Acquisition Method The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of 1 /2 share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Companyâs assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000.
Petrello Sanchez Cash $ 480,000 $ 200,000.00 Receivables $ 480,000 $ 240,000.00 Inventories $ 2,000,000 $ 240,000.00 Plant and Equipment (net) $ 3,840,000 $ 800,000.00 Total assets $ 6,800,000 $ 1,480,000.00 Liabilities $ 1,200,000 $ 320,000.00 Common Stock, $16 par value $ 3,440,000 $ 800,000.00 Other contributed capital $ 400,000 $ - Retained earnings $ 1,760,000 $ 360,000.00 Total equities $ 6,800,000 $ 1,480,000.00
Prepare a balance sheet for Petrello Company immediately after the merger
Acquisition Method The balance sheets of Petrello Company and Sanchez Company as of January 1, 2014, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of 1 /2 share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Companyâs assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000.
| Petrello | Sanchez | |||
| Cash | $ 480,000 | $ 200,000.00 | ||
| Receivables | $ 480,000 | $ 240,000.00 | ||
| Inventories | $ 2,000,000 | $ 240,000.00 | ||
| Plant and Equipment (net) | $ 3,840,000 | $ 800,000.00 | ||
| Total assets | $ 6,800,000 | $ 1,480,000.00 | ||
| Liabilities | $ 1,200,000 | $ 320,000.00 | ||
| Common Stock, $16 par value | $ 3,440,000 | $ 800,000.00 | ||
| Other contributed capital | $ 400,000 | $ - | ||
| Retained earnings | $ 1,760,000 | $ 360,000.00 | ||
| Total equities | $ 6,800,000 | $ 1,480,000.00 | ||
Prepare a balance sheet for Petrello Company immediately after the merger
Related questions
| The following book and fair values were available for Plymouth,Inc. as of March 1. |
| Book Value | Fair Value | |||||
| Inventory | $ | 260,500 | $ | 229,750 | ||
| Land | 759,000 | 1,069,500 | ||||
| Buildings | 2,170,000 | 2,535,250 | ||||
| Customer relationships | 0 | 825,000 | ||||
| Accounts payable | (119,000 | ) | (119,000 | ) | ||
| Common stock | (2,000,000 | ) | ||||
| Additional paid-in capital | (500,000 | ) | ||||
| Retained earnings 1/1 | (413,000 | ) | ||||
| Revenues | (480,000 | ) | ||||
| Expenses | 322,500 | |||||
Note: Parentheses indicate a credit balance.
Kiel Company pays $4,060,000 cash and issues 26,600 shares ofits $2 par value common stock (fair value of $50 per share) for allof Plymouthâs common stock in a merger, after which Plymouth willcease to exist as a separate entity. Stock issue costs amount to$27,500 and Kiel pays $47,100 for legal fees to complete thetransaction. |
Prepare Kielâs journal entry to record its acquisition ofPlymouth. |
Determining ending balances of accounts on the consolidated balance sheet
Assume that the parent company acquires its subsidiary by exchanging 75,400 shares of its Common Stock, with a fair value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiaryâs assets and liabilities at an amount equaling their book values except for a building that is undervalued by $480,000, an unrecorded License Agreement with a fair value of $230,000, and an unrecorded Customer List owned by the subsidiary with a fair value of $120,000. Any further discrepancy between the purchase price and the book value of the subsidiaryâs Stockholdersâ Equity is attributed to expected synergies to be realized by the consolidated company as a result of the acquisition.
a. Given the following acquisition-date balance sheets of the parent and subsidiary, at what amounts will each of the following be reported on the consolidated balance sheet? (see table numbered 1-7 to answer)
| Balance Sheet | Parent | Subsidiary |
|---|---|---|
| Assets | ||
| Cash | $728,400 | $181,440 |
| Accounts receivable | 307,200 | 375,840 |
| Inventory | 465,600 | 482,760 |
| Equity investment | 2,262,000 | |
| Property, plant and equipment (PPE), net | 2,000,000 | 893,160 |
| Total Assets | $5,763,200 | $1,933,200 |
| Liabilities and stockholdersâ equity | ||
| Accounts payable | $150,480 | $114,300 |
| Accrued liabilities | 176,640 | 198,900 |
| Long-term liabilities | 1,062,320 | 540,000 |
| Common stock | 176,000 | 108,000 |
| APIC | 2,992,000 | 135,000 |
| Retained earnings | 1,205,760 | 837,000 |
| Total Liabilities and stockholdersâ equity | $5,763,200 | $1,933,200 |
| 1. | Accounts Receivable $_________ | |
| 2. | Equity Investment $_________ |
| 3. | PPE, net $________ | |
| 4. | Goodwill $________ | |
| 5. | Common Stock $________ | |
| 6. | APIC $________ | |
| 7. | Retained Earnings | $________ |
b. What intangible assets will be reported on the consolidated balance sheet and at what amounts?
| License Agreement $________ | |
| Customer List $________ Goodwill $________ |
1. Use the following information to answer questions #1 and #2. SHOW ALL COMPUTATIONS
On January 1, 2018, Kelly Bell Company issued 7,000 shares of common stock in exchange for all identifiable assets and liabilities of Festus Black Company. For all identifiable assets and liabilities, the fair values were the same as the book values. Immediately before the stock issuance, the following information was observed:
| Book Values | ||
| Kelly Bell | Festus Black | |
| Receivables | $ 35,000 | $ 16,000 |
| Inventories | 45,000 | 20,000 |
| Land | 100,000 | 100,000 |
| Plant and Equipment | 240,000 | 60,000 |
| Total Assets | $ 420,000 | $ 196,000 |
| Liabilities/Payables | $ 126,000 | $ 63,000 |
| Common Stock ($1 par value per share) | 16,000 | 8,000 |
| Paid in Capital | 224,000 | 120,000 |
| Retained Earnings | 54,000 | 5,000 |
| Total Liabilities and Stockholdersâ Equity | $ 420,000 | $ 96,000 |
What is the fair value per share of Kelly Bellâs common stock if there is no goodwill or no a bargain purchase?
Immediately after the acquisition, what is the balance in the Investment in Festus account?
2. Use the following information to answer questions #3 and #4. SHOW ALL COMPUTATIONS.
Dallas Humes Company invested in Mat Houston Company on January 1, 2017. Humes issued capital stock that was trading for $22 a share. Houstonâs stock was trading for $18 per shares. The following information was available immediately before the transaction occurred:
| Dallas Humes | Mat Houston | |||
| Book Value | Fair Value | Book Value | Fair Value | |
| Cash and Receivables | $ 96,000 | $ 90,000 | $ 48,000 | $ 43,200 |
| Land | 192,000 | 210,000 | 96,000 | 120,000 |
| Plant, Property, and Equipment | 216,000 | 240,000 | 96,000 | 124,800 |
| Intangibles | -0- | 80,000 | -0- | 76,800 |
| Total Assets | $504,000 | $620,000 | $240,000 | $364,800 |
|
| ||||
| Liabilities | $144,000 | $ 160,000 | $ 76,800 | $82,000 |
| Common Stock ($1 par value) | 20,000 | 16,000 | ||
| Paid-in Capital | 268,000 | 137,600 | ||
| Retained Earnings | 72,000 | 9,600 | ||
| Total Liabilities & Equity | $504,000 | $240,000 | ||
The above information was provided just before Humes issued 15,000 common shares in exchange for Houstonâs identifiable assets and liabilities. The transaction is a business combination. Prove either the balance in goodwill or the gain on purchase of Houston immediately following the acquisition on the books of Humes.
The above information was provided just before Humes issued 15,000 common shares in exchange for 100% of Houstonâs common stock. The transaction is a business combination. Prove the balance in âinvestment in Houstonâ on the book of Humes immediately following the acquisition.
