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 $ 400,000 $ 120,000 $ 120,000 Receivables 220,000 300,000 300,000 Inventory 410,000 210,000 260,000 Land 600,000 130,000 110,000 Building and equipment (net) 600,000 270,000 330,000 Franchise agreements 220,000 190,000 220,000 Accounts payable (300,000) (120,000) (120,000) Accrued expenses (90,000) (30,000) (30,000) Longterm liabilities (900,000) (510,000) (510,000) 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 (390,000) (240,000) Revenues (960,000) (330,000) Expenses 920,000 310,000 Note: Parentheses indicate a credit balance. On December 31, Padre acquires Sol’s outstanding stock by paying $360,000 in cash and issuing 10,000 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $20,000 as well as $5,000 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

Inventory = 732800( Padre's book value plus Sol's fair value)

Land =791400( Padre's book value plus Sol's fair value)

Building and Equipment= 1061800( Padre's book value plus Sol's fair value)

Franchise agreements = $598,000 (Padre’s book value plus Sol’s fair value)

Goodwill = $87500 (calculated above)

Revenues = $990,000 (only parent company operational figures are reported at date of acquisition)

Additional paid-in capital = $391200 (Padre’s book value adjusted for stock issue less stock issuance costs)

Expenses = $637,500 (only parent company operational figures plus acquisition-related costs arereported at date of acquisition)

Retained earnings, 1/1 = $557,500 (Padre’s book value)

Retained earnings, 12/31 = $ 844200

	P	S	Total
Retained earnings, 1/1	557500	244000	801500
Add:
Net income( Revenue-Loss)	44000	27000	71000
Less
legal and accounting fees	-21500
stock issuance costs	-6800
	573200	271000	844200