Following are preacquisition financial balances for Padre Company and Sol Compan
ID: 2607599 • Letter: F
Question
Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also included are fair values for Sol Company accounts.
Sol Company
Note: Parentheses indicate a credit balance.
On December 31, Padre acquires Sol’s outstanding stock by paying $228,000 in cash and issuing 14,500 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $22,400 as well as $10,000 in stock issuance costs.
Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed.
Worksheet
Inventory$
Land$
Buildings and equipment $
Franchise agreements $
Goodwill $
Revenues $
Additional paid-in capital $
Expenses $
Retained earnings, 1/1 $
Retained earnings, 12/31 $
PadreCompany
Sol Company
Book Values Book Values Fair Values 12/31 12/31 12/31 Cash $ 354,750 $ 56,700 $ 56,700 Receivables 242,250 312,000 312,000 Inventory 482,500 174,000 229,900 Land 720,000 194,000 171,200 Building and equipment (net) 837,500 332,000 395,300 Franchise agreements 242,000 252,000 290,800 Accounts payable (352,000 ) (152,000 ) (152,000 ) Accrued expenses (189,000 ) (54,500 ) (54,500 ) Longterm liabilities (1,132,500 ) (532,500 ) (532,500 ) Common stock—$20 par value (660,000 ) Common stock—$5 par value (210,000 ) Additional paid–in capital (70,000 ) (90,000 ) Retained earnings, 1/1 (422,500 ) (260,000 ) Revenues (1,000,000 ) (354,700 ) Expenses 947,000 333,000Explanation / Answer
Book value of padre+fair value of sol
482500+229000
1)Goodwill :
Fair value of sol asset =56700+312000+229900+171200+395300+290800-152000-54500-532500=716900
Amount paid :[14500*40]+228000= 808000
Goodwill : Amount paid -fair value of net asset acquired
808000-716900
= 91100
2)Additional padi in capital = 70000 padre + [14500*20 ]for shares issued to sol -10000 stock issuance cost
= 350000
**par value is20 so additional paid in capital on issuance =40-20 =20
3)Retained earning 12/31
Padre =beginning+revenue -expense
= 422500+1000000-947000
= 475500
share in nert income of sol : 354700-333000=21700 [100%acquisition or share]
Total retained earning :475500+21700= 497200
Amount InventoryBook value of padre+fair value of sol
482500+229000
711500 Land 720000+171200 891200 Buildings and equipment 837500+395300 1232800 Franchise agreements 242000+290800 532800 Goodwill 91100** Revenues only padre revenue will be reported 1,000,000 Additional paid-in capital 350000 Expense 947000 expense of padre +22400 accounting and legal cost 969400 Retained earnings, 1/1 of padre only 422500 Retained earnings, 12/31 497200