On 1/1/20x1, Petwoud Company exchanged 25,000 shares of its $1 par value common stock and $150,000 cash to acquire 80% of the outstanding voting common stock of Supagud, Inc. At the acquisition date, the fair value of Petwoud Company’s common stock was $20 per share. Petwoud’s payment includes a control premium of $15,000. Other investors, unrelated to Petwoud Company, hold the remaining 20% of the outstanding common stock of Supagud. After the acquisition, Supagud, Inc. will continue as a separate operating company. In its separate accounting records, Petwoud Company will apply the equity method to account for their investment in Supagud. The pre-acquisition trial balance for Supagud at 1/1/20x1 was: Cash 50,000 Accounts receivable 125,000 Other current assets 105,000 Buildings 510,000 Land 217,000 Accounts Payable 35,000 Long-term debt 300,000 Common stock 420,000 Retained earnings 252,000 At the acquisition date, Supagud’s building had a fair value of $538,000 and they controlled an unrecorded patent with a fair value of $80,000. The book value of all other assets and liabilities of Supagud were equal to the relate fair values. At 1/1/20x1, the remaining useful lives of the building and the unrecorded patent were 10 years and 20 years, respectively. Supagud’s 20x1 net income and dividends were: Net income $75,000 Dividends declared and paid $30,000 Supagud did not issue any common stock during fiscal year 20x1. Required Prepare the journal entry to record Petwoud Company’s investment in Supagud, Inc. at 1/1/20x1.
On 1/1/20x1, Petwoud Company exchanged 25,000 shares of its $1 par value common stock and $150,000 cash to acquire 80% of the outstanding voting common stock of Supagud, Inc. At the acquisition date, the fair value of Petwoud Company’s common stock was $20 per share. Petwoud’s payment includes a control premium of $15,000.
Other investors, unrelated to Petwoud Company, hold the remaining 20% of the outstanding common stock of Supagud.
After the acquisition, Supagud, Inc. will continue as a separate operating company. In its separate accounting records, Petwoud Company will apply the equity method to account for their investment in Supagud.
The pre-acquisition
|
Cash |
50,000 |
|
|
|
125,000 |
|
|
Other current assets |
105,000 |
|
|
Buildings |
510,000 |
|
|
Land |
217,000 |
|
|
Accounts Payable |
|
35,000 |
|
Long-term debt |
|
300,000 |
|
Common stock |
|
420,000 |
|
|
|
252,000 |
At the acquisition date, Supagud’s building had a fair value of $538,000 and they controlled an unrecorded patent with a fair value of $80,000. The book value of all other assets and liabilities of Supagud were equal to the relate fair values. At 1/1/20x1, the remaining useful lives of the building and the unrecorded patent were 10 years and 20 years, respectively.
Supagud’s 20x1 net income and dividends were:
|
Net income |
$75,000 |
|
Dividends declared and paid |
$30,000 |
Supagud did not issue any common stock during fiscal year 20x1.
Required
- Prepare the
journal entry to record Petwoud Company’s investment in Supagud, Inc. at 1/1/20x1.
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