Question

Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also included are fair values for Sol Company accounts.

	Padre Company			Sol Company
	Book Values			Book Values		Fair Values
	12/31			12/31		12/31
Cash	$	262,500		46,850		$	46,850
Receivables		251,250		358,000			358,000
Inventory		432,500		305,000			356,400
Land		762,500		163,000			141,500
Building and equipment (net)		637,500		320,000			387,100
Franchise agreements		232,000		268,000			303,000
Accounts payable		(314,000	)	(183,000	)		(183,000	)
Accrued expenses		(121,000	)	(33,250	)		(33,250	)
Longterm liabilities		(927,500	)	(670,000	)		(670,000	)
Common stock—$20 par value		(660,000	)
Common stock—$5 par value				(210,000	)
Additional paid–in capital		(70,000	)	(90,000	)
Retained earnings, 1/1		(440,000	)	(249,000	)
Revenues		(1,052,750	)	(360,600	)
Expenses		1,007,000		335,000

Note: Parentheses indicate a credit balance.

On December 31, Padre acquires Sol’s outstanding stock by paying $393,000 in cash and issuing 10,400 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $20,400 as well as $9,200 in stock issuance costs.

Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed. (Input all amounts as positive values.)

Answer 1

Solution:

1)

Inventory = Padre company book value +Sol company fair values

=$432,500 +$356,400

=$788,900

2)

Land = Padre company book value +Sol company fair values

=$762,500 +$141,500

=$904,000

3)

Building and equipment = Padre company book value +Sol company fair values

=$637,500 +$387,100

=$1,024,600

4)

Franchise agreement = Padre company book value +Sol company fair values

=$232,000 +$303,000

=$535,000

5)

Good will = Purchase price - faire value of Sol company net assets

=$809,00 - $706,600

=$102,400

Purchase price = cash paid + fair value of common stock issued

=$393,000 +(10,400*40)

=$393,000+$416,000

=$809,000

Fair value of Sol company net assets = fair value of all assets - Fair value of all liabilities

=(46,850+ $358,000+356,400+$141,500+$387,100+$303,000) -($183,000+$33,250+$670,000)

=$1,592,850 - $886,250

=$706,600

6)

Revenues =$1,052,750

7)

Additional paid in capital = padre company's beginnig additional paid in capital + Additionall paid in capital issued to acquire - Stock issunace costs

=$70,000 +($40 -$20)*10,400 -$9,200

=$70,000 +$208,000 -$9,200

=$268,800

8)

Expenses = Parde book value of expenses + legal and accounting fee

=$1,007,000+$20,400

=$1,027,400

9)

Retained earnings =$440,000

Parde's consolidated financial statement :

Accounst	Prade's consoliadted financial statement
Inventory	$788,900
Land	$904,000
Building and equipment	$1,024,600
Franchise agreements	$535,000
Good will	$706,600
Revenues	$1,052,750
Additional paid in capital	$268,800
Expenses	$1,027,400
Retained earnings	$440,000

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