Part 2: Problem Solving - Journal perform the accounting required for the acquis

Question

Part 2: Problem Solving - Journal

perform the accounting required for the acquisition of Little, Inc. by Big, Inc. Within the worksheet, you are to:

Select an accounting method (either cost or equity) and explain why you selected this method

Perform the required journal entries

Complete the consolidation worksheet

Prepare the consolidated balance sheet in good form

Part II Assume that Big Company decides to acquire 100% of Little Company for $200,000. Prepare the consolidated balance sheet and any supporting worksheets. Calculation of fair value of the net assets of Little Company Journal Entry for Acquisition Assume that Big Company decides to acquire 100% of Little Company for $200,000. Prepare the consolidated balance sheet and any supporting worksheets. Prepare the Consolidated Balance Sheet in the area below Big Company Balance Sheet Big Company Worksheet Big Company Balance Sheet Assets, Liabilities & Equities Book Value Assets, Liabilities & Equities Assets, Liabilities & Equities Cash $500,000 Cash Cash AR $10,000 AR AR Inventory $50,000 Inventory Inventory Land $40,000 Land Land PP&E $400,000 PP&E PP&E Accumulated Depreciation -$150,000 Accumulated Depreciation Accumulated Depreciation Goodwill Patent $0 Patent Patent     Total Assets $850,000     Total Assets     Total Assets AP $110,000 AP AP Common Stock $395,000 Common Stock Common Stock Additional Paid In Capital $300,000 Additional Paid In Capital Additional Paid In Capital Retained Earnings $45,000 Retained Earnings Retained Earnings     Total Liabilities & Equity $850,000     Total Liabilities & Equity     Total Liabilities & Equity Little Company Balance Sheet Assets, Liabilities & Equities Book Value Cash $35,000 AR $10,000 Inventory $65,000 Land $40,000 PP&E $40,000 Accumulated Depreciation -$5,000 Patent $0     Total Assets $185,000 AP $25,000 Common Stock $25,000 Additional Paid In Capital $35,000 Retained Earnings $100,000     Total Liabilities & Equity $185,000 Assume that Fair Value of all noncash assets are 25% greater than book value

Explanation / Answer

Assume that Big Company decides to acquire 100% Little Company for $200,000. Prepare the appropriate journal entries. Big Company Balance Sheet Prepare the journal entries for a 100% Asset Acquisition (using Cash) Prepare Elimination Entries for Stock Acquisition Assets, Liabilities & Equities Book Value Account DR CR Cash $500,000 Account DR CR Common Stock Little Company $25,000 AR $10,000 Investment in Little Company $200,000 Additional Paid in Capital Little Company $35,000 Inventory $50,000 Cash 200000 Retained Earnings Little Company $100,000 Land $40,000 Goodwill $40,000 PP&E $400,000 Investment in Little Company $200,000 Accumulated Depreciation -$150,000 Patent $0     Total Assets $850,000 AP $110,000 Common Stock ($10 par) $395,000 Additional Paid In Capital $300,000 Which accounting method is most appropriate for representing an investment of this type? Big Company Balance Sheet (Consolidated) Retained Earnings $45,000 Assets, Liabilities & Equities Book Value     Total Liabilities & Equity $850,000 In this situation the company should use equity method as the company can exercise its control over the operation of acquired company. The equity method helps in updating the investment acccount according to the performance of acquired company. Cash $335,000 Little Company Balance Sheet AR $20,000 Assets, Liabilities & Equities Book Value Inventory $115,000 Cash $35,000 Land $80,000 AR $10,000 PP&E $440,000 Inventory $65,000 Accumulated Depreciation -$155,000 Land $40,000 Patent $0 PP&E $40,000 Prepare the journal entries for a 100% Asset Acquisition (using Big Company Cash) Goodwill $40,000 Accumulated Depreciation -$5,000 Total Assets $875,000 Patent $0 Account DR CR AP $135,000     Total Assets $185,000 Investment in Little Company $200,000 Common Stock ($10 par) $395,000 AP $25,000 Cash $200,000 Additional Paid In Capital $300,000 Common Stock $25,000 Prepare the journal entries for a 100% Acquisition by issuing 10,000 shares of Big Company Stock Retained Earnings $45,000 Additional Paid In Capital $35,000 $875,000 Retained Earnings $100,000 Account DR CR     Total Liabilities & Equity $185,000 Investment in Little Company $200,000 Common Stock $25,000 Assume that Fair Value of all noncash assets are 25% greater than book value Additional Paid In Capital $175,000

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