Question

In: Accounting

following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also...

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 $ 491,250 $ 56,950 $ 56,950
  Receivables 238,500 379,000 379,000
  Inventory 472,500 243,000 301,700
  Land 680,000 201,000 171,900
  Building and equipment (net) 777,500 312,000 372,300
  Franchise agreements 235,000 210,000 240,300
  Accounts payable (387,000 ) (120,000 ) (120,000 )
  Accrued expenses (121,000 ) (36,250 ) (36,250 )
  Long-term liabilities (1,032,500 ) (677,500 ) (677,500 )
  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 (580,000 ) (243,000 )
  Revenues (1,016,250 ) (434,200 )
  Expenses 972,000 409,000

Note: Parentheses indicate a credit balance.

On December 31, Padre acquires Sol’s outstanding stock by paying $329,000 in cash and issuing 11,000 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $20,000 as well as $8,400 in stock issuance costs.

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

Accounts Amounts
Inventory $774,200
Land $851,900
Buildings and equipment $1,149,800
Franchise agreements $475,300
Goodwill
Revenues
Additional paid-in capital
Expenses $992,000
Retained earnings, 1/1 $580,000
Retained earnings, 12/31

Solutions

Expert Solution

The Value that would be shown in Padre Consolidated
Financial Statements for each of the accounts listed
Padre Company Sol Company Consolidated
Book Value Fair Value Financial Statements
Inventory                  472,500 +                     301,700 =                             774,200
Land                  680,000 +                     171,900 =                             851,900
Buildings and Equipment                  777,500 +                     372,300 =                         1,149,800
Franchise Agreements                  235,000 +                     240,300 =                             475,300
Goodwill + =                               46,400
Revenues + =                         1,016,250
Additional Paid in Capital + =                             281,600
Expenses + =                             992,000
Retained Earnings 1/1 + =                             580,000
Retained Earnings 12/31 + =                             604,250
I Working Note:Calculation of Value of Goodwill
Value of Goodwill Purchase Price-Fair value of sole company net asset
Purchase Price Cash Paid+Fair value of common stock issued
Purchase Price 329000+(11000 X 40)                     769,000
Fair Value of Sol Company Net assets=Fair value of all assets-Fair value of all liabilities
Fair Value of Assets
Cash                    57,350
Receivables                  304,000
Inventory                  296,500
Land                  133,000
Building and equipments (net)                  476,700
Franchise Agreement                  257,800
             1,525,350
Fair Value of Liabilities
Accounts Payable                  195,000
Accrued Expenses                    52,750
Long Term Liabilities                  555,000
                 802,750

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