Question

BACC 460 Assignment 2 (LO2) Before this two companies entered into a business combination, their balance Sheets were as follows Alto Corporation Bajo Company Book Value Fair Value Book Value Fair Value Item Assets Cash & Receivables Inventory Buildings & Equipment Less: Accumulated Depreciation Total Assets $ 153,000 $ 153,000 $ 95,000 $ 95,000 301,000 397,000 83,000 103,000 601,000 439,000 262,000 207,000 (240,000) (70,000) $ 815,000 $ 989,000 $ 370,000 $ 63,000 $ 63,000 $ 193,000 208,000 33,000 $ 33,000 30,000 35,000 Liabilities & Equities Accounts Payable Notes Payable Common Stock: $4 par value $3 par value Additional Paid-In Capital Retained Earnings 179,000 124,000 256,000 84.000 35,000 188,000 Total Liabilities & Equities $ 815,000 $ 370,000 Alto purchased all of Bajo Company's assets and liabilities on January 1, 2019, in exchange for its ordinary shares. Alto issued (70,022.) shares of stock to complete the business combination. To effect the merger, Alto paid finder's fees of $15,000 and legal fees of $4,000. Alto also also paid $5,000 of audit fees related to the issuance of stock, stock registration fees of $3,000, and stock listing application fees of $6,000. Required: a) Prepare a balance sheet of the combined company immediately following the acquisition, assuming Alto's shares were trading at $10 each. b) Prepare all the necessary journal entries

Answer 1

CALCULATION OF PURCHASE CONSIDERATION

NO. OF SHARES ISSUED TO BAJO COMPANY AT $10 EACH 70,022 EQUALS $ 700,220

lquidation expenses borne by purchasing company

FINDERS FEES $ 15000   

LEGAL FEES $ 4000

   AUDIT FEES $ 5000

STOCK REGISTRATION FEES $  3000

STOCK LISTING APPLICATION FEES $ 6000

TOTAL $33000

ENTERIES IN THE BOOKS OF PURCHASING COMPANY

1. BUSINESS PURCHASE A/C DR. $ 700220

TO LIQUIDATOR OF BAJO COMPANY CR $ 700220

2. SUNDRIES DR $ 405000   

TO CASH AND RECIEVABLES CR     $ 95000

TO INVENTORY CR $103000

TO BUILDING AND EQUIPMENT LESS CR $ 207000

DEPRICIATION

3. GOODWILL A/C DR $ 363200

SUNDRIES DR $ 405000

TO ACCOUNTS PAYABLE CR $ 33000

TO NOTES PAYABLE CR $ 35000

TO BUSINESS PURCHASE A/C CR $ 700200

  

ON THE PAYMENT TO VENDOR COMPANY THE ENTRY WILL BE MADE BY ALTO COMPANY

LIQUIDATOR OF BAJO COMPANY DR $ 700200

TO EQUITY SHARE CAPITAL OF $ 10 EACH CR $ 700200

FOR THE EXPENSES OF LIQUIDATION BORN BY PURCHASING COMPANY THE ENTRY WILL BE

GOODWILL A/C DR $ 33000

TO CASH A/C CR $ 33000

BALANCE SHEET OF ALTO COMPANY AFTER ACQUISITION

ALTO CORPORATION

ITEM

ASSETS

BOOK VALUE FAIR VALUE

GOODWILL (363200+33000) $ $ 396200

CASH AND RECIEVABLES 153000+95000 248000 248000

INVENTORY 397000+103000 384000 500000

BUILDING AND EQUIPMENT 439000+207000 601000+262000 646000

LESS DEPRICIATION (240000+70000)

TOTAL ASSETS 1185000    1790200

LIABLITIES AND EQUITIES

ACCOUNT PAYABLES 96000 96000

NOTES PAYABLE 223000 243000

COMMON STOCK $4 PAR VALUE 179000 179000

$10 PAR VALE    700200

$3 PAR VALUE 84000

RETAINED EARNING 256000+188000 444000 444000

ADDITIONAL PAID IN CAPITAL 124000 +35000 124000   

TOTAL DEBT AND EQUITIES 1185000 1786200