Pinehollow acquired 70% of the outstanding stock of Stonebriar by issuing 70,000
ID: 2404352 • Letter: P
Question
Pinehollow acquired 70% of the outstanding stock of Stonebriar by issuing 70,000 shares of its $1 par value stock. The shares have a fair value of $13 per share. Pinehollow also paid $25,000 in direct acquisition costs Prior to the transaction, the companies have the following balance sheets: Pinehollow $150,000 500,000 900,000 Assets 50,000 Cash Accounts receivable Inventory Property, plant, and equipment (net) Total assets 350,000 600,000 900,000 $3,400,000 $1.900,000 Liabilities and Stockholders' Equity Current liabilities Bonds payable Common stock ($1 par) Paid-in capital in excess of par Retained earnings Total liabilities and equity 300,000 1,000,000 300,000 800,000 1000,000 $3400,000 100,000 600,000 100,000 900,000 200,000 $1,900,000 The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively. 13. In the consolidation worksheet right after the acquisition, Pinehollow would recognize a. Goodwill of $70,000 b. Goodwill of $100,000 c. Gains on acquisition of subsidiary $100,000 d. Gains on acquisition of subsidiary $70,000Explanation / Answer
(13) Calculation of Net Asset of Stonebriar
Common stock 100,000
Paid up capital in excess of par 900,000
Retained earnings 200,000
Net Asset 1,200,000
Calculation of Goodwill
Net Asset $1,200,000
Share of Pinehollow in Net Asset (70%) $840,000
Value of Investment by Pinehollow (70,000sh * $13) $910,000
Goodwill $70,000
Hence, option (a) is correct.
(14) In Consolidation, the value of PPE should be recognized at the fair market value for both holding & subsidiary.
In the given question, the fair market value of Stonebriar PPE is $1,000,000 and its Book value is $900,000
Therefore, the total increase in the value of Stonebriar PPE is $100,000 the total difference between the fair value & book value of Stonebriar PPE.
Hence, option (d) is correct
(15) In Consolidation, the value of PPE should be recognized at the fair market value for both holding & subsidiary.
In the given question, the fair market value of Penhollow's PPE is $1,850,000 and its Book value is $2,000,000
Therefore, the PPE should recognize at $ $2,000,000 in the Consolidated Balance Sheet.
Hence, option (e) is correct.
(16).
Calculation of Net Asset of Stonebriar
Common stock 100,000
Paid up capital in excess of par 900,000
Retained earnings 200,000
Net Asset 1,200,000
Calculation of Non-Controlling Interest
Net Asset $1,200,000
Share of Non controlling interest (30%) $360,000
Hence, option (b) is correct.