Chapter 1, Problem 1.38P

a.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities combine to form a new entity.

the number of shares did P issue to acquire Stork’s assets and liabilities.

Answer to Problem 1.38P

The number of shares issued is $5,200$ .

Explanation of Solution

Computation of a number of shares issued:

  $\begin{array}{l}=\frac{\text{Common Stock of combined entity - Common stock of Plend Corp}\text{.}}{\text{Par value of shares}}\\ =\frac{126,000-110,000}{5}\\ =5,200\end{array}$

b.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities combine to form a new entity.

the total market value of the shares issued by P.

Answer to Problem 1.38P

The total market value of the shares issued by P is $\$208,000$ .

Explanation of Solution

Computation of the total market value of the shares issued:

  $\begin{array}{l}=\left(\text{Common stock of combined+ Addt}\text{.}\text{}\text{ paid in capital}\right)-\left(\text{Common Stock of P +Addt}\text{. paid in capital of P}\right)\\ =\left(\$126,000+\$247,000\right)-\left(\$100,000+\$65,000\right)\\ =\$208,000\end{array}$

c.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities combine to form a new entity.

the fair value of inventory held by S at the date of combination.

Answer to Problem 1.38P

The fair value of inventory held by Stork at the date of combination is $\$46,000$ .

Explanation of Solution

Computation of fair value of inventory held:

  $\begin{array}{l}=\text{Inventory value of combined-Inventory value of P}\\ \text{=\$96,000-\$50,000}\\ \text{=\$46,000}\end{array}$

d.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities combine to form a new entity.

the fair value of identifiable net assets held by Stork at the date of combination.

Answer to Problem 1.38P

The fair value of identifiable net assets held by Stork at the date of combination is $\$130,000$

Explanation of Solution

Computation of the fair value of identifiable net assets held:

	Particulars	Amount
	Cash	$50,000$
	Accounts Receivable	$88,000$
	Inventory	$96,000$
	Building and Equipment (Net)	$430,000$
	Accounts Payable	$\left(46,000\right)$
	Bonds Payable	$\left(220,000\right)$
	Bonds Premium	$\left(6,000\right)$
	Net Assets of Combined Entity	$392,000$
	Cash	$40,000$
	Accounts Receivable	$60,000$
	Inventory	$50,000$
	Building and Equipment (Net)	$300,000$
	Accounts Payable	$\left(32,000\right)$
	Bonds Payable	$\left(150,000\right)$
	Bonds Premium	$\left(6,000\right)$
	Net Assets of P Inc.	$262,000$
	Net Assets of S Company	$130,000$

e.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities to combine to form a new entity.

the amount of goodwill, if any, will be reported by the combined entity report immediately following the combination.

Answer to Problem 1.38P

The amount of goodwill is $\$78,000$

Explanation of Solution

Computation of fair value of identifiable net assets held:

Total Market Value of shares of P Inc. LessNet Assets of S Company

  $208,000-130,000=78,000$

f.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities to combine to form a new entity.

the balance in retained earnings that the combined entity would report immediately following the combination.

Answer to Problem 1.38P

The balance in retained earnings to be reported is $\$97,000$

Explanation of Solution

The number is reported in its financial statement by P Inc. of $\$97,000$ .

g.

To determine

Concept Introduction:

Consolidation: Merger is a combination where two entities merge to take the benefit of synergies where and assets and liabilities of the two entities combine to form a new entity.

the amount of depreciation expense that will be reported on those assets in 20X2 if the average life of the assets held by S Company has an average life of $10$ years.

Answer to Problem 1.38P

The balance in retained earnings to be reported is $\$13,000$

Explanation of Solution

Computation of depreciation amount:

  $\begin{array}{c}Depreciation=\frac{\text{Building and equipment}\left(\text{net}\right)\text{of combined entity-Building and equipment of P Inc}\text{.}}{\text{Life}}\\ =\frac{430,000-300,000}{10}\\ =13,000\end{array}$