PLEASE SHOW WORKS, THX On January 1, 2017, Padmah Corporation issued 10,000 shar
ID: 2562203 • Letter: P
Question
PLEASE SHOW WORKS, THX
On January 1, 2017, Padmah Corporation issued 10,000 shares of its own S10 par value common stock for 9,000 shares of the outstanding stock of Sherry Corporation in an acquisition. Padmah mlin tock at January 1, 2017 was selling at 570 per share. Just before the business combination, balance sheet information of the two corporations Padmah Book Value Sherry Book Sherry uValue s 12,000 Fair Value Cash Inventories Other current assets Land Plant and equipment-net S 12,000 S 25,000 55,000 110,000 100,000 660,000 S 950,000 32,000 90,000 30,000 250,000 s 414,000 36,000 110,000 90,000 375,000 S 623,000 Liabilities Capital stock, $10 par value Additional paid-in capital Retained earnings S 220,000 500,000 170,000 S 50,000 S 50,000 100,000 40,000 224,000 60,000 S 950,000 S 414,000 Required 1. Show preliminary computations. (4 Points). (Hints: Unamortized excess: S413,778.). 2. Prepare a schedule to allocate excess of cost over book value (7 points). (Hints: Goodwil S204,778) 3. Prepare the journal entry on Padmah Corporation's books to acount for the busin combination (3 points)Explanation / Answer
Answer:
Requirement 1:
Preliminary computations
Fair value (purchase price) of 90% interest acquired $700,000
Implied fair value of Sherry ($700,000 / 90%) $777,778
Book value of Sherry's net assets (364,000)
Excess fair value over book value acquired = $413,778
Requirement 2:
Allocation of excess of fair value over book value:
Inventory $4,000
Other current assets 20,000
Land 60,000
Plant assets 125,000
Remainder to goodwill 204,778
Excess of fair value over book value $413,778
Requirement 3:
Investment in Sherry Co. 700,000
Capital stock 100,000
Additional paid-in capital 600,000
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