Question
In: Accounting
On Dec 31, 2018, the balance sheets of Paper Inc. and Scissors Inc. were as follows:...
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.
Solutions
Expert Solution
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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