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		$	193,250				$	72,900				$	72,900
Receivables			228,000					369,000					369,000
Inventory			602,500					190,000					242,200
Land			765,000					195,000					166,200
Building and equipment (net)			765,000					271,000					340,000
Franchise agreements			224,000					216,000					249,900
Accounts payable			(350,000	)				(138,000	)				(138,000	)
Accrued expenses			(119,000	)				(47,500	)				(47,500	)
Longterm liabilities			(995,000	)				(552,500	)				(552,500	)
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			(522,500	)				(251,000	)
Revenues			(1,041,250	)				(352,900	)
Expenses			980,000					328,000

Note: Parentheses indicate a credit balance.

On December 31, Padre acquires Sol’s outstanding stock by paying $108,000 in cash and issuing 17,000 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $24,300 as well as $10,300 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.)

	Worksheet Amounts Inventory Land Buildings and equipment Franchise agreements Goodwill Revenues Additional paid-in capital Expenses Retained earnings, 1/1 Retained earnings, 12/31

Answer 1

In acquisition, when consolidation is done at preacquisition figures, book value of Parents and fair values of subsidiary is used , leaving some exceptions
				Worksheet	Amounts
				Inventory	844700	(602500+242200)	P's BV + S's FV)
				Land	931200	(765000+166200)	P's BV + S's FV)
Buildings and equipment	1105000	(765000+340000)	P's BV + S's FV)
Franchise agreements	473900	(224000+249900)	P's BV + S's FV)
Goodwill	85800	Schedule 1
Revenues	1041250	only P's
Additional paid-in capital	399700	(70000 + (17000*20)-10300)	P's BV + Stock Issued-APIC -Issuance cost
Expenses	1004300	(980000+24300)	P's BV + Acquisition cost
Retained earnings, 1/1	522500		P's BV
Retained earnings, 12/31	559450	(522500+1041250-1004300)	RE1/1+Rev - EXP
Here P's BV means Padre's Book Value
S's BV means Sol's Book Value
RE1/1 is Retained earnings 1/1
APIC = Additional paid in capital
Calculation of goodwill (Schedule 1)
Cash paid for acquisition			108000
Fair value of shares issued
(17000 x $40)			680000
			788000
Less: Fair value of net assets of Sol's			-702200
				(72900+369000+242200+166200+340000+249900-138000-47500-552500)
goodwill			$             85,800