Homework SourseLopez Company acquires 100 of the stock of Santiago Corporat
Lopez Company acquires 100% of the stock of Santiago Corporation on January 1, 2016, for $2,280,000 cash. As of that date, Santiago had the following account balances:
In 2016 and 2017, Santiago had net income of $100,000 and 108,000, respectively. In addition, Santiago paid dividends of $27,000 in both years. Inventory is assumed to be sold in 2016.
1. What was the amount of excess of acquisition price over book value of Santiago\'s net assets?
2. What is the amount of goodwill at the date of acquisition?
3. What amount of inventory would be added to the parent\'s inventory balance to get consolidated inventory at the date of acquisition?
4. What amount of Santiago’s building would be included on the consolidated balance sheet at December 31, 2016?
5. What amount of Santiago’s equipment would be included on the consolidated balance sheet at December 31, 2016?
6. Compute the AAP amortization for 2016.
7. What amount of Santiago\'s Bonds Payable would appear on the consolidated balance sheet on December 31, 2016?
8. What amount of Santiago\'s building would be included on the consolidated balance sheet at December 31, 2017?
9. What amount of Santiago\'s equipment would be included on the consolidated balance sheet at December 31, 2017?
10. What amount of Santiago\'s land would be included on the consolidated balance sheet at December 31, 2017?
11. What amount of Santiago’s Bonds Payable would be included on the consolidated balance sheet at December 31, 2017?
12. Compute the AAP amortization for 2017.
13. What amount of Santiago\'s stockholders\' equity will be included in the consolidated balance sheet at the date of acquisition?
| Book Value | Fair Value | ||
| Cash | $ 220,000.00 | $ 220,000.00 | |
| Accounts Receivable | $ 360,000.00 | $ 360,000.00 | |
| Inventory | $ 480,000.00 | $ 540,000.00 | |
| Building-net (10 yr life) | $ 900,000.00 | $ 720,000.00 | |
| Equipment-net (5 yr life) | $ 600,000.00 | $ 750,000.00 | |
| Land | $ 540,000.00 | $ 780,000.00 | |
| Accounts Payable | $ 240,000.00 | $ 240,000.00 | |
| Bonds Payable ($500,000 face value) | $ 1,000,000.00 | (due 12/31/19) | $ 1,020,000.00 |
| Common Stock | $ 600,000.00 | ||
| Additional Paid-in Capital | $ 360,000.00 | ||
| Retained Earnings | $ 900,000.00 |
Solution
1. Book value of net assets=
2.
3. Since inventory is assume to be sold in 2016, balance will be 0.
4. Building added:
Fair value less depreciation = 720000-720000/10 = 648000
5. Equipement added= Fair value less depreciation = 750000 -750000/5= 600000
6. bond payable premium amortisation = 20000/4= 5000
7. bond payable balance= 1020000-5000 =1015000
8. Building balance in 2017= 720000 - 720000*2/10= 576000
9. equipment balance in 2017= 750000- 750000*2/5= 450000
10. Land balance= 780000
11. bond payable balance = 1020000 - 20000*2/4= 1010000
12. bond payable amortisation = 20000/4= 5000
13. stockholders equity of santiago will be eliminated on date of acquisition, hence amount is 0.
| Common stock | 6,00,000 |
| Paid in capital | 3,60,000 |
| Retained earnings | 9,00,000 |
| Total | 18,60,000 |
| Acquisition price | 22,80,000 |
| Excess | 4,20,000 |
