accounting answer(5)

Chapter 5 Business Combinations

Problems

35. On June 30, 2006, Purdom Corporation acquired 80% of the outstanding common stock

of Sudan Company. On the date of the business combination, identifiable net assets of Sudan with current fair values differing from carrying amounts were as follows:

Current Fair Values Inventories $ 60,000 Plant assets (net) 230,000 Complete the following working paper for consolidated balance sheet of Purdom

Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.

PURDOM CORPORATION AND SUBSIDIARY

Working Paper for Consolidated Balance Sheet

June 30, 2006 Eliminations Purdom Sudan Increase Assets Corporation Company (Decrease) Consolidated Inventories 60,000 30,000 Other current assets 140,000 110,000 Investment in Sudan Company common stock 200,000 Plant assets (net) 220,000 160,000 Goodwill 10,000 __ ____ Total assets 630,000 300,000 Liabilities & Stockholders' Equity Current liabilities 100,000 70,000 Bonds payable 104,000 30,000 Common stock, $1 par 200,000 80,000 Additional paid-in capital 66,000 70,000 Minority interest in net assets of subsidiary Retained earnings 160,000 50,000 Total liabilities & stockholders' equity 630,000 300,000

Explanation of elimination: (a)

Larsen, Modern Advanced Accounting, Tenth Edition 77

Chapter 5 Business Combinations

Answer

PURDOM CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet

June 30, 2006 Eliminations Purdom Sudan Increase Assets Corporation Company (Decrease) Consolidated Inventories 60,000 30,000 (a) 30,000 120,000 Other current assets 140,000 110,000 250,000 Investment in Sudan Company common stock 200,000 (a)(200,000) Plant assets (net) 220,000 160,000 (a) 30,000* 410,000 Goodwill 10,000 ____ __ ________ 10,000 Total assets 630,000 300,000 (140,000) 790,000 Liabilities & Stockholders' Equity Current liabilities 100,000 70,000 170,000 Bonds payable 104,000 30,000 134,000 Common stock, $1 par 200,000 80,000 (a) (80,000) 200,000 Additional paid-in capital 66,000 70,000 (a) (70,000) 66,000 Minority interest in net assets of subsidiary (a) (60,000) 60,000 Retained earnings 160,000 50,000 (a) (50,000) 160,000 Total liabilities & stockholders' equity 630,000 300,000 (140,000) 790,000

Explanation of elimination:

(a) To eliminate intercompany investment and equity accounts of subsidiary. *{($230,000 – $160,000) – [($300,000 x 0.80) – $200,000] = $30,000}

78 Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

36. On May 31, 2006, Ping Corporation paid $300,000, including direct out-of-pocket costs

of the business combination, for 82% of the outstanding common stock of Spring Company, which became a subsidiary. Differences between current fair values and carrying amounts of identifiable net assets of Spring Company on May 31, 2006, were limited to the following: Current Fair Carrying Values Amounts Differences Inventories $ 50,000 $ 20,000 $ 30,000 Plant assets (net) 250,000 140,000 110,000

Complete the following working paper for consolidated balance sheet of Ping

Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.

PING CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet

May 31, 2006 Eliminations Ping Spring Increase Assets Corporation Company (Decrease) Consolidated Inventories 80,000 20,000 Other current assets 60,000 40,000 Investment in Spring Company common stock 300,000 Plant assets (net) 460,000 140,000 Goodwill __ ____ ___ ___ Total assets 900,000 200,000 Liabilities & Stockholders' Equity Current liabilities 140,000 30,000 Long-term debt 260,000 50,000 Common stock, $1 par 100,000 40,000 Additional paid-in capital 100,000 20,000 Minority interest in net assets of subsidiary Retained earnings 300,000 60,000 Total liabilities & stockholders' equity 900,000 200,000

Explanation of elimination: (a)

Larsen, Modern Advanced Accounting, Tenth Edition 79

Chapter 5 Business Combinations

Answer:

PING CORPORATION AND SUBSIDIARY Working Paper for Consolidated Balance Sheet

May 31, 2006 Eliminations Ping Spring Increase Assets Corporation Company (Decrease) Consolidated Inventories 80,000 20,000 (a) 30,000 130,000 Other current assets 60,000 40,000 100,000 Investment in Spring Company common stock 300,000 (a) (300,000) Plant assets (net) 460,000 140,000 (a) 110,000 710,000 Goodwill __ ____ ___ ___ (a) 86,800 86,800 Total assets 900,000 200,000 (73,200) 1,026,800 Liabilities & Stockholders' Equity Current liabilities 140,000 30,000 170,000 Long-term debt 260,000 50,000 310,000 Common stock, $1 par 100,000 40,000 (a) (40,000) 100,000 Additional paid-in capital 100,000 20,000 (a) (20,000) 100,000 Minority interest in net assets of subsidiary (a) 46,800 46,800 Retained earnings 300,000 60,000 (a) (60,000) 300,000 Total liabilities & stockholders' equity 900,000 200,000 (73,200) 1,026,800

Explanation of elimination:

(a) To eliminate intercompany investment and equity accounts of subsidiary.

80 Larsen, Modern Advanced Accounting, Tenth Edition

Chapter 5 Business Combinations

37. Punt Corporation acquired a controlling interest in Saye Company for cash. The

separate balance sheet of Punt and the consolidated balance sheet immediately after the business combination were as follows: Punt

PuntCorporation Assets Corporation & Subsidiary Current Assets $130,000 $170,000 Investment in Saye Company common stock 100,000 Plant assets (net) 270,000 375,000 Goodwill _______ 7,600 Total assets $500,000 $552,600 Liabilities & Stockholders' Equity Current liabilities $ 35,000 $ 48,000 Common stock $5 par 350,000 350,000 Minority interest in net assets of subsidiary 39,600 Retained earnings 115,000 115,000 Total liabilities & stockholders' equity $500,000 $552,600

Plant assets of Saye Company were undervalued by $15,000 on the date of the business combination; the remainder of Punt's cost was assigned to goodwill. The retained earnings of Saye on the date of the business combination amounted to $37,000. a. Prepare the separate balance sheet of Saye Company on the date of the business combination.

b. What percentage of the common stock of Saye was acquired by Punt? c. Prepare the working paper elimination (in journal entry format) for Punt

Corporation and subsidiary on the date of the business combination. Answer: a.

SAYE COMPANY Balance Sheet

Date of Business Combination Assets Liabilities & Stockholders' Equity

Current assets $ 40,000 Current liabilities $ 13,000 Plant assets (net) 90,000 Common stock 80,000 _______ Retained earnings 37,000 Total assets $130,000 Total liabilities & stockholders' equity $130,000 Larsen, Modern Advanced Accounting, Tenth Edition 81

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