Question

H Inc. acquired 100% of the voting common stock of L Inc. on December 31, 2016. The book value and fair value of L’s accounts on that date are following. L remains as a separate legal entity after acquisition.

	Book value	Fair value
Current Assets	400,000	400,000
Land	420,000	480,000
Building (200-year useful life)	500,000	500,000
Equipment (10-year useful life)	120,000	200,000
Liabilities	(700,000)	(700,000)

Assume that H issued 50,0000 shares of common stock with a $5 par value and a $20 fair value for all of the outstanding stock of L. In addition, H agreed to pay the shareholders of L another $60,000 if L's earnings exceed $50,000 next year. The estimated probability of this payment is 500% and we assume a present value factor of 0.975 for one year. H also paid $4,000 legal fees and $5,000 stock issuance fees for this acquisition. Prepare the post-acquisition column of accounts for H (parent of company only) and consolidated financial statements for the acquisition date

Answer 1

Computation of total Payment made by H Inc.
Share issued by H   Inc.		$1,000,000
( 50000 Share * $20), $ 5 Par Value
Legal Fees		4000
Stock Issuance fees		$5,000
Contigent Consideration ($60000*0.975)		$58,500.00
Total Consideration paid by H Inc.		$1,067,500
Balance Sheet of H Inc.
Asset
Investment in L Inc.	$1,067,500
Consolidated Balance Sheet
H Inc. Consolidated Balance Sheet
For the period as on 31st Dec 2016
Assets
Current Asset	400000
Total Current Asset		$400,000.00
Goodwill		187500
Property, Plant & Equipment
Land	$480,000.00
Building	$500,000.00
Equipment	$200,000.00	$1,180,000.00
Total Asset		$1,767,500.00
Liability & Equity
Current Liabilities
Long term Liabilities	$700,000.00	$700,000.00
Total Liabilities		$700,000.00
Share holder Equity
Common Stock ( 50000*$5)	$250,000.00
Additional paid in capital (50000*$15)	$750,000.00
Paid in capital Contigent consideration	$58,500.00
P&L	$9,000.00
Total Equity		$1,067,500.00
Total Liability & Equity		$1,767,500.00
Working Note
Computation of Goodwill
Fair Value of Asset	1580000
liability	-700000
Fair Value of Asset	880000
Net Consideration Paid by L Inc.	1067500
Goodwill	187500