1. Supernova Company had the following
summarized balance sheet on December 31 of the current year:
Assets
Accounts receivable
$ 350,000
Inventory
450,000
Property and plant
(net)
600,000
Total
$1,400,000
Liabilities
and Equity
Notes payable
$ 600,000
Common stock, $5
par
300,000
Paid-in capital in
excess of par
400,000
Retained earnings
100,000
Total
$1,400,000
The fair value of the
inventory and property and plant is $600,000 and $850,000, respectively.
Assume that Redstar
Corporation exchanges 75,000 of its $3 par value shares of common stock, when
the fair price is $20 per share, for 100% of the common stock of Supernova
Company. Redstar incurred acquisition
costs of $5,000 and stock issuance costs of $5,000.
Required:
a.
What journal
entries will Redstar Corporation record for the investment in Supernova and
issuance of stock?
b.
Prepare a
supporting value analysis and determination and distribution of excess
schedule
c.
Prepare Redstar’s
elimination and adjustment entry for the acquisition of Supernova.
2. Supernova Company had the following
summarized balance sheet on December 31 of the current year:
Assets
Accounts receivable
$ 200,000
Inventory
450,000
Property and plant
(net)
600,000
Goodwill
150,000
Total
$1,400,000
Liabilities
and Equity
Notes payable
$ 600,000
Common stock, $5
par
300,000
Paid-in capital in
excess of par
400,000
Retained earnings
100,000
Total
$1,400,000
The fair value of the
inventory and property and plant is $600,000 and $850,000, respectively.
Assume that Redstar
Corporation exchanges 75,000 of its $3 par value shares of common stock, when
the fair price is $20 per share, for 100% of the common stock of Supernova
Company. Redstar incurred acquisition
costs of $5,000 and stock issuance costs of $5,000.
Required:
a.
What journal
entries will Redstar Corporation record for the investment in Supernova and
issuance of stock?
b.
Prepare a supporting
value analysis and determination and distribution of excess schedule
c.
Prepare Redstar’s
elimination and adjustment entry for the acquisition of Supernova.
3. On December 31, 20X1, Priority Company
purchased 80% of the common stock of Subsidiary Company for $1,550,000. On this
date, Subsidiary had total owners’ equity of $650,000 (common stock $100,000;
other paid-in capital, $200,000; and retained earnings, $350,000). Any excess
of cost over book value is due to the under or overvaluation of certain assets
and liabilities. Assets and liabilities with differences in book and fair
values are provided in the following table:
Book
Fair
Value
Value
Current assets
$500,000
$800,000
Accounts receivable
200,000
150,000
Inventory
800,000
800,000
Land
100,000
600,000
Buildings and
equipment, net
700,000
900,000
Current liabilities
800,000
875,000
Bonds payable
850,000
930,000
Remaining excess, if
any, is due to goodwill.
Required:
a.
Using the
information above and on the separate worksheet, prepare a schedule to
determine and distribute the excess of cost over book value.
b.
Complete the Figure
2-3 worksheet for a consolidated balance sheet as of December 31, 20X1.
Figure
2-3
Trial
Balance
Eliminations
and
Priority
Sub.
Adjustments
Account Titles
Company
Company
Debit
Credit
Assets:
Current Assets
425,000
500,000
Accounts Receivable
530,000
200,000
Inventory
1,600,000
800,000
Investment in Sub
Co.
1,550,000
Land
225,000
100,000
Buildings and
Equipment
400,000
700,000
Total
4,730,000
2,300,000
Liabilities and
Equity:
Current Liabilities
2,100,000
800,000
Bonds Payable
1,000,000
850,000
Common Stock â P
Co.
900,000
Paid-in Cap. in
Excess â P Co.
670,000
Retained Earnings â
P Co.
60,000
Common Stock â S
Co.
100,000
Paid-in Cap. in
Excess â S Co.
200,000
Retained Earnings â
S Co.
350,000
NCI
Total
4,730,000
2,300,000
(continued)
Consolidated
Balance
Sheet
Account Titles
NCI
Debit
Credit
Assets:
Current Assets
Accounts Receivable
Inventory
Investment in Sub
Co.
Land
Buildings and
Equipment
Total
Liabilities and
Equity:
Current Liabilities
Bonds Payable
Common Stock â P
Co.
Paid-in Cap. in
Excess â P Co.
Retained Earnings â
P Co.
Common Stock â S
Co.
Paid-in Cap. in
Excess â S Co
Retained Earnings â
S Co.
NCI
Total
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