Question
In: Accounting
Part 2: Problem Solving - Journal perform the accounting required for the acquisition of Little, Inc....
Part 2: Problem Solving - Journal
perform the accounting required for the acquisition of Little, Inc. by Big, Inc. Within the worksheet, you are to:
Select an accounting method (either cost or equity) and explain why you selected this method
Perform the required journal entries
Complete the consolidation worksheet
Prepare the consolidated balance sheet in good form
| Part II | ||||||||||||
| Assume that Big Company decides to acquire 100% of Little Company for $200,000. Prepare the consolidated balance sheet and any supporting worksheets. | Calculation of fair value of the net assets of Little Company | Journal Entry for Acquisition | Assume that Big Company decides to acquire 100% of Little Company for $200,000. Prepare the consolidated balance sheet and any supporting worksheets. | Prepare the Consolidated Balance Sheet in the area below | ||||||||
| Big Company Balance Sheet | Big Company Worksheet | Big Company Balance Sheet | ||||||||||
| Assets, Liabilities & Equities | Book Value | Assets, Liabilities & Equities | Assets, Liabilities & Equities | |||||||||
| Cash | $500,000 | Cash | Cash | |||||||||
| AR | $10,000 | AR | AR | |||||||||
| Inventory | $50,000 | Inventory | Inventory | |||||||||
| Land | $40,000 | Land | Land | |||||||||
| PP&E | $400,000 | PP&E | PP&E | |||||||||
| Accumulated Depreciation | -$150,000 | Accumulated Depreciation | Accumulated Depreciation | |||||||||
| Goodwill | ||||||||||||
| Patent | $0 | Patent | Patent | |||||||||
| Total Assets | $850,000 | Total Assets | Total Assets | |||||||||
| AP | $110,000 | AP | AP | |||||||||
| Common Stock | $395,000 | Common Stock | Common Stock | |||||||||
| Additional Paid In Capital | $300,000 | Additional Paid In Capital | Additional Paid In Capital | |||||||||
| Retained Earnings | $45,000 | Retained Earnings | Retained Earnings | |||||||||
| Total Liabilities & Equity | $850,000 | Total Liabilities & Equity | Total Liabilities & Equity | |||||||||
| Little Company Balance Sheet | ||||||||||||
| Assets, Liabilities & Equities | Book Value | |||||||||||
| Cash | $35,000 | |||||||||||
| AR | $10,000 | |||||||||||
| Inventory | $65,000 | |||||||||||
| Land | $40,000 | |||||||||||
| PP&E | $40,000 | |||||||||||
| Accumulated Depreciation | -$5,000 | |||||||||||
| Patent | $0 | |||||||||||
| Total Assets | $185,000 | |||||||||||
| AP | $25,000 | |||||||||||
| Common Stock | $25,000 | |||||||||||
| Additional Paid In Capital | $35,000 | |||||||||||
| Retained Earnings | $100,000 | |||||||||||
| Total Liabilities & Equity | $185,000 | |||||||||||
| Assume that Fair Value of all noncash assets are 25% greater than book value | ||||||||||||
Solutions
Expert Solution
| Assume that Big Company decides to acquire 100% Little Company for $200,000. Prepare the appropriate journal entries. | |||||||||
| Big Company Balance Sheet | Prepare the journal entries for a 100% Asset Acquisition (using Cash) | Prepare Elimination Entries for Stock Acquisition | |||||||
| Assets, Liabilities & Equities | Book Value | Account | DR | CR | |||||
| Cash | $500,000 | Account | DR | CR | Common Stock Little Company | $25,000 | |||
| AR | $10,000 | Investment in Little Company | $200,000 | Additional Paid in Capital Little Company | $35,000 | ||||
| Inventory | $50,000 | Cash | 200000 | Retained Earnings Little Company | $100,000 | ||||
| Land | $40,000 | Goodwill | $40,000 | ||||||
| PP&E | $400,000 | Investment in Little Company | $200,000 | ||||||
| Accumulated Depreciation | -$150,000 | ||||||||
| Patent | $0 | ||||||||
| Total Assets | $850,000 | ||||||||
| AP | $110,000 | ||||||||
| Common Stock ($10 par) | $395,000 | ||||||||
| Additional Paid In Capital | $300,000 | Which accounting method is most appropriate for representing an investment of this type? | Big Company Balance Sheet (Consolidated) | ||||||
| Retained Earnings | $45,000 | Assets, Liabilities & Equities | Book Value | ||||||
| Total Liabilities & Equity | $850,000 | In this situation the company should use equity method as the company can exercise its control over the operation of acquired company. The equity method helps in updating the investment acccount according to the performance of acquired company. | Cash | $335,000 | |||||
| Little Company Balance Sheet | AR | $20,000 | |||||||
| Assets, Liabilities & Equities | Book Value | Inventory | $115,000 | ||||||
| Cash | $35,000 | Land | $80,000 | ||||||
| AR | $10,000 | PP&E | $440,000 | ||||||
| Inventory | $65,000 | Accumulated Depreciation | -$155,000 | ||||||
| Land | $40,000 | Patent | $0 | ||||||
| PP&E | $40,000 | Prepare the journal entries for a 100% Asset Acquisition (using Big Company Cash) | Goodwill | $40,000 | |||||
| Accumulated Depreciation | -$5,000 | Total Assets | $875,000 | ||||||
| Patent | $0 | Account | DR | CR | AP | $135,000 | |||
| Total Assets | $185,000 | Investment in Little Company | $200,000 | Common Stock ($10 par) | $395,000 | ||||
| AP | $25,000 | Cash | $200,000 | Additional Paid In Capital | $300,000 | ||||
| Common Stock | $25,000 | Prepare the journal entries for a 100% Acquisition by issuing 10,000 shares of Big Company Stock | Retained Earnings | $45,000 | |||||
| Additional Paid In Capital | $35,000 | $875,000 | |||||||
| Retained Earnings | $100,000 | Account | DR | CR | |||||
| Total Liabilities & Equity | $185,000 | Investment in Little Company | $200,000 | ||||||
| Common Stock | $25,000 | ||||||||
| Assume that Fair Value of all noncash assets are 25% greater than book value | Additional Paid In Capital | $175,000 | |||||||
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