Concept explainers
a.
To compute: The number of shares issue to acquire Company B.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
a.
Explanation of Solution
Computation of number of shares issued by Company B:
| Particulars | Amount($) |
| Common stock of Company B | 70,000 |
| Price of issue | 5 |
| Number of shares issued | 14,000 |
Table (1)
b.
To compute: The price per share at the time of issue by Company B.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
b.
Explanation of Solution
Computation of price per share at the time of issue by Company E:
| Particulars | Amount($) |
| Total value of common stock combined entity | 112,000 |
| Number of shares issued | 14,000 |
| Price of issue | 8.00 |
Table (2)
c.
To compute: The number of shares issued at the date of combination.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
c.
Explanation of Solution
Computation of number of shares issued at the date of combination:
| Particulars | Amount($) |
| Common stock value | 21,000 |
| Price of issue | 3 |
| Number of shares issued | 7,000 |
Table (3)
d.
To compute: The amount of cash paid as stock issue costs.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
d.
Explanation of Solution
Computation of amount of cash paid as stock issue costs:
| Particulars | Amount($) |
| Cash of Company A | 65,000 |
| Cash of Company B | 15,000 |
| Less: Cash of Combined entity | 56,000 |
| Amount of cash paid as stock issue costs | 24,000 |
Table (4)
e.
To compute: The total market value of shares issued at date of combination.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
e.
Explanation of Solution
Computation of total market value of shares issued at date of combination:
| Particulars | Amount($) |
| Total market value of shares of combined entity | 694,000 |
| Less: Total market value of shares of Company A | 330,000 |
| Total market value of shares issued | 364,000 |
Table (5)
f.
To compute: The fair value of inventory at date of combination.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
f.
Explanation of Solution
Computation of fair value of inventory at date of combination:
| Particulars | Amount($) |
| Fair value of inventory of Combined entity | 320,000 |
| Less: Fair value of inventory of Company A | 210,000 |
| Fair value of inventory | 110,000 |
Table (6)
g.
To compute: The fair value of net assets at date of combination.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
g.
Explanation of Solution
Computation of fair value of net assets at date of combination:
| Particulars | Amount($) |
| Total assets | 448,000 |
| Less: Total liabilities | 142,000 |
| Net assets | 306,000 |
Table (7)
h.
To compute: The amount of
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
h.
Explanation of Solution
Computation of amount of goodwill in the combined balance sheet:
| Particulars | Amount($) |
| Total market value of shares issued | 364,000 |
| Net assets | 306,000 |
| Amount of goodwill | 58,000 |
Table (8)
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Chapter 1 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
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