Question

Eliminating Entries, Previously Unreported Intangibles, Goodwill

Pirin Company acquires all of the voting stock of Skoda Automotive for $40 million in cash. Skoda’s balance sheet accounts at the date of acquisition are listed below.

(in millions)	Dr (Cr)
Current assets	$1.2
Property, plant and equipment	10.8
Current liabilities	(2.0)
Long-term liabilities	(7.9)
Capital stock	(0.8)
Retained earnings	(1.6)
Accumulated other comprehensive income	0.3
Total	$0.0

Date-of-acquisition book values approximate fair value for all reported assets and liabilities. The following previously unreported intangibles are identified as belonging to Skoda, along with their estimated fair values at the date of acquisition (in millions):

Synergies with Pirin technologies	$2.0
Order backlogs	1.5
Technical expertise of workforce	8.0
Cost savings on future contracts	3.5
Developed technology	6.0

Required

a. Prepare a schedule calculating the goodwill to be recognized for this acquisition.

Do not use negative signs with your answers.

Enter answers in millions (do not round answers).

Acquisition cost			$Answer
Skoda’s book value			Answer
Excess of acquisition cost over book value			Answer
Excess of fair value over book value:
Order backlogs		Answer
Developed technology		Answer	Answer
Goodwill			$Answer

b. Prepare the eliminating entries necessary to consolidate the balance sheet accounts of Pirin and Skoda at the date of acquisition.  

Enter answers in millions. Do not round answers.

Ref.	Description		Debit	Credit
(E)	Capital stock		Answer	Answer
	AnswerAOCIGoodwillInvestment in SkodaRetained earningsInvestment in Skoda		Answer	Answer
	AnswerAOCIGoodwillInvestment in SkodaRetained earningsInvestment in Skoda		Answer	Answer
	Investment in Skoda		Answer	Answer
(R)	Order backlogs		Answer	Answer
	Developed technology		Answer	Answer
	AnswerAOCIGoodwillInvestment in SkodaRetained earningsInvestment in Skoda		Answer	Answer
	AnswerAOCIGoodwillInvestment in SkodaRetained earningsInvestment in Skoda		Answer	Answer

Answer 1

	(A)	Calculation of Goodwill
				($ in Millions)
	Acquisition cost			$40
	Skoda’s book value			$24
	Excess of acquisition cost over book value			$16
	Order backlogs		$1.5
	Developed technology		$6	$7.5
	Goodwill($16-$7.5)			$8.5
	(B)	Eliminating Entries
	S.NO	PARTICULARS		DR.($ in millions)	CR.($ in millions)
	1	Investment in skoda		24.00
		capital stock			8.00
		Retained earnings			16.00
	2	Order Backlogs		1.5
		Developed Technology		6
		Goodwill			7.5
		TOTAL		31.5	31.5