On January 1, 2015, Brooks Corporation exchanged $1,194,000 fair-value considera
ID: 2489826 • Letter: O
Question
On January 1, 2015, Brooks Corporation exchanged $1,194,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,150,000. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $216,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.
In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.
On December 31, 2015, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.
Note: Parentheses indicate a credit balance.
Determine the following account balances.
Gain on bargain purchase
Equity earnings in chandler
Investment in chandler 12/31/15
I COULD REALLY USE THE HELP ON THIS ONE, COULD SOMEONE PLEASE HELP ?:)
On January 1, 2015, Brooks Corporation exchanged $1,194,000 fair-value consideration for all of the outstanding voting stock of Chandler, Inc. At the acquisition date, Chandler had a book value equal to $1,150,000. Chandler’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $216,000 with an estimated remaining life of six years. The Chandler acquisition was Brooks’s only business combination for the year.
In case expected synergies did not materialize, Brooks Corporation wished to prepare for a potential future spin-off of Chandler, Inc. Therefore, Brooks had Chandler maintain its separate incorporation and independent accounting information system as elements of continuing value.
On December 31, 2015, each company submitted the following financial statements for consolidation. Dividends were declared and paid in the same period.
Explanation / Answer
a)Gain on bargain purchase=book value-axquistion price
book value=initial value+patent value(under valued)
=1,150,000+216,000=$1,366,000
gain=1,366,000-1,194,000=$172,000
b)Equity earnings in chandler=net income+technology amortization
=286000+(216000/6)=322,000
investment in chandler=fair value of net asset at acq date+equity earning+dividend received
=
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