Pappy Corp and Sonny, Inc. have entered into negotiations leading to a possible
ID: 2509740 • Letter: P
Question
Pappy Corp and Sonny, Inc. have entered into negotiations leading to a possible business combination. As of December 31, 2017, Sonny, Inc. condensed balance sheet was as follows:
Assets
Cash 375,000
Receivables (net) 1,125,000
Inventories 1,687,500
Prepayments 675,000
Noncurrent assets 3,375,000
Total assets 7,237,500
Liabilities and stockholders' equity
Current payables 3,000,000
Capital stock; (par value of 20) 1,000,000
Retained earnings 3,237,500
Total equities 7,237,500
Sonny, Inc.'s inventory has a fair value of $2,092,500, its noncurrent assets, net of depreciation, approximated $3,847,500, its current payables were valued at $3,225,000. Initially, Pappy Corp offered to acquire all of Sonny, Inc.'s stock for $4,347,500. However, 25% of Sonny, Inc.'s stockholders objected, because they felt that the purchase price should reflect about $240,000 of goodwill. Ultimately, Pappy Corp acquired 75% of Sonny, Inc.'s outstanding stock for $100 per share.
After the acquisition was completed on Dec 31, 2017, the following balance sheet was prepared for Pappy Corp:
Assets
Cash 937,500
Receivables (net) 1,500,000
Inventories 1,687,500
Prepayments 1,125,000
Investment in securities 3,750,000
Noncurrent assets 30,000,000
Total assets 39,000,000
Liabilities and stockholders' equity
Current payables 15,000,000
Capital stock; (par value of 15) 7,500,000
Retained earnings 16,500,000
Total equities 39,000,000
1. Prepare the consolidated balance sheet working paper and the formal consolidated balance sheet
FMV BV FMV-BV Cash $ 375,000 $ 375,000 $0 Receivables (net) 1,125,000 1,125,000 - Inventories $ 2,092,500 1,687,500 405,000 Prepayments $ 675,000 675,000 - Noncurrent assets $ 3,847,500 3,375,000 472,500 Current payables (3,225,000) (3,000,000) (225,000)Explanation / Answer
Goodwill Calculation:
Consolidated Balance Sheet:
Goodwill Calculation Particulars Amount ($) Purchase Consideration 3750000 Non-Controlling Interest 1,146,875 Total 4896875 FV of Net Assets(75%) 4890000 Goodwill 6875 Non-Controlling Interest Total Value (100%) 4347500 25% Value 1086875 Add: Goodwill 60000 (240000*25% FV of Non-Controlling Interest 1146875 Goodwill Calculation Particulars Amount ($) Purchase Consideration 3750000 Non-Controlling Interest 1,146,875 Total 4896875 FV of Net Assets(75%) 4890000 Goodwill 6875 Non-Controlling Interest Total Value (100%) 4347500 25% Value 1086875 Add: Goodwill 60000 (240000*25% FV of Non-Controlling Interest 1146875Related Questions
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