LOOSE-LEAF Advanced Financial Accounting with Connect
LOOSE-LEAF Advanced Financial Accounting with Connect
11th Edition
ISBN: 9781259605192
Author: Theodore E. Christensen
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 1, Problem 1.35P

a.

To determine

To prepare: Journal entries that Company R would record for 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).

a.

Expert Solution
Check Mark

Explanation of Solution

In the books of Company P:

Record transfer of assets and liabilities:

    DateAccount Debit ($)Credit($)
    Cash30,000
    Accounts Receivable60,000
    Inventory160,000
    Land30,000
    Building and Equipment350,000
    Bond Discount5,000
    Goodwill125,0001
    Accounts payable10,000
    Bonds payable150,000
    Common Stock80,000
    Additional Paid-in Capital520,000
    (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:

  1. Calculation of goodwill:
    Particulars Amount
    Fair value of consideration given
      (4,000×$150)
    $600,000
    Fair value of net assets acquired
      ($630,000$10,000$145,000)

    ($475,000)
    Goodwill$125,000

Table (2)

b.

To determine

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.

Expert Solution
Check Mark

Explanation of Solution

The balance sheet immediately following the acquisition:

    Company RCombined Balance SheetJanuary 1, 20X2
    AssetsAmount($)LiabilitiesAmount($)Amount($)
    Current AssetsCurrent Liabilities
    Cash100,000Accounts payable60,000
    Accounts receivables160,000Bonds payable450,000
    Inventory360,000Less: Discount(5,000)445,000
    Fixed Assets
    Land80,000Common Stock
    Building and equipment950,000Common Stock280,000
    Less: Accumulated depreciation(250,000)700,000Additional Paid-in capital560,000
    Goodwill125,000Retained Earnings180,000
    1,525,0001,525,000

Table (3)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
eep Inc. acquired 100% of the outstanding common stock of Shy Inc. for $2,293,700 cash and 15,700 shares of its common stock ($2 par value). The stock’s market value was $42 on the acquisition date.Prepare the journal entry to record the acquisition. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit
On January 1, 2023, Tamarisk Company issued 1,450 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Sheffield Company in a purchase transaction. Registration costs amounted to $2,500, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows: Cash Accounts receivable (net) Inventory Plant and equipment (net) Land Total assets Accounts payable Notes payable Common stock, $20 par value Other contributed capital Retained earnings Total equities Tamarisk Company $83,000 103,000 56,000 95,000 23,500 $360,500 $63,000 89,500 100,000 60,000 48,000 $360,500 Sheffield Company $12,600 18,000 25,000 46,500 22,000 $124,100 $19,500 30,000 40,000 27,500 7,100 $124,100 Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.
Harvey Company increased its ownership in Washington Company from 70% to 90% by the purchase of additional shares of the Washington’s outstanding stock from noncontrolling shareholders for a purchase price of $300,000. Immediately prior to the transaction, Harvey’s consolidated balance sheet included a noncontrolling interest balance of $1,000,000.The journal entry by Harvey to record the purchase includes: Select one: A. Cash credit, $333,333 B. APIC credit, $300,000 C. APIC credit, $333,333 D. APIC credit, $33,333

Chapter 1 Solutions

LOOSE-LEAF Advanced Financial Accounting with Connect

Ch. 1 - Prob. 1.12QCh. 1 - Prob. 1.13QCh. 1 - Prob. 1.14QCh. 1 - Prob. 1.15QCh. 1 - Within the measurement period following a business...Ch. 1 - Prob. 1.17QCh. 1 - Prob. 1.1CCh. 1 - Prob. 1.3CCh. 1 - Prob. 1.4CCh. 1 - Risks Associated with Acquisitions Not all...Ch. 1 - Prob. 1.8CCh. 1 - Prob. 1.1.1ECh. 1 - Prob. 1.1.2ECh. 1 - Prob. 1.1.3ECh. 1 - Multiple-Choice Questions on Complex Organizations...Ch. 1 - Prob. 1.1.5ECh. 1 - Prob. 1.2.1ECh. 1 - Prob. 1.2.2ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Prob. 1.2.4ECh. 1 - Multiple-Choice Questions on Recording Business...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Multiple-Choice Questions on Reported Balances...Ch. 1 - Prob. 1.3.3ECh. 1 - Prob. 1.3.4ECh. 1 - Prob. 1.4.1ECh. 1 - Prob. 1.4.2ECh. 1 - Prob. 1.4.3ECh. 1 - Prob. 1.4.4ECh. 1 - Prob. 1.4.5ECh. 1 - Prob. 1.5ECh. 1 - Prob. 1.6ECh. 1 - Prob. 1.7ECh. 1 - Prob. 1.8ECh. 1 - Prob. 1.9ECh. 1 - Prob. 1.10ECh. 1 - Prob. 1.11ECh. 1 - Goodwill Recognition Spur Corporation reported the...Ch. 1 - Acquisition Using Debentures Planter Corporation...Ch. 1 - Bargain Purchase Using the data resented in E1-13,...Ch. 1 - Prob. 1.15ECh. 1 - Prob. 1.16ECh. 1 - Prob. 1.17ECh. 1 - Prob. 1.18ECh. 1 - Prob. 1.19ECh. 1 - Prob. 1.20ECh. 1 - Prob. 1.21ECh. 1 - Prob. 1.22ECh. 1 - Prob. 1.23ECh. 1 - Prob. 1.24PCh. 1 - Prob. 1.25PCh. 1 - Prob. 1.26PCh. 1 - Prob. 1.27PCh. 1 - Prob. 1.28PCh. 1 - Prob. 1.29PCh. 1 - Prob. 1.30PCh. 1 - Prob. 1.31PCh. 1 - Prob. 1.32PCh. 1 - Prob. 1.33PCh. 1 - Prob. 1.34PCh. 1 - Prob. 1.35PCh. 1 - Business Combination Following are the balance...Ch. 1 - Prob. 1.37PCh. 1 - Prob. 1.38PCh. 1 - Prob. 1.39PCh. 1 - Prob. 1.40P
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Text book image
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning