a.
Introduction:
The journal entries to record the acquisition in P’s books.
a.
Explanation of Solution
Journal Entries
S.no | Date | Particulars | Debit | Credit |
1 | Cash | $ 30,000 | ||
Accounts receivable | $ 60,000 | |||
Inventory | $ 160,000 | |||
Land | $ 30,000 | |||
Buildings and equipment | $ 350,000 | |||
Bond discount | $ 5,000 | |||
$ 125,000 | ||||
Accounts payable | $ 10,000 | |||
Bonds payable | $ 150,000 | |||
Common stock | $ 80,000 | |||
Additional paid in capital | $ 520,000 | |||
(To record the acquisition of S’s net assets) |
Calculation of Goodwill | |
Particulars | Amounts |
Cash | $ 30,000 |
Accounts receivable | $ 60,000 |
Inventory | $ 160,000 |
Land | $ 30,000 |
Buildings and equipment | $ 350,000 |
Bond discount | $ 5,000 |
(a) | $ 635,000 |
Accounts payable | $ 10,000 |
Bonds payable | $ 150,000 |
Common stock | $ 80,000 |
Additional paid in capital | $ 520,000 |
(b) | $ 760,000 |
Goodwill (b)-(a) | $125,000 |
Calculation of Additional paid in capital | |||
Particulars | Price | No. of shares | Amounts |
Market price of P's shares | $150 | 4,000 | $600,000 |
Shares given to S at par | $20 | 4,000 | $80,000 |
Additional paid in capital | $120 | 4,000 | $520,000 |
- Cash, accounts receivable and inventory are the current assets and when the value of the assets increases, the increment in their value shall be debited. Land, building, and equipment are fixed assets and when assets increase the same shall be debited.
- Discount on bonds and goodwill is a liability and when liabilities decrease, they are debited.
- Accounts payable and bonds payable are liabilities and an increase in liabilities are credited.
- Common stock and additional paid-in capital is stakeholder’s equity and when stakeholder’s equity increase, it is credited.
- Excess amount paid over total assets and total liabilities acquired is called goodwill.
- Additional paid-in capital arises when a share is given less than the market price.
b.
Introduction:A consolidated balance sheet is a combination of two or more balance sheets. In the consolidated balance sheet, the assets and liabilities of all its subsidiary companies are included in the assets and liabilities of a parent company.
A consolidated balance sheet after business combination.
b.
Answer to Problem 1.35P
The total assets for the financial year 20X2 immediately after acquisition is $1,525,000
The total liabilities for the financial year 20X2 immediately after acquisition is $1,525,000
Explanation of Solution
Consolidated Balance Sheet
Assets | Amount | Amount |
Cash | $ 100,000 | |
Accounts receivable | $ 160,000 | |
Inventory | $ 360,000 | |
Land | $ 80,000 | |
Buildings and equipment | $ 950,000 | |
Less: | $ (250,000) | $ 700,000 |
Goodwill | $ 125,000 | |
Total assets | $ 1,525,000 | |
Liabilities | ||
Accounts payable | $ 60,000 | |
Bonds payable | $ 450,000 | |
Less: discounts | $ (5,000) | $ 445,000 |
Common stock | $ 280,000 | |
$ 180,000 | ||
Additional paid in capital | $ 560,000 | |
Total liabilities and | $ 1,525,000 |
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