Following are the account balances of Miller Company and Richmond Company as of
ID: 2571309 • Letter: F
Question
Following are the account balances of Miller Company and Richmond Company as of December 31, 2016. The fair value of the net assets of Richmond is equal to the book value of the net assets (therefore, the net asset are purchased at book value).
Additional Information
*On December 31, Miller issues 20,000 shares of its $20 par value common stock for all of the outstanding shares of Richmond Company. The market value of the stock is $30 per share.
*In creating this combination, Miller pays $5000 in stock issue costs and $15,000 in accounting and legal fees.
Required: Using the acquisition method, prepare the necessary journal entries if Miller Company dissolves Richard Company so it is no longer a separate legal entity.
I have started this problem, but wish to make sure the account titles and numbers (debit/credit) are correct. Thank you :)
What I have computed ...
Miller Company Book Values, 12/31 Richmond Company Book Values, 12/31 Cash 600,000 200,000 Receivables 900,000 300,000 Inventory 1,100,000 600,000 Building & Equipment (Net) 9,000,000 800,000 Total Assets 11,600,000 1,900,000 Accounts Payable 400,000 200,000 Notes Payable 3,400,000 1,100,000 Common Stock - $20 Par Value 2,000,000 Common Stock - $5 Par Value 220,000 Additional Paid-In-Capital 900,000 100,000 Retained Earnings 4,900,000 280,000 Total Liabilities & Equity 11,600,000 1,900,000Explanation / Answer
The entries you made are correct. Additionaly provide the note for calculation of Goodwill as follows:
In the books of Miller Company:
Calculation of Goodwill on Acquisition:
Investment in Richmond Company
20,000 shares of $30 each.
(Break up : Common Stock+ Additional Paid in Capital)
Particulars Calculation Amount $Investment in Richmond Company
20,000 shares of $30 each.
(Break up : Common Stock+ Additional Paid in Capital)
20,000 Shares*$20+20,000 Shares *$10= $4,00,000+ $2,00,000 $6,00,000 Less: Net Assets of Richmond Company = Total Assets - Outside Liabilities(i.e. Accounts Payable+Notes Payable) =$19,00,000- ( $2,00,000 +$11,00,000) $6,00,000 Goodwill $0