Following are preacquisition financial balances for Padre Company and Sol Compan

Question

Following are preacquisition financial balances for Padre Company and Sol Company as of December 31. Also included are fair values for Sol Company accounts Padre Sol Compan Book Values Book Values 12/31 Fair Values 12/31 S 70,500 12/31 s 158,000 Cash Receivables Inventory Land Building and equipment (net) Franchise agreements Accounts payable Accrued expenses Longterm liabilities Common stock-$20 par value Common stock-$5 par value Additional paid-in capital Retained earnings, 1/1 Revenues Expenses $ 70,500 274,500 582,500 710,000 665,000 277,000 (339, 000) (148,000) (940,000) (660,000) 305,000 267,000 221,000 299,000 256,000 156,000) (42,500) (607,500) 305,000 323,100 192,500 363,300 287,300 (156,000) (42,500) (607,500) (210,000) (90,000) (290,000) (343,500) 321,000 (70,000) (450,000) (1,038,000) 978,000 Note: Parentheses indicate a credit balance On December 31, Padre acquires Sol's outstanding stock by paying $154,000 in cash and issuing 16,700 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $26,300 as well as $10,600 in stock issuance costs. Determine the value that would be shown in Padre's consolidated financial statements for each of the accounts listed. (Input all amounts as positive values.) Worksheet Amounts Inventory Land Buildings and equipment Franchise agreements Goodwill Revenues Additional paid-in capital Retained earnings, 1/1 Retained earnings, 12/31

Explanation / Answer

Goodwill arising on amalgamation

As per Purchased method of amalgation all assets and laibilities of sol company should be valued at Fair value

Purchased consideration paid to sol company

(Cash1,54,000+ shares of 16,400 @40/- each)

As per question liquidation expenses is born by purchasing company(Padre company) by debiting to goodwill account.

This means Goodwill is reduced by 36,900 (26,300+10,600). So goodwill to be shown in padre company is 49,400(86,300-36900).

Values to be shown in Padre company

Revenue and expenses of sol company should not to transfered to padre company as these are not Assests.

Share capital is increased by 6,68,000(16400*40) issued to sol company for the purpose of purchased.

Particulars Amount Cash 70,500 Accounts Receivable 3,05,000 Inventory 3,23,100 Land 1,92,500 Buildings 3,63,300 Franchaise agrement 2,87,300 Accounts payable (1,56,000) Accrued expenses (42,500) Long term laibilities (6,07,500) Net Assets 7,35,700

Purchased consideration paid to sol company

(Cash1,54,000+ shares of 16,400 @40/- each)

8,22,000 Goodwill(8,22,000-7,35,700) 86300

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