Question

1. On 12/31, Choco acquired all assets and liabilities of Cake by issuing 40,000 shares of its common stock when the market value (=fair value) is $32/share and this combination is a statutory merger (Cake was dissolved). Choco has common stock with $15 par, 50,000 shares outstanding and Cake has $5 par, 60,000 shares outstanding

	Choco Book Values	Cake Book Values	Cake Fair Values
Cash and Receivable	350,000	180,000	170,000
Inventories	250,000	100,000	150,000
Land	700,000	120,000	240,000
Building and equipment	600,000	600,000	900,000
Patented technology	100,000	0	60,000
Accounts Payable	300,000	120,000	150,000
Long-term debt	0	400,000	350,000
Common Stock	750,000	300,000
Additional paid in capital	500,000	60,000
Retained earnings 12/31	450,000	120,000
Revenues	350,000	160,000
Expenses	310,000	130,000

Q1. How much is the consideration transferred?

$40,000 X 32 shares = $1,280,000

Q2. What is the consolidated balance for Land?

$700,000 (Choco’s BV) + $240,000 (Cake’s FV) = $940,000

Q3. What is the consolidated balance for Accounts payable?

$300,000 (Choco’s BV) + $150,000 (Cake’s FV) = $450,000

Q4. Prepare fair value allocation and goodwill schedule at the date of the acquisition.

               

Q5. Prepare journal entry for acquisition in Choco’s book.

Cash and Receivable	170,000
Inventories	150,000
Land	240,000
Building and Equipment	900,000
Patented technology	60,000
Accounts Payable
Cash
Common Stock
Additional Paid-In Capital

Q6. Choco paid $14,000 in cash for legal fee. What is the journal entry?

Q7. Choco also paid $12,000 in cash for stock issuance cost. What is the journal entry?

Q8. Prepare consolidated balance sheet (incorporate all information from Q1 to Q7).

(Please only answer questions 5-8)

Answer 1

5)

Cash and Receivable	170,000
Inventories	150,000
Land	240,000
Building and Equipment	900,000
Patented technology	60,000
Goodwill	260,000
Accounts Payable		150,000
Long Term Debt		350,000
Common Stock		600,000
Additional Paid-In Capital		680,000

6	Legal Fee	14,000
	Cash		14,000
7	Stock Issuance Cost	12,000
	Cash		12,000

8)

Assets	$	Liabilities	$
Cash and Receivable	520000	Accounts Payable	450000
Inventories	400000	Long-term debt	350000
Land	940000	Common Stock	1350000
Building and equipment	1500000	Additional paid in capital	1180000
Patented technology	160000	Retained earnings 12/31	450,000
Goodwill	260000
	3780000		3780000