Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:
Book Values
Fair Values
Computer software
$
20,000
$
70,000
Equipment
40,000
30,000
Client contracts
0
100,000
In-process research and development
0
40,000
Notes payable
(60,000
)
(65,000
)
At December 31, 2021, the following financial information is available for consolidation (credit balances in parentheses):
Pratt
Spider
Cash
$
36,000
$
18,000
Receivables
116,000…
Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:
Book Values
Fair Values
Computer software
$ 20,000
$ 70,000
Equipment
40,000
30,000
Client contracts
–0–
100,000
In-process research and development
–0–
40,000
Notes payable
(60,000)
(65,000)
At December 31, 2018, the following financial information is available for consolidation:
Pratt
Spider
Cash
$ 36,000
$ 18,000
Receivables…
Pratt Company acquired all of the outstanding shares of Spider, Inc., on December 31, 2021, for $550,200 cash. Pratt will operate
Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider's book values
approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally
developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider's fair and book value
differences as follows:
Computer software
Equipment
Client contracts
In-process research and development
Notes payable
Cash
Receivables
Inventory
Investment in Spider
Computer software
Buildings (net)
Equipment (net)
Client contracts
will
At December 31, 2021, the following financial information is available for consolidation (credit balances in parentheses):
Total assets
Accounts payable
Notes payable
Common stock
Additional paid-in capital
Retained earnings
Total liabilities and…
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- S acquired 100 percent of F for P275,000. At the date of acquisition, F had the following book and market values: (see image below) What is the amount of the “Investment in F” account on S’s financial records at the acquisition date? What amount of pre-acquisition earnings is eliminated in the acquisition date worksheet elimination? Please answer in good accounting form. Thank you!arrow_forwardPratt Company acquired all of Spider, Inc.'s outstanding shares on December 31, 2017, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider's book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider's fair and book value differences as follows: Computer software Equipment Client contracts In-process research and development Notes payable Cash Receivables Inventory Investment in Spider Computer software Buildings (net) Equipment (net) Client contracts Goodwill Book Values 0 0 (60,000) At December 31, 2017, the following financial information is available for consolidation: Pratt Total Assets $20,000 40,000 $36,000 116,000 140,000 495,000 210,000 595,000 308,000 0 0 $1,900,000 $(88,000) (510,000)…arrow_forwardPuncho Company is acquiring the net assets of Semos Company in exchange for common stock valued at $900,000. The Semos identifiable net assets have book and fair values of $400,000 and $800,000, respectively. Compare accounting for the acquisition (including assignment of the price paid) by Puncho with accounting for the sale by Semos.arrow_forward
- On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $785,225 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $336,525 both before and after Truman's acquisition. In reviewing its acquisition, Truman assigned a $128.500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2021. In addition, the subsidiary's income was earned uniformly throughout the year. The subsidiary declared dividends quarterly. Revenues Operating expenses Income of subsidiary Net income Retained earnings, 1/1/21 Net income (above) Dividends declared Retained earnings, 12/31/21 Current assets Investment in Atlanta Land Buildings Total assets Liabilities…arrow_forwardABC Corporation purchased XYZ Inc. The latter has the following account balances: The noncurrent assets have a fair value of P4,500,000. ABC paid the owners of XYZ a total purchase price of P4,500,000. How much is the goodwill that ABC should record from this acquisition? *refer to attached photoarrow_forwardOn July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $792,400 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $339,600 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $125,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly. Truman Atlanta Revenues $ (768,485 ) $ (536,000 ) Operating expenses 418,000 378,000 Income of subsidiary (46,515 ) 0 Net income $ (397,000 ) $ (158,000 ) Retained earnings, 1/1/21 $…arrow_forward
- On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $776,300 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $332,700 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $134,000 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly. Truman Atlanta Revenues $ (681,680 ) $ (496,000 ) Operating expenses 412,000 334,000 Income of subsidiary (47,320 ) 0 Net income $ (317,000 ) $ (162,000 ) Retained earnings,…arrow_forwardOn July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $835,275 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $357,975 both before and after Truman's acquisition. In reviewing its acquisition, Truman assigned a $140,000 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2021. In addition, the subsidiary's income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.arrow_forwardLeni Co. acquired all of BBM Co.'s assets and liabilities on October 2, 2021. BBM reported assets with a carrying amount of P2, 496,000 and liabilities of 1,424,000. Leni noted that BBM had 160,000 research and development cost at the acquisition date that did not appear of any value. Leni also determined that patents developed by BBM had a fair value of 480,000 but have not been reported by BBM. Except for building and equipment, Leni determined the fair value of all other assets and liabilities approximated the reported amounts. At acquisition date, Leni recorded a goodwill of P372,000. Leni paid P2,068,000 to acquire BBM's assets and liabilities. If the carrying amount of the building and equipment was P1,364,000, what was the fair value?arrow_forward
- On January 1, 2021, Casey Corporation exchanged $3,327,000 cash for 100 percent of the outstanding voting stock of Kennedy Corporation. Casey plans to maintain Kennedy as a wholly owned subsidiary with separate legal status and accounting information systems. At the acquisition date, Casey prepared the following fair-value allocation schedule: Fair value of Kennedy (consideration transferred) Carrying amount acquired Excess fair value to buildings (undervalued) to licensing agreements (overvalued) to goodwill (indefinite life) Accounts Cash Accounts receivable Inventory Investment in Kennedy Buildings (net) Licensing agreements Goodwill Total assets Accounts payable Long-term debt Common stock Immediately after closing the transaction, Casey and Kennedy prepared the following postacquisition balance sheets from their separate financial records (credit balances in parentheses). Additional paid-in capital Retained earnings Total liabilities and equities Cash Accounts receivable Inventory…arrow_forwardOn January 1, 2021, Parent Co. acquired the identifiable net asset of Subsidiary, Inc.. On this date, the identifiable net assets acquired and liabilities assumed have fair values of P7,680,000 and P4,320,000, respectively. Parent Co. incurred the following acquisition-related costs: legal fees, P48,000, due diligence costs, P480,000; and general and administrative costs of maintaining an internal acquisition, P96,000. As consideration, Parent Co. transferred 9,600 of its own shares with par value and fair value per share of P400 and P500, respectively, to Subsidiary’s former owners. Costs of registering the shares (previously issued and newly issued) amounted to P192,000 (P24,000 pertains to listing fees of previously issued shares). How much is the total amount charged to profit or loss in relation to this transaction?arrow_forwardBorn Corporation agrees to acquire the net assets ofWren Corporation on January 1, 2015.Wren has the following balance sheet on the date of acquisition:An appraiser determines that in-process R&D exists and has an estimated value of $20,000. The appraisal indicates that the following assets have fair values that differ from their book values: Fair ValueInventory . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,000Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 340,000Trademark . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000Use value analysis to prepare the entry on the books of Born Corporation to acquire the net assets ofWren Corporation under each of the following purchase price scenarios:1. Purchase price is $540,000.2. Purchase price is $350,000.arrow_forward
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