Question

On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company in exchange for $726,000 cash. At that time, although Williams book value was $560,000, Roberts assessed Williams total business fair value at $726,000.

The book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account which was undervalued by $100,000. The undervalued equipment had a 5-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill.

Post-acquisition financial information for both companies on January 1, 2019 is shown below:

	Roberts	Williams
Cash	$177,000	$90,000
Accounts receivable	356,000	120,000
Inventory	440,000	220,000
Investment in Williams Stock	726,000	-0-
Land	180,000	200,000
Buildings and equipment (net)	496,000	320,000
Total assets	$2,375,000	$950,000
Accounts payable	$(120,000)	$(70,000)
Notes payable	(360,000)	(320,000)
Common stock	(610,000)	(150,000)
Additional paid-in capital	(200,000)	(90,000)
Retained earnings, 1/1/19	(1,085,000)	(320,000)
Total liabilities and stockholders’ equity	$2,375,000	$950,000

Required:

• Using the acquisition method, determine the allocation of the purchase price to the specific asset and liability accounts as of the date of acquisition. Round all calculations to the nearest whole dollar.
• Assuming that Roberts accounts for its investment in Williams using the equity method, prepare the worksheet entries needed on the date of acquisition.
• Finally, prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2019.

Answer 1

Answer:

Since, the book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account, the purchase price is allocated to equipment only to the extent of $100,000.

General Journal	Debit	Credit
Common stock-Williams	$     150,000
Paid-in capital-Williams	90,000
Retained earnings-Williams	320,000
Building and Equipment	100,000
Goodwill	66,000
Investment in Williams		$ 726,000
(to record adjusting entries on the date of purchase)

No.	Working Notes:
1	Fair value of Williams =	$     726,000
2	Total shareholder's equity of Williams	$     560,000
	Increase in equipment	100,000
	Fair value of William's identifiable net assets	660,000
3	Goodwill = ($126,316 - 113,000)	$       66,000
4	Depreciation expense =$100,000 / 5 =	$       20,000

CONSOLIDATION WORKSHEET ON 01/01/2019
Assets	Roberts	Williams	Adjustments	Consolidated Amt
Debit	Credit
Current Assets:
Cash	$     177,000	$     90,000			$           267,000
Account receivable	356,000	120,000			476,000
Inventory	440,000	220,000			660,000
Total Current Assets	973,000	430,000			1,403,000
Investment in Sub Inc.	726,000			726,000
Fixed Assets:
Land	180,000	200,000			380,000
Building and Equipment (Net)	496,000	320,000	80,000		896,000
Goodwill			66,000		66,000
Total Assets	$ 2,375,000	$ 950,000	$ 146,000	$ 726,000	$       2,745,000
Liabilities
Current Liabilities:
Account payable	120,000	70,000			190,000
Notes payable	360,000	320,000			680,000
Total Liabilities	$    480,000	$ 390,000			$          870,000
Shareholder's Equity
Common stock	610,000	150,000	150,000		610,000
Paid-in capital	200,000	90,000	90,000		200,000
Retained earnings	1,085,000	320,000	340,000		1,065,000
Total Shareholder's Equity	1,895,000	560,000	580,000		1,875,000
Total Liabilities and Shareholder's Equity	$ 2,375,000	$ 950,000	$ 580,000		$       2,745,000