Question

On Dec 31, 2018, the balance sheets of Paper Inc. and Scissors Inc. were as follows:

	Paper Inc	Scissors Inc
Cash and Short-Term Securities	$400,000	$ 25,000
Inventory	$ 50,000	$ 10,000
Plant and Equipment (net)	$300,000	$120,000
Total Assets	$750,000	$155,000
Current Liabilities	$ 75,000	$ 20,000
Bonds Payable	$100,000	$ 30,000
Common Shares	$150,000	$ 55,000
Retained Earnings	$425,000	$ 50,000
Total Liabilities and Equity	$750,000	$155,000

On that date, the fair values of Scissors's Assets and Liabilities were as follows:

Cash & Short-Term Securities	$ 32,000
Inventory	$ 11,000
Plant and Equipment (net)	$140,000
Current Liabilities	$ 15,000
Bonds Payable	$ 28,000

On Jan 1, 2019, Paper issued 6,000 new common shares with a market value of $42.00 per share as consideration for Scissors's net assets. Prior to the issue, Paper had 10,000 outstanding common shares.

Required:

a) Assume Paper paid $252,000 in cash as consideration for Scissors's net assets. Prepare Paper's Balance Sheet immediately following its acquisition of Scissors's net assets.

b) Assume Paper decided to purchase 100% of the voting shares of Scissors Inc. for $252,000 in Cash on Jan 1, 2019.

i. Prepare the journal entry to record Paper's acquisition of Scissors's shares.

ii. Prepare Paper's Consolidated Balance Sheet immediately following its acquisition of Scissors's shares.

Answer 1

Answer 1.

-----Calculating Net Assets and Consideration

Statement of Net Assets
Particulars	Amount
Cash and Short-Term Securities	32,000.00
Add:Inventory	11,000.00
Add:Plant and Equipment (net)	1,40,000.00
Less:Current Liabilities	15,000.00
Less:Bonds Payable	28,000.00
Net Assets	1,40,000.00
Consideration	2,52,000.00
Goodwill (252000-140000)	1,12,000.00

-----Face Value of Shares of Paper Inc = 150000/10000 =15

---- Consolidated Balance Sheet of Paper Inc

Consolidated Balance sheet
Particulars	Amount
Cash and Short-Term Securities	1,80,000.00
Inventory	61,000.00
Plant and Equipment (net)	5,40,000.00
Goodwill	1,12,000.00
Total Assets	8,93,000.00
Current Liabilities	1,00,000.00
Bonds Payable	1,28,000.00
Common Shares	2,40,000.00
Retained Earnings	4,25,000.00
Total Liabilities and Equity	8,93,000.00

Answer 2

--- Journal Entry would be

Dr Investment in Scissors Inc. 252000

Cr. Cash & Short Term Securities 252000

(being 100% voting power acquired in Scissors Inc.)

---Consilidated Balance Sheet

Consolidated Balance sheet
Particulars	Amount
Cash and Short-Term Securities	1,48,000.00
Inventory	50,000.00
Plant and Equipment (net)	3,00,000.00
Investment in Scissors Inc,.	2,52,000.00
Total Assets	7,50,000.00
Current Liabilities	75,000.00
Bonds Payable	1,00,000.00
Common Shares	1,50,000.00
Retained Earnings	4,25,000.00
Total Liabilities and Equity	7,50,000.00

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