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 33P

a.

To determine

Prepare a post-combination balance sheet for Company N as of the acquisition date.

a.

Expert Solution
Check Mark

Explanation of Solution

The post-combination balance sheet for Company N as of the acquisition date is as follows:

AssetsLiabilities and owner's equity
Cash $      64,000Accounts payable  $    144,000
Receivables $    213,000Notes payable  $    415,000
Trademarks $    625,000Common stock  $    460,000
Record music catalog $ 1,020,000Additional paid-in capital $    695,000
Research and development asset $    200,000Retained earnings  $    860,000
Equipment (net)  $    425,000  
Goodwill $      27,000  
Totals    $ 2,574,000Totals    $ 2,574,000

Table: (1)

Working note:

Journal entries to record acquisition of assets and liabilities:

General Journal
DateAccount Title and ExplanationPost Ref.Debit
($)
Credit
($)
i)Receivables  $                 63,000 
 Trademarks  $                225,000 
 Record music catalog  $               180,000 
 In-process research and development  $               200,000 
 Cash  $               29,000 
Equipment$               105,000
Goodwill$               27,000
Accounts payable$          34,000
Notes payable$          45,000
 Common stock   $        60,000
Additional paid-in capital ($750,000(15,000×$4))$       690,0000
 (to record the assets and liabilities acquired)   
ii)Stock issuance cost  $               25,000 
 Cash   $        25,000
 (being Stock issuance cost paid)   

Table: (2)

Computation of the fair value of the consideration transferred:

Fairvalueofconsideration=(15,000×$50)=$750,000

Thus, the fair value of the consideration transferred in this combination is $750,000.

b.

To determine

Prepare a worksheet to consolidate the two companies as of the combination date.

b.

Expert Solution
Check Mark

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars Company NCompany OConsolidated EntriesConsolidated Balances
Cash     $             35,000 $        29,000   $            64,000
Receivables     $           150,000 $        65,000  $          2,000 $          213,000
Investment of Company O  $           750,000 $                 -  $      270,000 
      $      480,000 $                     -
Trademarks     $           400,000 $        95,000 $      130,000  $          625,000
Record music catalog  $           840,000 $        60,000 $      120,000  $       1,020,000
Research and development asset  $                       - $                 - $      200,000  $          200,000
Equipment (net)   $           320,000 $      105,000   $          425,000
Goodwill  $                       - $                 - $        27,000  $            27,000
Totals     $        2,495,000 $      354,000   $       2,574,000
       
Accounts payable   $          (110,000) $      (34,000)   $        (144,000)
Notes payable   $          (370,000) $      (50,000) $          5,000  $        (415,000)
Common stock   $          (460,000) $      (50,000) $        50,000  $        (460,000)
Additional paid-in capital  $          (695,000) $      (30,000) $        30,000  $        (695,000)
Retained earnings   $          (860,000) $    (190,000) $      190,000  $        (860,000)
Totals     $       (2,495,000) $    (354,000) $      752,000 $      752,000 $     (2,574,000)

Table: (3)

c.

To determine

Explain the way in which the balance sheet accounts compare across parts (a) and (b).

c.

Expert Solution
Check Mark

Explanation of Solution

The balance sheet across parts (a) and (b) are however similar and only the presentation differs.

Part (a) represents the combined balances only while part (b) represents separate balances as well.

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