After Acquisition - Business Com PDF

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I.

The June 1, 20x1 statement of financial position of the Straw Company at book values and fair values are given below : Book value Fair value Difference Current assets Land Building and equipment Patent Total assets

P240,000 20,000 400,000 10,000 P670,000

P280,000 100,000 270,000 30,000 680,000

Liabilities 250,000 250,000 Common stock 100,000 Retained earnings 320,000 Total liabilities and shareholders’ equity 670,000 On June 1, 20x1 , Pepsi Inc., purchased all of Straw Company’s stock for P600,000. Required : a. Prepare journal entry on the books of Pepsi to record the stock acquisition b. Prepare a schedule showing the determination and allocation of excess. c. Prepare the working paper elimination entries. a.

b.

c.

Investment in Straw Company Cash To record acquisition of 100% of Straw stock.

600,000 600,000

Price paid Less: Book value of interest acquired (100%) Difference Allocation (100%: Current Assets P( 40,000) Land ( 80,000) Building and equipt 130,000 Patents ( 20,000) Goodwill

P600,000 420,000 180,000

( 10,000) P170,000

Working paper elimination entries: (1)

(2)

Common stock – Straw Retained earnings – Straw Investment in Straw Company To eliminate equity accounts of Straw at date of acquisition. Inventories Land Patents Goodwill Buildings and equipment Investment in Straw Company To allocate excess.

100,000 320,000 420,000

40,000 80,000 20,000 170,000 130,000 180,000

40,000 80,000 (130,000) 20,000 10,000

II.

The January 1, 20x1 statement of financial position of Sotto Company at book value and at fair market values are as follows : Book value Fair value Current assets 800,000 750,000 Property and equipment 900,000 1,000,000 Total assets 1,700,000 1,750,000 Current liabilities 300,000 300,000 Long term liabilities 500,000 460,000 Common stock, par P1 100,000 APIC 200,000 Retained earnings 600,000 Total Equities 1,700,000 Pedro Company paid P950,000 cash for 80% of Sotto Company’s common stock. Pedro Company also pays P80,000 of professional fees to effect the combination. The fair value of the NCI is assessed to be P230,000. Required : a. Prepare journal entry on Pedro Company’s books to record the acquisition. b. Prepare a determination and allocation of excess. c. Prepare the working paper elimination entries.

a.

Investment in Soto Company Cash To record acquisition of 80% stock of Sotto. Retained earnings – Pedro Company Cash To record acquisition costs.

b.

c.

Price paid by the Parent Company Non-controlling interest (NCI) Total Less: Book value of net assets Excess Allocation: Current assets Property and equipment Long-term debt Goodwill

950,000 950,000

80,000 80,000

P950,000 230,000 1,180,000 900,000 280,000 P 50,000 (100,000) ( 40,000)

( 90,000) P190,000

Working paper elimination entries: (1)

(2)

Common stock – Sotto 100,000 APIC – Sotto 200,000 Retained earnings – Sotto 600,000 Investment in Sotto stock Non-controlling interest To eliminate equity accounts of Sotto at date of acquisition.

Property, plant and equipment Goodwill

100,000 190,000

720,000 180,000

Long-term debt Current assets Investment in Sotto stock Non-controlling interest To allocate excess III.

40,000 50,000 230,000 50,000

Separate statements of financial position of Pill Corp and Seed Company on May 31, 20x1, together with current fair values are as follows : Pill Corp Seed Comp Seed Comp Book value Book value Fair value Cash 550,000 10,000 10,000 Accounts receivable 700,000 60,000 60,000 Inventories 1,400,000 120,000 140,000 Plant assets 2,850,000 610,000 690,000 Total assets 5,500,000 800,000

Current liabilities 500,000 80,000 80,000 Longterm debt 1,000,000 400,000 440,000 Common stock, P10 par 1,500,000 100,000 APIC 1,200,000 40,000 Retained earnings 1,300,000 180,000 Total equities 5,500,000 800,000 On May 31, 20x1, Pill Corp acquired all 10,000 shares of seed Company’s outstanding stock by paying P350,000 cash. Required : a. Prepare journal entries for Pill Corp to record the acquisition. b. Prepare a consolidate working paper for Pill Corp and subsidiary on May 31, 20x1.

a.

Investment in Seed Company Cash To record acquisition of 100% of Seed company stock.

350,000

Determination and Allocation of Excess schedule: Price paid Less: Book value of interest acquired Excess Allocation: Inventory P(20,000) Plant assets (80,000) Long-term liabilities 40,000 Income from acquisition

b.

350,000

P350,000 320,000 30,000

(60,000) P(30,000)

Working paper elimination entries (1) Common stock – Seed 100,000 Additional paid-in capital – Seed 40,000 Retained earnings – Seed 180,000 Investment in Seed stock To eliminate equity accounts of Seed Company

320,000

(2)

Inventory Plant assets

20,000 80,000

Long-term debt Investment in Seed stock Retained earnings – Pill (income from acquisition) To allocate excess

40,000 30,000 30,000

Pill Corporation and Subsidiary Consolidated Working Paper May 31, 20x1 – Date of Acquisition Pill Corporation

Seed Company

Assets Cash Accounts receivable Inventories Investment in Seed company

200,000 700,000 1,400,000 350,000

10,000 60,000 120,000

Plant assets Total

2,850,000 5,500,000

610,000 800,000

500,000 1,000,000

80,000 400,000

Liabilities & Stockholders’ Equity Current liabilities Long-term debt Common stock: Pill Seed Additional paid-in capital Pill Seed Retained earnings Pill Seed Total

Eliminations

& adjustment

Debit

Credit

(2) 20,000 (1)320,000 (2) 30,000 (2) 80,000

210,000 760,000 1,540,000 3,540,000 6,050,000

(2) 40,000

1,500,000

580,000 1,440,000 1,500,000

100,000

(1)100,000

40,000

(1) 40,000

180,000 800,000

(1)180,000 420,000

1,200,000

1,200,000

1,300,000 5,500,000

Consolidated

(2) 30,000

1,330,000

420,000

6,050,000...