Question

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

Answer 1

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)