I need detailed help with steps on how the fair value of netassets acquired of $515,000 was calculated :
NOTE : PARENTHESIS MEAN CREDIT BALANCE
On January 1, 2015 , Marshall Company acquired 100% of theoutsanding common stock of Tucker Company. To acquire these shares,Marshall issued $200,000 in long term liabilities and 20,000 sharesof common stock having a par value of $10 per share. Marshall paid$30,000 to accountants, lawyers, and brokers for assistance inacquistion and another $12,000 in connection with stock issuancecosts.
Prior to these transactions, the balance sheets for the twocompanies were as follows :
Marshall Company Book Value ;
Cash : $60,000
Receivables : $270,000
Inventory : $360,000
Land : $200,000
Buildings (net) : $420,000
Equipment (net) : $160,000
Accounts Payable : $(150,000)
Long Term Liabilities : $(430,000)
Common Stock $1 par value (110,000)
Additional Paid In Capital : $(360,000)
Retained Earnings 1/1/15 : (420,000)
Tucker Company Book Value :
Cash : $20,000
Receivables : $90,000
Inventory : $140,000
Land : $180,000
Buildings (net ) :$220,000
Equipment (net ) $50,000
Accounts Payable : (40,000)
Long Term Liabilities : (200,000)
Common Stock $20 par value : (120,000)
Additional Paid In Capital : 0
Retaineed Earnings 1/1/15 : (340,000)
In marshall's appraisal of tucker, it deemed three accounts tobe undervalued on the subsidiary's books : Inventory by $5,000 ,Land by $20,000, and Buildings by $30,000. Marshall plans tomaintain Tucker's separate legal identity and to operate Tucker asa wholly owned subsidiary .
I need detailed help with steps on how the fair value of netassets acquired of $515,000 was calculated :
NOTE : PARENTHESIS MEAN CREDIT BALANCE
On January 1, 2015 , Marshall Company acquired 100% of theoutsanding common stock of Tucker Company. To acquire these shares,Marshall issued $200,000 in long term liabilities and 20,000 sharesof common stock having a par value of $10 per share. Marshall paid$30,000 to accountants, lawyers, and brokers for assistance inacquistion and another $12,000 in connection with stock issuancecosts.
Prior to these transactions, the balance sheets for the twocompanies were as follows :
Marshall Company Book Value ;
Cash : $60,000
Receivables : $270,000
Inventory : $360,000
Land : $200,000
Buildings (net) : $420,000
Equipment (net) : $160,000
Accounts Payable : $(150,000)
Long Term Liabilities : $(430,000)
Common Stock $1 par value (110,000)
Additional Paid In Capital : $(360,000)
Retained Earnings 1/1/15 : (420,000)
Tucker Company Book Value :
Cash : $20,000
Receivables : $90,000
Inventory : $140,000
Land : $180,000
Buildings (net ) :$220,000
Equipment (net ) $50,000
Accounts Payable : (40,000)
Long Term Liabilities : (200,000)
Common Stock $20 par value : (120,000)
Additional Paid In Capital : 0
Retaineed Earnings 1/1/15 : (340,000)
In marshall's appraisal of tucker, it deemed three accounts tobe undervalued on the subsidiary's books : Inventory by $5,000 ,Land by $20,000, and Buildings by $30,000. Marshall plans tomaintain Tucker's separate legal identity and to operate Tucker asa wholly owned subsidiary .
Related questions
On January 1, 2018, Marshall Company acquired 100 percent of the outstanding common stock of Tucker Company. To acquire these shares, Marshall issued $273,000 in long-term liabilities and 20,000 shares of common stock having a par value of $1 per share but a fair value of $10 per share. Marshall paid $21,000 to accountants, lawyers, and brokers for assistance in the acquisition and another $6,000 in connection with stock issuance costs.
Prior to these transactions, the balance sheets for the two companies were as follows:
| Marshall Company Book Value | Tucker Company Book Value | ||||||
| Cash | $ | 62,100 | $ | 38,400 | |||
| Receivables | 344,000 | 170,000 | |||||
| Inventory | 386,000 | 150,000 | |||||
| Land | 276,000 | 222,000 | |||||
| Buildings (net) | 441,000 | 233,000 | |||||
| Equipment (net) | 205,000 | 58,500 | |||||
| Accounts payable | (192,000 | ) | (66,300 | ) | |||
| Long-term liabilities | (507,000 | ) | (273,000 | ) | |||
| Common stockâ$1 par value | (110,000 | ) | |||||
| Common stockâ$20 par value | (120,000 | ) | |||||
| Additional paid-in capital | (360,000 | ) | 0 | ||||
| Retained earnings, 1/1/18 | (545,100 | ) | (412,600 | ) | |||
Note: Parentheses indicate a credit balance.
In Marshallâs appraisal of Tucker, it deemed three accounts to be undervalued on the subsidiaryâs books: Inventory by $6,850, Land by $18,800, and Buildings by $30,600. Marshall plans to maintain Tuckerâs separate legal identity and to operate Tucker as a wholly owned subsidiary.
Determine the amounts that Marshall Company would report in its postacquisition balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Marshallâs retained earnings. Other accounts will also need to be added or adjusted to reflect the journal entries Marshall prepared in recording the acquisition.
To verify the answers found in part (a), prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2018.
Measures of liquidity, solvency, and profitability
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.
| Marshall Inc. | ||
| Comparative Retained Earnings Statement | ||
| For the Years Ended December 31, 20Y2 and 20Y1 | ||
| 20Y2 | 20Y1 | |
| Retained earnings, January 1 | $3,704,000 | $3,264,000 |
| Net income | $ 600,000 | $ 550,000 |
| Dividends: | ||
| On preferred stock | (10,000) | (10,000) |
| On common stock | (100,000) | (100,000) |
| Increase in retained earnings | $ 490,000 | $ 440,000 |
| Retained earnings, December 31 | $4,194,000 | $3,704,000 |
| Marshall Inc. | ||
| Comparative Income Statement | ||
| For the Years Ended December 31, 20Y2 and 20Y1 | ||
| 20Y2 | 20Y1 | |
| Sales | $ 10,850,000 | $10,000,000 |
| Cost of goods sold | (6,000,000) | (5,450,000) |
| Gross profit | $ 4,850,000 | $ 4,550,000 |
| Selling expenses | $ (2,170,000) | $ (2,000,000) |
| Administrative expenses | (1,627,500) | (1,500,000) |
| Total operating expenses | $(3,797,500) | $ (3,500,000) |
| Operating income | $ 1,052,500 | $ 1,050,000 |
| Other revenue and expense: | ||
| Other revenue | 99,500 | 20,000 |
| Other expense (interest) | (132,000) | (120,000) |
| Income before income tax expense | $ 1,020,000 | $ 950,000 |
| Income tax expense | (420,000) | (400,000) |
| Net income | $ 600,000 | $ 550,000 |
| Marshall Inc. | ||
| Comparative Balance Sheet | ||
| December 31, 20Y2 and 20Y1 | ||
| 20Y2 | 20Y1 | |
| Assets | ||
| Current assets: | ||
| Cash | $1,050,000 | $ 950,000 |
| Marketable securities | 301,000 | 420,000 |
| Accounts receivable (net) | 585,000 | 500,000 |
| Inventories | 420,000 | 380,000 |
| Prepaid expenses | 108,000 | 20,000 |
| Total current assets | $ 2,464,000 | $2,270,000 |
| Long-term investments | 800,000 | 800,000 |
| Property, plant, and equipment (net) | 5,760,000 | 5,184,000 |
| Total assets | $ 9,024,000 | $8,254,000 |
| Liabilities | ||
| Current liabilities | $ 880,000 | $ 800,000 |
| Long-term liabilities: | ||
| Mortgage note payable, 6% | $ 200,000 | $ 0 |
| Bonds payable, 4% | 3,000,000 | 3,000,000 |
| Total long-term liabilities | $ 3,200,000 | $3,000,000 |
| Total liabilities | $ 4,080,000 | $3,800,000 |
| Stockholders’ Equity | ||
| Preferred 4% stock, $5 par | $ 250,000 | $ 250,000 |
| Common stock, $5 par | 500,000 | 500,000 |
| Retained earnings | 4,194,000 | 3,704,000 |
| Total stockholders’ equity | $ 4,944,000 | $4,454,000 |
| Total liabilities and stockholders’ equity | $ 9,024,000 | $8,254,000 |
Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.
| 1. Working Capital | $ | |
| 2. Current ratio | ||
| 3. Quick ratio | ||
| 4. Accounts receivable turnover | ||
| 5. Number of days’ sales in receivables | ||
| 6. Inventory turnover | ||
| 7. Number of days’ sales in inventory | ||
| 8. Ratio of fixed assets to long-term liabilities | ||
| 9. Ratio of liabilities to stockholders’ equity | ||
| 10. Times interest earned | ||
| 11. Asset turnover | ||
| 12. Return on total assets | % | |
| 13. Return on stockholders’ equity | % | |
| 14. Return on common stockholders’ equity | % | |
| 15. Earnings per share on common stock | $ | |
| 16. Price-earnings ratio | ||
| 17. Dividends per share of common stock | $ | |
| 18. Dividend yield |
Using the data in the Option 2 Spreadsheet(linked at the bottom of the page), perform the accounting requiredfor the acquisition of Little, Inc. by Big, Inc. This is an 80%acquisition, where the book value of the assets acquired is lessthan the acquisition price. Within the worksheet, you are to:
1. Select an accounting method (either cost or equity) andexplain why you selected this method
2. Perform the required journal entries
3. Complete the consolidation worksheet
4. Prepare the consolidated balance sheet in good form
| Big CompanyBalance Sheet | Which accountingmethod is most appropriate for representing an investment of thistype? | Prepare Elimination Entriesfor Stock Acquisition | ||||||||
| Assets, Liabilities & Equities | Book Value | Account | DR | CR | ||||||
| Cash | $2,100,000 | |||||||||
| AR | $10,000 | |||||||||
| Inventory | $200,000 | |||||||||
| Land | $40,000 | |||||||||
| PP&E | $400,000 | |||||||||
| Accumulated Depreciation | -$150,000 | |||||||||
| Patent | $0 | |||||||||
| Total Assets | $2,600,000 | Prepare thejournal entries for a 80% Asset Acquisition (using Big CompanyCash) | ||||||||
| AP | $100,000 | |||||||||
| Common Stock ($10 par) | $450,000 | Account | DR | CR | ||||||
| Additional Paid In Capital | $600,000 | |||||||||
| Retained Earnings | $1,450,000 | |||||||||
| Total Liabilities &Equity | $2,600,000 | Prepare thejournal entries for a 80% Acquisition by issuing 10,000 shares ofBig Company Stock | Big Company Balance Sheet (Consolidated) | |||||||
| Little Company BalanceSheet | Assets, Liabilities & Equities | |||||||||
| Assets, Liabilities & Equities | Book Value | Account | DR | CR | Cash | |||||
| Cash | $35,000 | Investment in Little | AR | |||||||
| AR | $10,000 | Common Stock | Inventory | |||||||
| Inventory | $65,000 | Additional Paid In Capital | Land | |||||||
| Land | $40,000 | Allocation of Excess Schedule | PP&E (net) | |||||||
| PP&E | $400,000 | Accumulated Depreciation | ||||||||
| Accumulated Depreciation | -$150,000 | Goodwill | ||||||||
| Patent | $0 | Patent | ||||||||
| Total Assets | $400,000 | Total Assets | ||||||||
| AP | $100,000 | AP | ||||||||
| Common Stock | $100,000 | Common Stock ($10 par) | ||||||||
| Additional Paid In Capital | $50,000 | Additional Paid In Capital | ||||||||
| Retained Earnings | $150,000 | Retained Earnings | ||||||||
| Total Liabilities &Equity | $400,000 | NCI | ||||||||
| Total Liabilities & Equity | ||||||||||
| Assumethat all noncash assets have a Fair Value that is 10% greater thanBook Value | ||||||||||
