Question

we wegal entity Exercise 3 Patterson Company is acquiring the net assets of Sheila Company boy issuing 76,000 of its $2.50 par value shares of common stock. The shares have a fair value of $8 each. Just prior to the acquisition, Sheila's balance sheet was as follows: Sheila Company Balance Sheet January 1, 20X1 Accounts receivable. Inventory..... $ 28,000 107.000 Liabilities and Equity Current Liabilities............. $ 83,000 Bonds payable............ 265,400 $348,400 Stockholders' equity: Common Stock ($1 par)... 80,000 Retained earnings.......... 181.600 261,600 Land. Building (net).... Equipment (net).... Total assets. 138,000 190,500 146,500 $ 60,000 Total liabilities and eqnity $610.000 Fair values of some assets and liabilities are as follows: Accounts receivable $20,400 Inventory 87,900 Land 126,700 Building 164,300 Equipment 120,800 Current liabilities 72,000 Bonds payable 245,000 The following additional information is available: A major R&D project is underway. The accumulated costs $41,000, the estimated value of the work is $53,000 A warranty attaches to products sold in the past. The state ante tepair costs and the wa y are $39.000 She has a customer list that have value. It is estimated that the list will provide additional income of $62,400 for those seven years. An intangible assets such as thus is valued a 12 te ofretim Shueishas a bad name that luas value. It is estimated that the b anne will provide additional income of 556,700 for those four years. Anittable assets such as this is valued at a state of retum Record the acquistion of Stel Company on the books of Patterson Company Provide calculations where needed

Answer 1

i ninsider computation of purchase Consicuation No.of Thamer besued: 76,000, ... foar value of each thare & treach Tofal vake of shares of 688,000 . Share premium: 76,000 X (&-23):1416,000 126700 i 164.300 & compulation of andere Arty value of Abella Company : ... Asseto fecuriffics? Accounts Receivaude: ' 20,000 . . carment liabifffies 83,000 Inventory 87,900 Bancky papouble ; 2465,400 Landt narrarle for bepaleis. 39,000 Building Egrelprent R2D customer list [Note) ! 284778 Brendel value (Note): 1,83,692 10,41,570 3,87,400 1,206600 . . 53,000 .: Ned Assete value: Afrels - Liabilities 101441570. 3,67,400 6,54,90.)

value of Castaner likti cath ofleece for each year: 62,400 Discounting factor PCO 121, fox 7 years) · Cat233 * 624400 ball I rabe of list's, 27843798 Gapproxy value of brando cash flow. per year: 56.700, Dkcounting faster (Ⓡ41,4 years). F#7:344581706 se CApply Annuity factor).. . 183,692. vala of brand: 1183,692 Compatation of Gooco colll / capital Reserve Met Asrity value - value of thaven issued :: Capital Regeluk a - 6154,170. 608,000 46,170 →

Entry Anyhe boote of patterson Company. 20-400, 89,800 112,66700 1,64.300 Recevables No Inventory Ne land Alc Building the Equipment. Ale PEONE Customer list Ale Brond value Ale 1,20800 53,000 284,778 Dr 143,692 &3,000 To Current landicffries are Bonder payable nk 24657400 38,000 al To warmanty 608,000. To To parchase capital Conniche, afton ak Reserve (balanding figure) ub, 170.