Question

In: Accounting

Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also...

Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also included are fair values for Sol Company accounts.

Padre
Company

Sol Company

Book Values Book Values Fair Values
12/31 12/31 12/31
Cash $ 354,750 $ 56,700 $ 56,700
Receivables 242,250 312,000 312,000
Inventory 482,500 174,000 229,900
Land 720,000 194,000 171,200
Building and equipment (net) 837,500 332,000 395,300
Franchise agreements 242,000 252,000 290,800
Accounts payable (352,000 ) (152,000 ) (152,000 )
Accrued expenses (189,000 ) (54,500 ) (54,500 )
Longterm liabilities (1,132,500 ) (532,500 ) (532,500 )
Common stock—$20 par value (660,000 )
Common stock—$5 par value (210,000 )
Additional paid–in capital (70,000 ) (90,000 )
Retained earnings, 1/1 (422,500 ) (260,000 )
Revenues (1,000,000 ) (354,700 )
Expenses 947,000 333,000

Note: Parentheses indicate a credit balance.

On December 31, Padre acquires Sol’s outstanding stock by paying $228,000 in cash and issuing 14,500 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $22,400 as well as $10,000 in stock issuance costs.

Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed. (Input all amounts as positive values.)

Worksheet Amounts
Inventory
Land
Buildings and equipment
Franchise agreements
Goodwill
Revenues
Additional paid in capital
Expenses
Retained earnings 1/1
Retained earnings 12/31

Please show calculations, thanks

Solutions

Expert Solution

Solution: In acquisitions, the fair values of the subsidiary assets and liabilities are consolidated (there are limited number of exceptions). The Goodwill is reported at $91,100, the amount that the $808,000 consideration transferred exceeds the $716,900 fair value of Sol's net assets acquired.

Inventory = $712,400 (padre's book value plus sol's fair value)

Land = $891,200 (padre's book value plus sol's fair value)

Buildings and Equipments = $1,232,800 (padre's book value plus sol's fair value)

Franchise Agreements = $532,800 (padre's book value plus sol's fair value)

Goodwill = $91,100 (calculated above)

Revenues = $1,000,000 (only parent company Operational figures are reported at the date of acquisition)

Additional paid-in capital = $350,000 (padre's book value adjusted for stock issue less stock issuance costs)

Expenses = $969,400 (only parent company Operational figures plus acquisition related costs are reported at the date of acquisition)

Retained Earnings 1/1 = $422,500 (padre's book value)


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