Identifiable Intangibles and Goodwill Prince Corporation, a wholesale vehicle di
ID: 2421977 • Letter: I
Question
Identifiable Intangibles and Goodwill
Prince Corporation, a wholesale vehicle distributor, acquires all of the stock of Squire Service Corporation for one million shares of Prince stock, valued at $35 per share. Squire becomes a subsidiary of Prince. Professional fees connected with the acquisition are $1,200,000 and costs of registering and issuing the new shares are $600,000, both paid in cash.
Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. The balance sheets of Prince and Squire immediately prior to the acquisition are shown next.
In reviewing Squire's assets and liabilities, you determine the following:
On a discounted present value basis, the accounts receivable have a fair value of $2,600,000, and the long-term liabilities have a fair value of $8,000,000.
The current replacement cost of the parts inventory is $6,000,000.
The current replacement cost of the equipment is $19,500,000.
Squire occupies its service facilities under an operating lease with ten years remaining. The rent is below current market levels, giving the lease an estimated fair value of $1,250,000.
Squire has long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term of the contracts is estimated at $2,000,000.
Squire has a skilled and experienced work force. You estimate that the cost to hire and train replacements would be $750,000.
Squire's trade name is well-known among fleet owners and is estimated to have a fair value of $200,000.
For all answers below, enter your answers in thousands. For example, $1,000,000 is $1,000.
Required
(a) Prepare the acquisition entry and a working paper to consolidate the balance sheets of Prince and Squire as of the date of acquisition (in thousands).
The account balances for Prince, shown in the working paper below, reflect the above entry. Merger expenses reduce retained earnings, a component of stockholders' equity.
Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.
(b) If the acquisition was a merger, Prince records Squire's assets and liabilities directly on its own books. Prepare Prince's entry to record the merger, and compare Prince's balance sheet immediately after the entry is booked with the consolidated balance sheet prepared in part a (in thousands).
Balance Sheets Prince Squire Cash $2,800,000 $300,000 Accounts receivable 6,000,000 2,700,000 Parts inventory -- 5,200,000 Vehicle inventory 15,000,000 -- Equipment, net 40,000,000 17,600,000 Total assets $63,800,000 $25,800,000 Current liabilities $5,000,000 $3,100,000 Long-term liabilities 25,000,000 8,600,000 Stockholders' equity 33,800,000 14,100,000 Total liabilities and equity $63,800,000 $25,800,000Explanation / Answer
a
Investment in Squire
35,000
Merger expenses
1,200
Capital stock
34,400
Cash
1,800
The account balances for Prince, shown in the working paper below, reflect the above entry. Merger expenses reduce retained earnings, a component of stockholders’ equity.
Consolidation Working Paper (in thousands)
Accounts Taken From Books
Eliminations
Prince
Squire
Dr
Cr
Consolidated
Balances
Cash
$ 1,000
$ 300
$ 1,300
Accounts receivable
6,000
2,700
100 (R)
8,600
Parts inventory
--
5,200
(R) 800
6,000
Vehicle inventory
15,000
--
15,000
Equipment, net
40,000
17,600
(R) 1,900
59,500
Investment in Squire
35,000
--
14,100 (E)
20,900(R)
--
Intangible: Lease
(R) 1,250
1,250
Intangible: Service contracts
(R) 2,000
2,000
Intangible: Trade name
(R) 200
200
Goodwill
--
--
(R)14,250
14,250
Total assets
$ 97,000
$ 25,800
$ 108,100
Current liabilities
$ 5,000
$ 3,100
$ 8,100
Noncurrent liabilities
25,000
8,600
(R) 600
33,000
Stockholders’ equity
67,000
14,100
(E)14,100
_______
67,000
$ 97,000
$ 25,800
$ 35,100
$ 35,100
$ 108,100
If Prince records the acquisition as a statutory merger, Prince makes the following entry (in thousands):
Cash
300
Accounts receivable
2,600
Parts inventory
6,000
Equipment, net
19,500
Intangible: Lease
1,250
Intangible: Service contracts
2,000
Intangible: Trade name
200
Goodwill
14,250
Merger expenses
1,200
Cash
1,800
Current liabilities
3,100
Long-term liabilities
8,000
Capital stock
34,400
Investment in Squire
35,000
Merger expenses
1,200
Capital stock
34,400
Cash
1,800
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.