Prepare in general journal form the workpaper entries to eliminate Prancer Company’s investment in Saltez Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:
Saltez Company Equity Balances
Cash Percent of Stock Owned Investment Cost Common Stock Other Contributed Capital Retained Earnings
a. 100% $351,000 $160,000 $92,000 $43,000
b. 90 232,000 190,000 75,000 (29,000)
c. 80 159,000 180,000 40,000 (4,000)
Any difference between book value of net assets and the value implied by the purchase price relates to subsidiary property plant and equipment except for case (c). In case (c) assume that all book values and fair values are the same.
2. On January 1, 2008 Polo Company purchased 100% of the common stock of Save Company by issuing 40,000 shares of its (Polo’s) $10 par value common stock with a market price of $17.50 per share. Polo incurred cash expenses of $20,000 for registering and issuing the common stock. The stockholder’s equity section of the two companies balance sheets on December 31, 2007, were:
Common stock, $10 par value $350,000 $320,000
Other contributed capital $590,000 $175,000
Retained earnings $380,000 $205,000
a. Prepare the journal entry on the books of Polo Company to record the purchase of the common stock of Save Company and related expenses
b. Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on the date acquisition
3. On January 2, 2008, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows:
Cash&nb sp; $260,000 $64,000
Accounts receivable (net) $142,000 $23,000
Inventory &nb sp; $117,000 $54,000
Plant and equipment (net) $386,000 $98,000
Land &nb sp; $63,000 $32,000
Total assets $968,000 $271,000
Accounts payable $104,000 $47,000
Mortgage payable $72,000 $39,000
Common stock, $2 par value $400,000 $70,000
Other contributed capital $208,000 $20,000
Retained earnings $184,000 $95,000
Total Equities $968,000 $271,000
The fair values of Sun Company’s assets and liabilities are equal to their book values with the exception of land.
a. Prepare a journal entry to record the purchase of Sun Company’s common stock
b. Prepare a consolidated balance sheet at the date of acquisition
4. On January 1, 2007, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows:
_____________________________________________Peach Company Swartz Company
Cash &n bsp; $73,000 $13,000
Accounts receivable (net) $95,000 $19,000
Inventory ; $58,000 $25,000
Plant and equipment (net) $95,000 $43,000
Land & nbsp; $26,000 $22,000
Total assets $347,000 $122,000
Accounts payable $66,000 $18,000
Notes payable $82,000 $21,000
Common stock, $20 par value $100,000 $40,000
Other contributed capital $60,000 $24,000
Retained earnings $39,000 $19,000
Total equities $347,000 $122,000
Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.
a. Prepare the journal entry on Peach Company’s books to record the exchange of stock
b. Prepare a Computation and Allocation Schedule for the difference between book value and value implied by the purchase price
c. Prepare a consolidated balance sheet at the date of acquisition
5. Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2008, for cash. At that time the balance sheet of Spruce Company was as follows:
Current assets $1,050,000
Plant and equipment $990,000
Total assets $2,210,000
Common stock, $20 par value $900,000
Other contributed capital $440,000
Retained earnings $150,000
Total &nbs p; $2,310,000
Less treasury stock at cost, 5,000 shares $100,000
Total equities $2,210,000
Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on December 31, 2008, assuming:
(1) The purchase price of the stock was $1,400,000. Assume that any difference between the book value of net assets and the value implied by the purchase price relates to subsidiary land.
(2) The purchase price of the stock was $1,160,000. Assume that the subsidiary land has a fair value of $180,000, and the other assets and liabilities are fairly valued.
6. On December 31, 2007, Price Company purchased a controlling interest in Shipley Company. The balance sheet of Price Company and the consolidated balance sheet on December 31, 2007, were as follows:
Cash ; $22,000 $37,900
Accounts Receivable $35,000 $57,000
Inventory &nbs p; $127,000 $161,000
Investment in Shipley Company $212,000 0
Plant and equipment (net) $190,000 $337,000
Land& nbsp; $120,000 $218,400
Total &nbs p; $706,000 $811,900
Accounts Payable $42,000 $112,500
Note payable $100,000 $100,000
Noncontrolling interest in Shipley Company 0 $35,400
Common stock $300,000 $300,000
Other contributed capital $164,000 $164,000
Retained earnings $100,000 $100,000
Total &nbs p; $706,000 $811,900
On the date of acquisition, the stockholder’s equity section of Shipley Company’s balance sheet was as follows:
Common stock $90,000
Other contributed capital $90,000
Retained earnings $56,000
a. Prepare the investment elimination entry made to complete a consolidated balance sheet workpaper. Any difference between book value and the value implied by the purchase price relates to subsidiary land.
b. Prepare Shipley Company’s balance sheet as it appeared on December 31, 2007.
7. Polychromasia, Inc. had a number of receivables from subsidiaries at the balance sheet date, as well as several payables to subsidiaries. Of its five subsidiaries, four are consolidated in the financial statements (Green Company, Black Inc., White & Sons, and Silver Co.). Only the Brown Company is not consolidated with Polychromasia and the other affiliates. The following list of receivables and payables shows balances at 12/31/10.
Interest receivable from the Brown Company $50,000
Interest payable to Black Inc. $75,000
Intercompany payable to Silver Co. $105,000
Long-term advance to Green Company $150,000
Long-term payable to Silver Co. $450,000
Long-term receivable from Brown Company $500,000
a. Show the classification and amount (s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as receivable from subsidiaries.
b. Show the classification and amount (s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as payable to subsidiaries.
8. Peep Inc. acquired 100% of the outstanding common stock of Shy Inc. for $2,500,000 cash and 15,000 shares of it’s common stock ($2 par value). The stock’s market value was $40 on the acquisition date.
a. Prepare the journal entry to record the acquisition.
9. Assume the same information from #8. In addition, Peep Inc. incurred the following direct costs:
Accounting fees for the purchase $15,000
Legal fees for registering the common stock $30,000
Other legal fees for the acquisition $45,000
Travel expenses to meet with Shy managers $5,000
SEC filing fees $2,000
Before the acquisition consummation date, $90,000 of the direct costs was charged to a deferred charges account pending the completion of the acquisition. The remaining $7,000 has not been accrued or paid.
a. Prepare the journal entry to record both the acquisition and the direct costs.