Advance Accounting Assignment On Business Combination Homework Help
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1. Business Combination with Goodwill
Anchor Corporation paid cash of $178,000 to acquire Zink Company’s net assets on February 1, 2013. The balance sheet data for the two companies and fair value information for Zink immediately before the business combination were
|Anchor Corporation||Zink Company|
|Balance Sheet Item||Book Value||Book Value||Fair Value|
|Cash||$ 240,000||$ 20,000||$ 20,000|
|Buildings & Equipment||380,000||310,000||150,000|
|Less: Accumulated Depreciation||(190,000)||(200,000)|
|Total Assets||$ 820,000||$ 235,000||$315,000|
|Accounts Payable||$ 85,000||$ 55,000||$ 55,000|
|$10 par value||200,000|
|$6 par value||18,000|
|Additional Paid-In Capital||160,000||10,000|
|Total Liabilities & Equities||$ 820,000||$ 235,000|
a. Give the journal entry recorded by Anchor Corporation when it acquired Zink’s net assets.
b. Prepare a balance sheet for Anchor immediately following the acquisition.
c. Give the journal entry to be recorded by Anchor if it acquires all of Zink’s common stock (instead of Zink’s net assets) for $178,000.
2. Combined Balance Sheet
The following balance sheets were prepared for Adam Corporation and Best Company on January 1, 2012, just before they entered into a business combination
|Adam Corporation||Best Company|
|Item||Book Value||Fair Value||Book Value||Fair Value|
|Cash & Receivables||$150,000||$150,000||$ 90,000||$ 90,000|
|Buildings & Equipment||600,000||430,000||250,000||240,000|
|Less: Accumulated Depreciation||(250,000)||(80,000)|
|Accounts Payable||$ 75,000||$ 75,000||$ 50,000||$ 50,000|
|$8 par value||180,000|
|$6 par value||90,000|
|Additional Paid-In Capital||140,000||55,000|
|Total Liabilities & Equities||$800,000||$330,000|
Adam acquired all of Best Company’s assets and liabilities on January 1, 2012, in exchange for its common shares. Adam issued 8,000 shares of stock to complete the business combination.
Prepare a balance sheet of the combined company immediately following the acquisition, assuming Adam’s shares were trading at $60 each.
3.Journal Entries to Record a Business Combination
On January 1, 20X2, Frost Company acquired all of TKK Corporation’s assets and liabilities by issuing 24,000 shares of its $4 par value common stock. At that date, Frost shares were selling at $22 per share. Historical cost and fair value balance sheet data for TKK at the time of acquisition were as follows
|Balance Sheet Item||Historical Cost||Fair Value|
|Cash & Receivables||$ 28,000||$ 28,000|
|Buildings & Equipment||600,000||470,000|
|Less: Accumulated Depreciation||(240,000)|
|Total Assets||$ 482,000||$620,000|
|Accounts Payable||$ 41,000||$ 41,000|
|Common Stock ($10 par value)||160,000|
|Total Liabilities & Equities||$ 482,000|
Frost paid legal fees for the transfer of assets and liabilities of $14,000. Frost also paid audit fees of $21,000 and listing application fees of $7,000, both related to the issuance of new shares.
Prepare the journal entries made by Frost to record the business combination.
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4.Consolidated Balances For Business Combination
Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2011, for $680,000 cash. At the acquisition date, Sam’s total fair value was assessed at $850,000 although Sam’s book value was only $600,000. Also, several individual items on Sam’s financial records had fair values that differed from their book values as follows
|Book Value||Fair Value|
|Land||$ 60,000||$ 225,000|
|Buildings and equipment (10-year remaining life)||275,000||250,000|
|Copyright (20-year life)||100,000||200,000|
|Notes payable (due in 8 years)||(130,000)||(120,000)|
For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2011, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet).
|Cost of goods sold||700,000||385,000|
|Equity in income of Sam||(105,000)||–0–|
|Net income||$ (461,000)||$(135,000)|
|Retained earnings, 1/1/11||$(1,265,000)||$(440,000)|
|Net income (above)||(461,000)||(135,000)|
|Retained earnings, 12/31/11||$(1,466,000)||$(510,000)|
|Current assets||$ 965,000||$ 528,000|
|Investment in Sam||733,000||–0–|
|Buildings and equipment (net)||877,000||265,000|
|Total assets||$ 2,867,000||$ 948,000|
|Accounts payable||$ (191,000)||$(148,000)|
|Additional paid-in capital||(450,000)||(60,000)|
|Retained earnings (above)||(1,466,000)||(510,000)|
|Total liabilities and equities||$(2,867,000)||$(948,000)|
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