Question

In: Accounting

Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on...

Pappy Inc. purchased 80% of the outstanding voting shares of Sappy Corp. for $360,000 cash on July 1, 2015. Immediately before the acquisition, Pappy and Sappy reported the following: Statements of financial position As at July 1, 2015 Pappy Sappy Book value Book value Fair value Cash $500,000 $245,000 $245,000 Investments at amortized cost 7,000 24,000 26,000 Accounts receivable 60,000 40,000 40,000 Inventory 120,000 45,000 55,000 Equipment (net) 290,000 80,000 72,000 Patents 10,000 90,000 193,000 Total assets $987,000 $524,000 Current liabilities $ 95,000 $160,000 $160,000 Bonds payable 0 70,000 75,000 Common shares 400,000 180,000 Retained earnings 492,000 114,000 Total liabilities and equity $987,000 $524,000 The equipment and patents both have a remaining useful life of five years at the date of acquisition. Straight-line depreciation and amortization is used. Assume that the investment has not been impaired.

What is the amount of goodwill using the fair value enterprise (FVE) method at July 1, 2015?

  a) $ 43,200 b) $ 44,000 c) $ 54,000 d) $258,000

What amount would be reported for patents on the consolidated SFP at July 1, 2015?

a) $100,000 b) $164,400 c) $182,400 d) $203,000

Solutions

Expert Solution

1.

Computation of Fair value excess of book value
Assets FV BV Excess
Investments $          26,000 $        24,000 $             2,000
Inventory $          55,000 $        45,000 $          10,000
Equipment $          72,000 $        80,000 $           (8,000)
Patents $        193,000 $        90,000 $        103,000
Excess for assets $        107,000
Liabilities
Bonds payable $          75,000 $        70,000 $             5,000
Excess for liabilities $             5,000
Excess for Net assets FV over BV $        102,000
Add Common stock $        180,000
Add Retained earnings $        114,000
Total value of subsidiary $        396,000
Share of P in S in FV for 80% $        316,800
Total considerationp paid $        360,000
Goodwill $          43,200

Option a is correct.

2.

Value of Patent on consolidated F/S = $10,000 + $193,000

= $203,000.

Option d is correct.

For any clarification, please comment. Kindly Up Vote!

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of...
On January 1, Year 1, Present Inc. purchased 80 percent of the outstanding voting shares of Sunrise Co. for $3,000,000. On that date, Sunrise’s shareholders’ equity consisted of retained earnings of $1,500,000 and common shares of $1,000,000. Sunrise’s identifiable assets and liabilities had fair values that were equal to their carrying values on January 1, Year 1. Account balances for selected accounts for the Year 5 financial statements were as follows: Present Sunrise Property, plant, and equipment (net) $ 2,100,000...
On Jan 1, 2016, PORE Inc. purchased 80% of the voting shares of SCORE Inc. for...
On Jan 1, 2016, PORE Inc. purchased 80% of the voting shares of SCORE Inc. for $900,000 cash, plus a commitment to pay an additional $300,000 in three years if sales grow by more than 20% over the next three years. An independent business valuator stated that PORE Inc. could have paid an extra $100,000 at the date of acquisition instead of agreeing to a potential payment of $300,000 in three years. On the date of acquisition, SCORE’s Common Stock...
Over a 4 year period the black corp purchased 100% of the outstanding voting shares of...
Over a 4 year period the black corp purchased 100% of the outstanding voting shares of White Co. The acquisition was made in a series of steps as follows: DATE:                             %                        Purchase Price Jan 1, Year 1 5% 5,000 Jan 1, Year 2 10% 12,000 Jan 1, Year 3 10% 15,000 Jan 1, Year 4 75% 200,000 Total 100% 232,000 Any excess of the purchase price over the net book value of the assets was attributed to goodwill. The acquisition...
Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January...
Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: Errant Inc. Grub Inc. Grub Inc. (carrying value) (carrying value) (fair value) Cash $120,000 $76,000 $76,000 Accounts Receivable $80,000...
The Thomas Corporation acquired 80 percent of the 100,000 outstanding voting shares of Colby, Inc., for...
The Thomas Corporation acquired 80 percent of the 100,000 outstanding voting shares of Colby, Inc., for $7.10 per share on January 1, 2020. The remaining 20 percent of Colby's shares also traded actively at $7.10 per share before and after Thomas' acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Colby’s underlying accounts except that a building with a 5-year future life was undervalued by $50,000 and a fully amortized trademark...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.90 per share on January 1, 2014. The remaining 20 percent of Devine’s shares also traded actively at $6.90 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year life was undervalued by $52,500 and a fully amortized trademark with...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.35 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $6.35 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year future life was undervalued by $78,500 and a fully amortized trademark...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.45 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $6.45 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year future life was undervalued by $65,500 and a fully amortized trademark...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.30 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $6.30 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year future life was undervalued by $45,000 and a fully amortized trademark...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for...
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.15 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $7.15 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year future life was undervalued by $75,500 and a fully amortized trademark...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT