tifiable Intangibles and Goodwill Prince Corporation acquires Squire Service Corporation for one million shares of Prince stock, valued at $35 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $1,200,000 and costs of registering and issuing the new shares are $600,000, both paid in cash. Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows: Cash Accounts receivable Parts inventory Equipment Total assets $300,000 Current liabilities 2,700,000 Long-term liabilities 5,200,000 Shareholders' equity 17,600,000 $25,800,000 Total liabilities and equity $25,800,000 In reviewing Squire's assets and liabilities, you determine the following. 1. On a discounted present value basis, the accounts receivable have a fair value of $2,600,000, and the long-term liabilities have a fair value of $8,000,000. 2. The current replacement cost of the parts inventory is $6,000,000. 3. The current replacement cost of the equipment is $19,500,000. 4. Squire occupies its service facilities und
tifiable Intangibles and Goodwill Prince Corporation acquires Squire Service Corporation for one million shares of Prince stock, valued at $35 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $1,200,000 and costs of registering and issuing the new shares are $600,000, both paid in cash. Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows: Cash Accounts receivable Parts inventory Equipment Total assets $300,000 Current liabilities 2,700,000 Long-term liabilities 5,200,000 Shareholders' equity 17,600,000 $25,800,000 Total liabilities and equity $25,800,000 In reviewing Squire's assets and liabilities, you determine the following. 1. On a discounted present value basis, the accounts receivable have a fair value of $2,600,000, and the long-term liabilities have a fair value of $8,000,000. 2. The current replacement cost of the parts inventory is $6,000,000. 3. The current replacement cost of the equipment is $19,500,000. 4. Squire occupies its service facilities und
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Identifiable Intangibles and Goodwill
Prince Corporation acquires Squire Service Corporation for one million shares of Prince stock, valued at $35 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $1,200,000 and costs of registering and issuing the new shares are $600,000, both paid in cash. Squire
performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows:
Cash
Accounts receivable
Parts inventory
Equipment
Total assets
$300,000 Current liabilities
2,700,000 Long-term liabilities
5,200,000 Shareholders' equity
17,600,000
$25,800,000 Total liabilities and equity $25,800,000
In reviewing Squire's assets and liabilities, you determine the following.
1. On a discounted present value basis, the accounts receivable have a fair value of $2,600,000, and the long-term liabilities have a fair value of $8,000,000.
2. The current replacement cost of the parts inventory is $6,000,000.
3. The current replacement cost of the equipment is $19,500,000.
4. Squire occupies its service facilities under an operating lease with ten years remaining. The rent is below current market levels, giving the lease an estimated fair value of $1,250,000.
5. Squire has long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term of the contracts is estimated at $2,000,000.
6. Squire has a skilled and experienced work force. You estimate that the cost to hire and train replacements would be $750,000.
7. Squire's trade name is well-known among fleet owners and is estimated to have a fair value of $200,000.
Instructions: For all numerical answers below, enter answers using all zeros - do not abbreviate answers to in thousands or in millions.
Required
a. Calculate the amount of goodwill that Prince records for the acquisition.
$
b. Prepare Prince's journal entry or entries to record the merger with Squire.
General Journal
Description
Cash
Accounts receivable
Parts inventory
$3,100,000
8,600,000
14,100,000
Equipment
Intangible: Lease
Intangible: Service contracts
Intangible: Trade name
Goodwill
Current liabilities
Long-term liabilities
Capital stock
+
+
Debit
Credit
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