Question

The financial statement amounts for the Atwood Company and the Franz Company as of December 31, 2021, are presented below. Also included are the fair values for Franz Company's net assets (all numbers are in thousands).

	Atwood				Franz Co.				Franz Co.
	Book Value				Book Value				Fair Value
	12/31/2021				12/31/2021				12/31/2021
Cash	$	870			$	240			$	240
Receivables		660				600				600
Inventory		1,230				420				580
Land		1,800				260				250
Buildings (net)		1,800				540				650
Equipment (net)		660				380				400
Accounts payable		(570	)			(240	)			(240	)
Accrued expenses		(270	)			(60	)			(60	)
Long-term liabilities		(2,700	)			(1,020	)			(1,120	)
Common stock ($20 par)		(1,980	)
Common stock ($5 par)						(420	)
Additional paid-in capital		(210	)			(180	)
Retained earnings 1/1/18		(1,170	)			(480	)
Revenues		(2,880	)			(660	)
Expenses		2,760				620

Note: Parenthesis indicate a credit balance

Assume an acquisition business combination took place at December 31, 2021. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid.

a. Compute consolidated long-term liabilities at the date of the acquisition.

b. Compute fair value of the net assets acquired at the date of the acquisition.

c. Compute consolidated retained earnings at the date of the acquisition.

d. Compute consolidated expenses immediately following the acquisition.

Answer 1

A. Consolidated Long term liabilities at the date of the acquisition = $2,700 + $1,120 = $3,820

B. Fair Value of Net Assets Acquired

Particulars	Franz Co. Fair Value as on 12/31/2021
Cash	240.00
Receivables	600.00
Inventory	580.00
Land	250.00
Buildings (net)	650.00
Equipment (net)	400.00
Accounts payable	(240.00)
Accrued expenses	(60.00)
Long-term liabilities	(1,120.00)
Fair Value of Net Assets Acquired	1,300.00

C. Consolidated Retained Earnings on the Date of Acquisition

Fair Value of Net Assets Acquired	1,300.00
Less: Book Value of Net Assets Acquired	1,120.00
Excess of Fair Value to be added to Retained Earnings	180.00
Add: Retained Earning of Atwood as per Book Value	1,170.00
Add: Retained Earning of Franz Co as per Book Value	480.00
Consolidated Retained Earnings on the Date of Acquisition	1,830.00

D. Consolidated expenses immediately following the Acquisition

Expenses of Atwood	2,760.00
Expenses of Franz Co	620.00
Total Expenses before Acquisition	3,380.00
Add: Stock Issuance Cost	15.00
Add: Direct Cost	10.00
Total Expenses immediately after Acquisition	3,405.00