Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
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Chapter 2, Problem 28P

a.

To determine

Determine the amounts that Company M would report in its post-acquisition balance sheet.

a.

Expert Solution
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Explanation of Solution

The amounts that Company M would report in its post-acquisition balance sheet are as follows:

Particulars Company CCompany K
Cash       $        18,000 (1) $       20,000
Receivables       $      270,000 $       90,000
Inventory       $      360,000 $     140,000
Land       $      200,000 $     180,000
Buildings (net)     $      420,000 $     220,000
Equipment (net)     $      160,000 $       50,000
Investment in Company T  $      515,000 (2) 
    
Total assets  $   1,943,000 $     700,000
    
Accounts payable     $     (150,000) $      (40,000)
Long-term liabilities     $     (630,000) $    (200,000)
Common stock  $     (130,000) $    (120,000)
Additional paid-in capital   $     (528,000) (3) $                 -
Retained earnings, 1/1/18   $     (505,000) (4) $    (340,000)
Total liabilities and equity  $  (1,943,000) $    (700,000)

Table: (1)

Working note:

Calculation of cash:

Cash=BookvalueofcashinbooksofMStockissuancecostAcquisitioncost=$60,000$12,000$30,000=$18,000 (1)

Calculation of investment:

InvestmentinCompanyT=Fairvalueofassetsandliabilities+Undervaluedassets=$20,000+$90,000+$140,000+$180,000+$220,000+$50,000$40,000$200,000+$55,000=$515,000 (2)

Calculation of Additional paid-in Capital:

Additional paid-in Capital=Additional paid-in CapitalofCompanyM+NewAdditional paid-in CapitalStockissuancecost=$360,000+(20,000×9)$12,000=$528,000 (3)

Calculation of Retained earnings, 1/1/18:

Retained earnings, 1/1/18 =$420,000+GainonbargainpurchaseAmountpaidtolawyers=$420,000+$115,000$30,000=$505,000 (4)

b.

To determine

Prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.

b.

Expert Solution
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Explanation of Solution

The worksheet to consolidate the balance sheets of these two companies as of January 1, 2018 is as follows:

Particulars Company CCompany KConsolidated EntriesConsolidated Balances
Cash       $        18,000 $       20,000   $       38,000
Receivables       $      270,000 $       90,000   $     360,000
Inventory       $      360,000 $     140,000 $     5,000  $     505,000
Land       $      200,000 $     180,000 $   20,000  $     400,000
Buildings (net)     $      420,000 $     220,000 $   30,000  $     670,000
Equipment (net)     $      160,000 $       50,000   $     210,000
Investment in Company T  $      515,000   $ 460,000 
      $   55,000 $                 -
Total assets  $   1,943,000 $     700,000   $  2,183,000
       
Accounts payable     $     (150,000) $      (40,000)   $    (190,000)
Long-term liabilities     $     (630,000) $    (200,000)   $    (830,000)
Common stock  $     (130,000) $    (120,000) $ 120,000  $    (130,000)
Additional paid-in capital   $     (528,000) $                 -   $    (528,000)
Retained earnings, 1/1/18   $     (505,000) $    (340,000) $ 340,000  $    (505,000)
Total liabilities and equity  $  (1,943,000) $    (700,000) $ 515,000 $ 515,000 $ (2,183,000)

Table: (2)

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