Question

The financial balances for the Atwood Company and the Franz Company as of December 31, 20XX, are presented below. Also included are the fair values for Franz Company's net assets.

	Atwood	Franz Co.	Franz Co.
	(all numbers are in thousands)
	Book Value	Book Value	Fair Value
	12/31/20XX	12/31/20XX	12/31/20XX
Cash	$870	$240	$240
Receivables	660	600	600
Inventory	1,230	420	580
Land	1,800	260	250
Buildings (net)	1,800	540	650
Equipment (net)	660	380	400
Accounts payable	(570)	(240)	(240)
Accrued expenses	(270)	(60)	(60)
Long-term liabilities	(2,700)	(1,020)	(1,120)
Common stock ($20 par)	(1,980)
Common stock ($5 par)		(420)
Additional paid-in capital	(210)	(180)
Retained earnings	(1,170)	(480)
Revenues	(2,880)	(660)
Expenses	2,760	620

Note: Parenthesis indicate a credit balance.

Assume an acquisition business combination took place at December 31, 20XX. Atwood issued 50,000 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid.

a) What is the investment account to be recorded at acquisition

b) Compute consolidated inventory at the date of the acquisition.

c) compute land at the date of acquisition

d) compute buildings at the date of acquisition

e) compute consolidated goodwill

f) compute consolidated equipment

g) compute cash upon completion of the acquisition

h) compute expanses at the date of acquisition

i) compute revenues at the date of acquisition

j)compute retained earnings as a result of this acquisition

Answer 1

SOLUTION:

Only 4 sub parts have been answered as per the guidelines

c ) Compute consolidated land at the date of the acquisition

(A) Value of Land(Book Value) of Atwood Limited($) = 1800

(B) Add : Fair Value of Land to be Brought at Fair Value = 0250

Consolidated Value of Land ((A)+(B)   = 2050

Hence Consolidated Value of Land is 2050.

e) Computation of Consolidated Goodwill at the date of acquisition -

Computation of Net Asset(Liabilities) to be Purchased by Atwood Limited of Franz Company

S. No.	Name of Asset or liability	$
1	Cash	240
2	Receivables	600
3	Inventory	580
4	Land	250
5	Building(Net)	650
6	Equipment (Net)	400
		2720
	Less : Liability Takeover
1	Accounts Payable	240
2	Accrued Expenses	60
3	Long Term Liability	1120
		1420
	Fair Value of Asset Acquired	1300

Computation of Purchase Considaration

No. of Shares issued X Issued Price of Share = 50X35 = 1750

Calculation of Consolidated Goodwill = Purchase Considaration - Net Fair Value of Asset Acquired

= 1750 - 1300 = 450

Hence Value of Goodwill is $ 450

i) Computaion of consolidated revenue at the date of acquisition:

Consolidated Revenue will include revenue of Both the Company

Revenue of Atwood = 2880

Revenue of Franz Co. =0660

Consolidated Revenue = 3540

j) Computaion of Consolidate retained Earnings as a result of this acquisition

At the Date of Acquisition while Consolidated Retained earning would include only the retained earning of Atwood Limited

Which is 1170

Reason for above answer is Under Purchase method Company will include only Asset and Liability to be brought up from Target company

Consolidated retainded earnings = 1170