Question

Acquisition Entry and Consolidation Working Paper Phoenix, Inc. acquired all of the outstanding common stock of Spark Corporation for $950 million cash plus 30 million shares of Phoenix’s common stock having a market value of $25 per share. Registration fees were $5 million and merger-related consultant and legal fees were $8 million, paid in cash. Immediately prior to the acquisition, the trial balances of the two companies were as follows:

(in millions)					Phoenix	Spark
Current Assets					$2,000	$200
Plant and equipment, net					$11,900	$700
Current Liablities					($500)	($150)
Long-term Liablities					($8,000)	($300)
Common stock, $1 par					($300)	($100)
Additional paid-in capital					($4,000)	($50)
Retained Earnings					($1,100)	($300)
Totals					$0	$0

A review of fair values of Spark’s assets indicates that current assets are overvalued by $40 million, plant and equipment is over valued by $250 million, and previously unreported brand names and trademarks have a fair value of $200 million.

Required:

1. Prepare the entry Phoenix makes to record the acquisition of Spark.
2. Prepare a working paper to consolidate the balance sheets of Phoenix and Spark at the date of the acquisition.

Answer 1

a) Phoenix makes the following entry to record the acquisition (amountsin millions)
Account Titles	Debit	Credit
Investment in Spark ($950 + (30 Million x $25)	$  1,700.00
Merger expenses	$         8.00
Cash (950 + 8 + 5)		$     963.00
Common stock		$       30.00
Additional paid-in capital (30 Milion Shares x ($25 - $1) ) - 5		$     715.00
b)
Consolidation Working Paper (in millions)
				Eliminations			Consolidated Balances
	Phoenix	Spark		Debit	Credit
Current Assets (2000 - 963)	$  1,037.00	$200			40	R	$1,197
Plant and equipment, net	$11,900	$700			250	R	$12,350
Investment in Spark	$  1,700.00				450	E
					$  1,250.00	R	$                       -
Brand names and trademarks			R	200			200
Goodwill				1340			1340
Total assets	$14,637	$900					$15,087
Current Liablities	$500	$150					$650
Long-term Liablities	$8,000	$300					$8,300
Common stock, $1 par	$330	$100	E	$100			$330
Additional paid-in capital	$4,715	$50	E	$50			$4,715
Retained Earnings	$1,092	$300	E	$300			$1,092
Totals	$14,637	$900		1990	1990		$15,087