Advanced Financial Accounting
Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
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Chapter 1, Problem 1.30P

a.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

To Explain: Journal entry recorded by P Corporation when it acquired S’s net assets.

a.

Expert Solution
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Explanation of Solution

Following journal entry would be recorded:

    In the books of P Corporation
    Journal Entry Register
    ParticularsDebitCredit
    (1)Merger Expense178000
    To cash178000
    Being legal fees paid recorded
    (2)Cash20000
    Accounts Receivable  35,000
    Inventory  50,000
    Patents  60,000
    Building & Equipment  150,000
    Goodwill  38,000
    To Accounts Payable  55,000
    To Notes Payable  120,000
    Being purchase of S corporation recoded

b.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

To Prepare: a balance sheet for P immediately after acquisition.

b.

Expert Solution
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Explanation of Solution

    Combined Balance Sheet
    February 1, 20X3
    LiabilitiesAmountAssetsAmount
    Accounts Payable  140,000Cash  82,000
    Notes Payable  270,000Accounts Receivable  175,000
    Common Stock  200,000Inventory  220,000
    Additional Paid in Capital  160,000Patents  140,000
    Retained Earnings  225,000Buildings and Equipment  530,000
    Less: Accumulated Dep.  (190,000)
    Goodwill  38,000
    Total  995,000Total  995,000

c.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

To Explain: journal entry to be recorded by P if it acquired all of S’s common Stock (instead of S’s net assets) for $178,000 .

c.

Expert Solution
Check Mark

Explanation of Solution

Journal entry to be recorded:

    In the books of P Corporation
    Journal Entry Register
    ParticularsDebitCredit
    Investment in Zink Co.  178,000
    To Cash  178,000
    Being legal fees paid recorded

Note 1: Computation of Goodwill

Fair Value of consideration given: 178,000

Fair Value of net assets acquired:

  (20,000+35,000+50,000+60,000+150,00055,000120,000)

Therefore, value of goodwill is 38,000 .

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Chapter 1 Solutions

Advanced Financial Accounting

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