Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

Question

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Answer 1

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

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Answer 2

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

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Answer 3

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

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Answer 4

Question

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

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Answer 5

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

Answer 6

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

Answer 7

Chapter 2, Problem 34P

a.

To determine

Prepare Company P’s entries to account for the consideration transferred to the former owners of Company S, the direct combination costs, and the stock issue and registration costs.

Answer 8

a.

Expert Solution

Explanation of Solution

Journal entries to record acquisition of assets and liabilities:

General Journal
Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
i)	Receivables and inventory		$ 180,000
	Cash		$ 85,000
	Property, plant and equipment		$ 600,000
	Research and development asset		$ 100,000
	Trademarks		$ 200,000
	Goodwill		$ 77,500
	Liabilities			$ 180,000
	Common stock			$ 250,000
	Additional paid-in capital ($1,000,000 − (50,000 × $5 ))			$ 750,0000
	Contingent liability (PV of $130,000 at 4%)			$ 62,500
	(to record the assets and liabilities acquired)

ii)	Professional service		$ 15,000
	Cash			$ 15,000
	(being Stock issuance cost paid)

iii)	Additional paid-in capital		$ 9,000
	Cash			$ 9,000
	(being Stock issuance cost paid)

Table: (1)

Computation of the fair value of the consideration transferred:

Fair value of consideration = (50,000 × $20) = $1,000,000

Thus, the fair value of the consideration transferred in this combination is $1,000,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Prepare a post-acquisition column of accounts for company P.

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

Answer 13

b.

To determine

Prepare a post-acquisition column of accounts for company P.

Answer 14

b.

Expert Solution

Explanation of Solution

The post-combination balance sheet for Company P as of the acquisition date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (2)

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500

Table: (3)

Answer 19

c.

To determine

Prepare a worksheet to produce a consolidated balance sheet as of the acquisition date.

Answer 20

c.

Expert Solution

Explanation of Solution

The worksheet to consolidate the two companies as of the combination date is as follows:

Particulars	Company P	Company S	Consolidated Entries		Consolidated Balances
Revenues	$ (1,200,000)				$ (1,200,000)
Expenses	$ 890,000				$ 890,000
Net income	$ (310,000)				$ (310,000)

Retained earnings, 1/1	$ (950,000)				$ (950,000)
Net income	$ (310,000)				$ (310,000)
Dividends declared	$ 90,000				$ 90,000
Retained earnings,12/31	$ (1,170,000)				$ (1,170,000)

Cash	$ 86,000	$ 85,000	$ -		$ 171,000
Receivables and inventory	$ 750,000	$ 190,000		$ 10,000	$ 930,000
Property, plant, and equipment	$ 1,400,000	$ 450,000	$ 150,000		$ 2,000,000
Investment in Company S	$ 1,062,500			$ 705,000
				$ 357,500
Research and development asset			$ 100,000		$ 100,000
Goodwill			$ 77,500		$ 77,500
Trademarks	$ 300,000	$ 160,000	$ 40,000		$ 500,000
Total assets	$ 3,598,500	$ 885,000			$ 3,778,500

Liabilities	$ (500,000)	$ (180,000)			$ (680,000)
Contingent liability	$ (62,500)				$ (62,500)
Common stock	$ (650,000)	$ (200,000)	$ 200,000		$ (650,000)
Additional paid-in capital	$ (1,216,000)	$ (70,000)	$ 70,000		$ (1,216,000)
Retained earnings	$ (1,170,000)	$ (435,000)	$ 435,000		$ (1,170,000)
Total liabilities and equities	$ (3,598,500)	$ (885,000)	$ 1,072,500	$ 1,072,500	$ 3,778,500