Question

2. On 12/31, Choco acquired Cake by issuing 40,000 shares of its common stock when the market value (=fair value) is $32/share. Cake will remain incorporated. Choco has common stock with $15 par, 50,000 shares outstanding and Cake has $5 par, 60,000 shares outstanding

Choco Book Values Cake Book Values

Cake Fair Values

Cash and Receivable 350,000 180,000 170,000
Inventories 250,000 100,000 150,000
Land 700,000 120,000 240,000
Building and equipment 600,000 600,000 900,000
Patented technology 100,000 0 60,000
Accounts Payable 300,000 120,000 150,000
Long-term debt 0 400,000 350,000
Common Stock 750,000 300,000
Additional paid in capital 500,000 60,000
Retained earnings 12/31 450,000 120,000
Revenues 350,000 160,000
Expenses 310,000 130,000

Q1. Prepare journal entry for acquisition in Choco’s book.

  

  

Q2. Prepare fair value allocation and goodwill schedule at the date of the acquisition.

Q3. Choco paid $14,000 in cash for legal fee. What is the journal entry?

Q4. Choco also paid $12,000 in cash for stock issuance cost. What is the journal entry?

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Answer #1

Q1.

Particulars

Debit

Credit

Cash and Receivable A/c – Dr

170000

Inventories – Dr

150000

Land – Dr

240000

Building & Equipment – Dr

900000

Patented Technology – Dr

60000

Goodwill – Dr

260000

         To Long Term Debt

350000

         To Accounts Payable

150000

         To Common Stock (40000 shares of 15)

600000

         To Additional paid in Capital 40000 X (32-15)

680000


Q2.

Fair Value of Consideration

Shares issued 40000 shares of fair value 32 each = 1280000

Less Fair value of Acquired Net Assets (as per below working) = 1020000

Goodwill = 260000

working:

Cash and Receivable A/c – Dr

170000

Inventories – Dr

150000

Land – Dr

240000

Building & Equipment – Dr

900000

Patented Technology – Dr

60000

Total Assets

1520000

(-) Long Term Debt

350000

(-)Accounts Payable

150000

    Net Assets

1020000

Q3.

Acquisition Expenses - Dr 14000

To Cash 14000

(Being cash paid for acquisition legal fees)

Alternate entry:

Goodwill - Dr 14000

To Cash 14000

(Being Cash paid for acquisition legal fees)

Q4.

Additional Paid in capital - Dr 12000

To Cash 12000

(Being stock issuance charges paid)

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