With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Sour Company acquired a 100% of the outstanding common stock of Cottage, Inc. At the acquisition date, 1/1/20x0, Sour Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Cottage's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Cottage, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Вook Fair Remaining Value Value Useful Life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years Sour Company uses the equity method to account for the acquisition of Cottage, Inc. and, after the acquisition, Cottage, Inc. will be a separate operating subsidiary of Sour Company. Required: A. Prepare the journal entry to record Sour Company's investment in Cottage, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Sour Company's Investment in Cottage, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0.
With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Sour Company acquired a 100% of the outstanding common stock of Cottage, Inc. At the acquisition date, 1/1/20x0, Sour Company's common stock had a market value of $8/share. At the time of the acquisition, the book value of Cottage's net assets was $16,970,000. There was no control premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets acquired is assigned to goodwill. At 1/1/20x0, Cottage, Inc. prepared the following analysis of the book value vs. the fair value of their non-current assets: Вook Fair Remaining Value Value Useful Life Land $1,700,000 $2,550,000 Buildings 2,700,000 3,400,000 7 years Equipment 3,700,000 3,300,000 5 years Sour Company uses the equity method to account for the acquisition of Cottage, Inc. and, after the acquisition, Cottage, Inc. will be a separate operating subsidiary of Sour Company. Required: A. Prepare the journal entry to record Sour Company's investment in Cottage, Inc. @1/1/20x0. B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets acquired. C. Prepare a schedule showing the change in Sour Company's Investment in Cottage, Inc. account from the acquisition date, i.e., 1/1/20x0, to 12/31/20x0.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:With a cash payment of $15 million and by issuing 500,000 shares of their own $1 par value common stock, Sour
Company acquired a 100% of the outstanding common stock of Cottage, Inc. At the acquisition date, 1/1/20x0,
Sour Company's common stock had a market value of $8/share.
At the time of the acquisition, the book value of Cottage's net assets was $16,970,000. There was no control
premium in this transaction. Any amount of the acquisition price paid in excess of the fair value of the net assets
acquired is assigned to goodwill.
At 1/1/20x0, Cottage, Inc. prepared the following analysis of the book value vs. the fair value of their non-current
assets:
Вook
Fair
Remaining
Value
Value
Useful Life
Land
$1,700,000
$2,550,000
Buildings
2,700,000
3,400,000
7 years
Equipment
3,700,000
3,300,000
5 years
Sour Company uses the equity method to account for the acquisition of Cottage, Inc. and, after the acquisition,
Cottage, Inc. will be a separate operating subsidiary of Sour Company.
Required:
A. Prepare the journal entry to record Sour Company's investment in Cottage, Inc. @1/1/20x0.
B. Prepare a schedule showing the allocation of the purchase price to the net assets acquired. In your schedule
include the estimated useful lives and annual amortizations for fair value adjustments to specific net assets
acquired.
C. Prepare a schedule showing the change in Sour Company's Investment in Cottage, Inc. account from the
acquisition date, i.e., 1/1/20x0, to 12/31/20x0.
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