Assignment

1. P Company acquired the assets and assumed the liabilities of S Company. Immediately
prior to the acquisition, S Company’s balance sheet was as follows:
Book value Fair Value
Current Asset 672,000 744,000
Plant and equipment 480,000 540,000
Land 420,000 660,000
Total Asset 1,572,000 1,944,000
Liabilities 540,000 594,000
Common stock ($5 par value) 480,000
Other contributed capital 132,000
Retained Earnings 420,000
Total Equities 1,572,000
Instructions
A. Prepare the journal entries on the books of P Company to record the purchase of the
assets and assumption of the liabilities of P Company if the amount paid was $1,560,000
in cash.
B. Repeat the requirement in (A) assuming the amount paid was $990,000.
2. On September 30, 2005, Parr Corporation paid $1,000,000 to shareholders of Sane
Company for 90,000 of Sane’s 100,000 outstanding shares of no-par, no-stated-value
common stock; additionally, Parr paid direct out-of-pocket costs of the combination
totaling $80,000 on that date. Carrying amounts and current fair values of Sane’s
identifiable net assets on September 30, 2005, were analyzed as follows:

Instructions
A. Prepare journal entries for Parr Corporation on September 30, 2005, to record the
business combination with Sane Company. (Disregard income taxes.)
B. Prepare a working paper elimination for Parr Corporation and subsidiary (in journal entry
format) on September 30, 2005. (Disregard income taxes.)
3. On September 30, 2005, Philly Corporation issued 100,000 shares of its no-par, no-stated
value common stock (current fair value $12 a share) for 18,800 shares of the outstanding
$20 par common stock of Stype Company. The $150,000 out-of-pocket costs of the
business combination paid by Philly on September 30, 2005, were allocable as follows:
60% to finder’s, legal, and accounting fees directly related to the business combination;
40% to the SEC registration statement for Philly’s common stock issued in the business
combination. There was no contingent consideration. Immediately prior to the business
combination, separate balance sheets of the constituent companies were as follows:

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Current fair values of Stype’s identifiable net assets differed from their carrying amounts as
follows

Current fair values, Sep30,2005

Inventories $340,000
Plant assets (net) 1,100,000
Long-term debt 90,000
Instructions
A. Prepare journal entries for Philly Corporation on September 30, 2005, to record the
business combination with Stype Company. (Disregard income taxes.)
B. Prepare a working paper for consolidated balance sheet and related working paper
elimination (in journal entry format) for Philly Corporation and subsidiary on September
30, 2005. Amounts in the working papers should reflect the journal entries in (a).
(Disregard income taxes.)

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 4. The unconsolidated and consolidated balance sheets of Pali Corporation and subsidiary
on August 31, 2005, the date of Pali’s business combination with Soda Company, are as
follows:

On August 31, 2005, Pali had paid cash of $3 a share for 60% of the outstanding shares of
Soda’s $1 par common stock and $20,000 cash for legal fees in connection with the business
combination. There was no contingent consideration. The equity (book value) of Soda’s common
stock on August 31, 2005, was $2.80 a share, and the amount of Soda’s retained earnings was
twice as large as the amount of its additional paid-in capital. The excess of current fair value of
Soda’s plant assets over their carrying amount on August 31, 2005, was 12⁄3 times as large as the
comparable excess for Soda’s inventories on that date. The current fair values of Soda’s cash,
trade accounts receivable (net), and current liabilities were equal to their carrying amounts on
August 31, 2005.
Instructions
Reconstruct the working paper elimination (in journal entry format) for the working paper for
consolidated balance sheet of Pali Corporation and subsidiary on August 31, 2005.
5. On October 31, 2005, Pagel Corporation acquired 83% of the outstanding common stock
of Sayre Company in exchange for 50,000 shares of Pagel’s no-par, $2 stated value ($10
current fair value a share) common stock. There was no contingent consideration. Out-of-

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 pocket costs of the business combination paid by Pagel on October 31, 2005, were as
follows:
Legal and finder’s fees related to business combination $34,750
Costs associated with SEC registration statement for Pagel’s common stock 55,250
Total out-of-pocket costs of business combination $90,000

There were no intercompany transactions between the constituent companies prior to the
business combination. Sayre was to be a subsidiary of Pagel. The separate balance sheets of the
constituent companies prior to the business combination follow:

Current fair values of Sayre’s identifiable net assets were the same as their carrying amounts on
October 31, 2005, except for the following:
Current Fair Values
Inventories $ 620,000
Plant assets (net) 1,550,000
Patents (net) 95,000
Long-term debt 1,225,000
Instructions
A. Prepare Pagel Corporation’s journal entries on October 31, 2005, to record the business
combination with Sayre Company.
B. Prepare working paper eliminations (in journal entry format) on October 31, 2005, and
the related working paper for the consolidated balance sheet of Pagel Corporation and
subsidiary. Amounts in the working papers should reflect the journal entries in (a).

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 6. Assume that P Corporation acquired all shares of S Company with the following
condensed balance sheet:

S Company
Condensed Balance Sheet
Book Fair Value
Value
Current assets Br.250,000 Br.250,000
Long –term assets 600,000 750,000
Current liabilities 200,000 200,000
Long -term liabilities 180,000 200,000

For the business combination P issued 20,000 of its Br. 10 common stock currently selling for
Br. 35 and cash of Br. 90,000 business combination costs.

Required: Prepare journal entries required to account for the above business combination
assuming:
A. S is dissolved
B. S is incorporated as subsidiary of P
7. Tweedy Corporation is contemplating the purchase of the net assets of Sylvester
Corporation in anticipation of expanding its operations. The balance sheet of Sylvester
Corporation on December 31, 20X1, is as follows:

Sylvester Corporation
Balance Sheet
December 31, 20X1
Current assets: Current liabilities:
Notes receivable Br.24,00 Accounts payable Br.45,00
0 0
Accounts 56,000 Payroll & related 12,500
receivable liabilities
Inventory 31,000 Debt maturing in one 10,000
year
Other current 18,000 Total current Br.
assets liabilities 67,500
Total current Br.129,0
assets 00
Investments 65,000
Fixed assets: Other liabilities:
Land Br.32,00 Long-term debt Br.248,0
0 00

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Building. 245,000 Payroll & related 156,000
liabilities
Equipment. 387,000
Total fixed 664,000 Total other liabilities 404,000
assets
Intangibles: Stockholders’ equity:
Goodwill Br.45,00 Common stock Br.100,0
0 00
Patents 23,000 Paid-in capital in excess 250,000
of par
Trade names 10,000 Retained earnings 114,500
Total intangibles 78,000 Total equity 464,500
Total assets Br.936,0 Total liabilities and Br.936,0
00 equity 00

An appraiser for Tweedy determined the fair values of the assets and liabilities to be as follows:

ASSETS LIABILITIES
Notes receivable Br. Accounts payable Br. 45,000
24,000
Accounts 56,000 Payroll & related liabilities 12,500
receivable
Inventory 30,000 Debt maturing in one year 10,000
Other current assets 15,000 Long-term debt 248,000
Investments 63,000 Payroll and related liabilities 156,000
Land 55,000
Building. 275,000
Equipment. 426,000
Goodwill —
Patents 20,000
Trade names 15,000

The agreed-upon purchase price was Br. 580,000 in cash. Direct acquisition costs paid in
cash totaled Br. 20,000.
Required: Using the above information, prepare the entry on the books of Tweedy
Corporation to purchase the net assets of Sylvester Corporation on December 31, 20X1.

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 8. Glass Company is thinking about acquiring Plastic Company. Glass Company is
considering two methods of accomplishing control and is wondering how the accounting
treatment will differ under each method. Glass Company has estimated that the fair
values of Plastic’s net assets are equal to their book values, except for the equipment
which is understated by Br. 20,000. The following balance sheets have been prepared on
the date of acquisition:

Assets Glass Plastic

Cash Br. 520,000 Br. 40,000
Accounts receivable 50,000 70,000
Inventory 50,000 100,000
Property, plant, and equipment (net) 250,000 250,000
Total assets Br. 870,000 Br. 460,000

Liabilities and Equity

Current liabilities Br. 140,000 Br. 80,000
Bonds payable 250,000 100,000
Stockholders’ equity:
Common stock, (Br. 100 par) 200,000 150,000
Retained earnings 280,000 130,000
Total liabilities and equity Br. 870,000 Br. 460,000

Required:
1) Assume Glass Company purchased the net assets directly from Plastic Company for Br.
530,000.
a. Prepare the entry that Glass Company would make to record the purchase.
b. Prepare the balance sheet for Glass Company immediately following the purchase.
2) Assume that 100% of the outstanding stock of Plastic Company is purchased from the
former stockholders for a total of Br. 530,000.
a. Prepare the entry that Glass Company would make to record the purchase.
b. State how the investment would appear on Glass’s unconsolidated balance sheet
prepared immediately after the purchase.
c. Indicate how the consolidated balance sheet would appear.
9. Paper Company purchased an 80% interest in Salt Company for Br. 250,000 in cash on
January 1, 20X1, when Salt Company had the following balance sheet:

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 Assets Liabilities and Equity
Current assets Br. 100,000 Current liabilities Br. 50,000
Depreciable fixed assets 200,000 Common stock (Br. 10 par) 100,000
. Retained earnings 150,000
Total assets Br. 300,000 Total liabilities and equity Br. 300,000

Any excess of the price paid over book value is attributable only to the fixed assets, which have a
10-year remaining life. Paper Company uses the equity method to record its investment in Salt
Company.
The following trial balances of the two companies were prepared on December 31, 20X1:

Paper Salt
Current Assets 60,000 130,000
Depreciable Fixed Assets 400,000 200,000
Accumulated Depreciation (106,000) (20,000)
Investment in Salt Company 266,000
Current Liabilities (60,000) (40,000)
Common Stock (Br. 10 par) (300,000) (100,000)
Retained Earnings, January 1, 20X1 (200,000) (150,000)
Sales (150,000) (100,000)
Expenses 110,000 75,000
Subsidiary Income (20,000)
Dividends Declared . 5,000
Total 0 0

Required:
1) Prepare all the eliminations and adjustments that would be necessary to be made on the
20X1 Consolidated worksheet.
2) Prepare the 20X1 consolidated income statement.
3) Prepare the 20X1 consolidated balance sheet.

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 10. The separate balance sheets of Painter Corporation and Sawyer Company
following their business combination, in which Painter acquired all of Sawyer’s
outstanding common stock, were as follows:

PAINTER CORPORATION AND SAWYER COMPANY

Separate Balance Sheets (following business combination)
May 31, 2005
PAINTER SAWYER
CORPORATION COMPANY
Assets
Inventories $ 60,000 $ 30,000
Other current assets 140,000 110,000
Investment is Sawyer Company common stock 250,000 0
Plant assets (net) 220,000 160,000
Goodwill (net) 10,000 0
Total assets $680,000 $300,000
Liabilities and Stockholders’ Equity
Current liabilities $100,000 $70,000
Bonds payable 104,000 30,000
Common stock, $1 par 200,000 80,000
Additional paid in capital 116,000 70,000
Retained earnings 160,000 50,000
Total Liabilities and Stockholders’ equity $680,000 $300,000

On May 31, 2005, the current fair values of Sawyer’s inventories and plant assets (net) were
$40,000 and $180,000, respectively; the current fair values of its other assets and its liabilities
were equal to their carrying amounts.

Required: Prepare a consolidated balance sheet for Painter Corporation and subsidiary on May
31, 2005, without using a working paper.

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 11. The working paper elimination (explanation omitted) on the date of the Pulp
Corporation Stump Company business combination was as follows:
PULP CORPORATION AND SUBSIDIARY
Working Paper Elimination
January 31, 2005

Common Stock, no par or stated value —Stump 100,000

Retained Earnings—Stump 180,000
Inventories (first-in, first-out cost)—Stump 20,000
Plant Assets—Stump (depreciable, 5-year life)—Stump 100,000
Goodwill—Stump 40,000
Investment in Stump Company Common Stock—Pulp 440,000
For the fiscal year ended January 31, 2006, Stump had a net income of $240,000, and on that
date it declared and paid a dividend of $120,000. Stump includes plant asset depreciation
expense in cost of goods sold. The consolidated goodwill was unimpaired.
A. Prepare journal entries (omit explanations) for Pulp Corporation on January 31, 2006, to
record the operations of Stump Company under the equity method of accounting.
(Disregard income taxes.)
B. Prepare a working paper elimination, in journal entry format (omit explanation), for Pulp
Corporation and subsidiary on January 31, 2006. (Disregard income taxes.)

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