock—$5 par value | (210,000 | ) | |||||||||||||
| Additional paid–in capital | (70,000 | ) | (90,000 | ) | |||||||||||
| Retained earnings, 1/1 | (422,500 | ) | (260,000 | ) | |||||||||||
| Revenues | (1,000,000 | ) | (354,700 | ) | |||||||||||
| Expenses | 947,000 | 333,000 |
Solution
Book value of padre+fair value of sol
482500+229000
1)Goodwill :
Fair value of sol asset =56700+312000+229900+171200+395300+290800-152000-54500-532500=716900
Amount paid :[14500*40]+228000= 808000
Goodwill : Amount paid -fair value of net asset acquired
808000-716900
= 91100
2)Additional padi in capital = 70000 padre + [14500*20 ]for shares issued to sol -10000 stock issuance cost
= 350000
**par value is20 so additional paid in capital on issuance =40-20 =20
3)Retained earning 12/31
Padre =beginning+revenue -expense
= 422500+1000000-947000
= 475500
share in nert income of sol : 354700-333000=21700 [100%acquisition or share]
Total retained earning :475500+21700= 497200
| Amount | ||
| Inventory | Book value of padre+fair value of sol 482500+229000 | 711500 |
| Land | 720000+171200 | 891200 |
| Buildings and equipment | 837500+395300 | 1232800 |
| Franchise agreements | 242000+290800 | 532800 |
| Goodwill | 91100** | |
| Revenues | only padre revenue will be reported | 1,000,000 |
| Additional paid-in capital | 350000 | |
| Expense | 947000 expense of padre +22400 accounting and legal cost | 969400 |
| Retained earnings, 1/1 | of padre only | 422500 |
| Retained earnings, 12/31 | 497200 | |
