Question

26. On June 30, 2017, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2017, were as follows:

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	Wisconsin	Badger
Revenues	$ (900,000)	$ (300,000)
Expenses	660,000	200,000
Net income	$ (240,000)	$ (100,000)
Retained earnings, 1/1	$ (800,000)	$ (200,000)
Net income	(240,000)	(100,000)
Dividends declared	90,000	–0–
Retained earnings, 6/30	$ (950,000)	$ (300,000)
Cash	$       80,000	$      110,000
Receivables and inventory	400,000	170,000
Patented technology (net)	900,000	300,000
Equipment (net)	700,000	600,000
Total assets	$ 2,080,000	$   1,180,000
Liabilities	$  (500,000)	$     (410,000)
Common stock	(360,000)	(200,000)
Additional paid-in capital	(270,000)	(270,000)
Retained earnings	(950,000)	(300,000)
Total liabilities and equities	$ (2,080,000)	$ (1,180,000)

1. Wisconsin also paid $30,000 to a broker for arranging the transaction. In addition, Wisconsin paid $40,000 in stock issuance costs. Badger’s equipment was actually worth $700,000, but its patented technology was valued at only $280,000.

What are the consolidated balances for the following accounts?

1. Net income.
2. Retained earnings, 1/1/17.
3. Patented technology.
4. Goodwill. please explain this one better thank you
5. Liabilities.
6. Common stock.
7. Additional paid-in capital.

Answer 1

Solution:

a	Net income (240,000-30,000)(broker fees)	210,000
b	Retained earnings as on 1/1(the balance on 1/1)	800,000
c	Patented Technology(900,000+280,000(subsidiary fair value))	1,180,000
d	Good will	50,000
e	Liabilities(500,000+410,000+300,000(new debit))	1,210,000
f	Common stock(360,000+(15000*10))	510,000
g	additional paid in capital(270,000+(15000*30))-40,000	680,000

Calculation of Goodwill

Consideration transferred 300,000+(15000*40)                                         =900,000

Less:Book value

(200,000+270,000+300,000)             =770,000

Fair value in excess of book value a                                                           =130,000

Excess fair value(undervalued equipment)(700,000-600,000)b                           =100,000

Excess fair value(overvalued patented technology)(300,000-280,000)c         =-20,000

Goodwill a-b-c                                    =50,000