Chapter 1, Problem 1.11E

a.

To determine

Introduction: Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

To compute:The amount of common stock reported immediately following the business combination.

Explanation of Solution

Calculate the amount of common stock reported immediately following the business combination:

Particulars	Amount ($)
Existing Common Stock	200,000
Add: Common Stock issued in exchange for net assets	$\left(8,000\times 10\right)$ 80,000
Total common stock to be reported	280,000

Table (1)

b.

To determine

Introduction: Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

To compute: The amount of cash and receivables reported immediately following the business combination.

Explanation of Solution

Calculate the amount of cash and receivables reported immediately following the business combination:

Particulars	Amount ($)
Existing Cash and Receivables	150,000
Add: Fair value of Cash and Receivables acquired	40,000
Total Cash and Receivables reported	190,000

Table (2)

c.

To determine

Introduction: Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

To compute: The amount of land reported immediately following the business combination.

Explanation of Solution

Compute the amount of land reported immediately following the business combination:

Particulars	Amount ($)
Existing Land	100,000
Add: Fair value of Land acquired	85,000
Total Land reported	185,000

Table (3)

d.

To determine

Introduction: Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

To compute: The amount of building and equipment reported immediately following the business combination.

Explanation of Solution

Compute the amount of building and equipment reported immediately following the business combination:

Particulars	Amount ($)
Existing Building and Equipment	300,000
Add: Fair value of Building and Equipment acquired	230,000
Total Building and Equipment reported	530,000

Table (4)

e.

To determine

Introduction: Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

To compute: The amount of goodwill reported immediately following the business combination.

Explanation of Solution

Compute the amount of goodwill reported immediately following the business combination:

Particulars	Amount ($)
Consideration	$\left(8,000\times 50\right)$ 400,000
Less: Fair value net assets acquired	355,000
Goodwill	45,000

Table (5)

f.

To determine

To compute: The amount of additional paid-in capital reported immediately following the business combination.

Introduction:Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

Explanation of Solution

Calculate the amount of additional paid-in capital reported immediately following the business combination:

Particulars	Amount ($)
Fair value net assets acquired	355,000
Add: Goodwill	45,000
Total Consideration	400,000
Less: Common Stock issued	80,000
Additional Paid-in Capital raised	320,000
Add: Existing Paid-in Capital	20,000
Total Additional Paid-in Capital Reported	340,000

Table (6)

g.

To determine

To compute: The amount of retained earnings reported immediately following the business combination.

Introduction:Acquisition of Net Assets is a process in which the acquiring company acquires all the assets and liabilities of the acquired company in exchange for consideration. In this process, the acquiring company records all identifiable assets and liabilities at fair values and any excess of the consideration paid over fair value is recognized as goodwill.

Explanation of Solution

The amount of retained earnings would continue to be at its existing level of $330,000 immediately following the business combination.