Acquisition Entry and Consolidation Working Paper Phoenix, Inc. acquired all of the outstanding common stock of...

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:

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

Solutions

Expert Solution

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

ekkarill92 answered 9 months ago

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