The following are preliminary financial statements for Choco Co. and Cake Co. for the year ending December 31, 2020 prior to Choco’s acquisition of Cake. Choco Co. Cake Co. Book Values Book Values Fair Values Cash and Receivable 120,000 30,000 30,000 Inventories 240,000 90,000 94,000 Land 120,000 108,000 128,000 Building 480,000 336,000 348,000 Accounts payable (70,000) (100,000) (100,000) Long-term debt (38,000) (32,000) (34,000) Common stock (192,000) (72,000) Additional paid in capital (96,000) (12,000) Retained earnings 12/31/20 (564,000) (348,000) Revenues (360,000) (228,000) Expenses 240,000 132,000 On 12/31/2020 Choco exchanged 20,000 shares of its $4 par value common stock for all the outstanding shares of Cake. Choco's stock on that date has a fair value (=market price) of $30 per share. Assume these two companies retained their separate legal identities. 1) Prepare a journal entry for acquisition in Choco’s book. Account name Debit Credit 2) Show calculation of goodwill/gain on bargain purchase at the date of the acquisition using fair value allocation schedule 3) Choco paid $8,000 to several attorneys and accountants who assisted in this business combination. Prepare a journal entry. Account name Debit Credit
- The following are preliminary financial statements for Choco Co. and Cake Co. for the year ending December 31, 2020 prior to Choco’s acquisition of Cake.
Choco Co. Cake Co.
Book Values Book Values Fair Values
Cash and Receivable 120,000 30,000 30,000
Inventories 240,000 90,000 94,000
Land 120,000 108,000 128,000
Building 480,000 336,000 348,000
Accounts payable (70,000) (100,000) (100,000)
Long-term debt (38,000) (32,000) (34,000)
Common stock (192,000) (72,000)
Additional paid in capital (96,000) (12,000)
Revenues (360,000) (228,000)
Expenses 240,000 132,000
On 12/31/2020 Choco exchanged 20,000 shares of its $4 par value common stock for all the outstanding shares of Cake. Choco's stock on that date has a fair value (=market price) of $30 per share. Assume these two companies retained their separate legal identities.
1) Prepare a
Account name
Debit
Credit
2) Show calculation of
3) Choco paid $8,000 to several attorneys and accountants who assisted in this business combination. Prepare a journal entry.
Account name
Debit
Credit
Business Combination: It is the transaction between two entities in which one acquires control over the other through the acquisition of assets and liabilities.
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