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		$	354,750				$	56,700				$	56,700
Receivables			242,250					312,000					312,000
Inventory			482,500					174,000					229,900
Land			720,000					194,000					171,200
Building and equipment (net)			837,500					332,000					395,300
Franchise agreements			242,000					252,000					290,800
Accounts payable			(352,000	)				(152,000	)				(152,000	)
Accrued expenses			(189,000	)				(54,500	)				(54,500	)
Longterm liabilities			(1,132,500	)				(532,500	)				(532,500	)
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			(422,500	)				(260,000	)
Revenues			(1,000,000	)				(354,700	)
Expenses			947,000					333,000

Note: Parentheses indicate a credit balance.

On December 31, Padre acquires Sol’s outstanding stock by paying $228,000 in cash and issuing 14,500 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $22,400 as well as $10,000 in stock issuance costs.

Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed.

Worksheet

Inventory$

Land$

Buildings and equipment $

Franchise agreements $

Goodwill $

Revenues $

Additional paid-in capital $

Expenses $

Retained earnings, 1/1 $

Retained earnings, 12/31 $

Answer 1

		Amount
Inventory	Book value of padre+fair value of sol 482500+229000	711500
Land	720000+171200	891200
Buildings and equipment	837500+395300	1232800
Franchise agreements	242000+290800	532800
Goodwill		91100**
Revenues	only padre revenue will be reported	1,000,000
Additional paid-in capital		350000
Expense	947000 expense of padre +22400 accounting and legal cost	969400
Retained earnings, 1/1	of padre only	422500
Retained earnings, 12/31		497200

1)Goodwill :

Fair value of sol asset =56700+312000+229900+171200+395300+290800-152000-54500-532500=716900

Amount paid :[14500*40]+228000= 808000

Goodwill : Amount paid -fair value of net asset acquired

       808000-716900

        = 91100

2)Additional padi in capital = 70000 padre + [14500*20 ]for shares issued to sol -10000 stock issuance cost

          = 350000

**par value is20 so additional paid in capital on issuance =40-20 =20

3)Retained earning 12/31

Padre =beginning+revenue -expense

        = 422500+1000000-947000

         = 475500

share in nert income of sol : 354700-333000=21700   [100%acquisition or share]

Total retained earning :475500+21700= 497200