Question
11-48 Allocating Total Purchase Price to Assets Two Hollywood companies had the following balance sheet accounts as of December 31, 20X7 ($ in millions): Lexia
11-48 Allocating Total Purchase Price to Assets
Two Hollywood companies had the following balance sheet accounts as of December 31, 20X7 ($ in millions): Lexia Hudson Productions Lexia Hudson Productions Cash and receivables $ 60 $ 44 Current liabilities $ 100 $ 40 Inventories 240 6 Common stock 200 20 Plant assets, net 300 190 Retained earnings 300 180 Total assets $600 $240 Total liab. and stk. eq. $ 600 $240 Net income for 20X7 $ 38 $ 8 On January 4, 20X8, these entities combined. Lexia issued $360 million of its shares (at market value) in exchange for all the shares of Hudson, a motion picture division of a large company. The inventory of films acquired through the combination had been fully amortized on Hudsons books.
During 20X8, Hudson received revenue of $42 million from the rental of films from its inventory. Lexia earned $40 million on its other operations (i.e., excluding Hudson) during 20X8. Hudson broke even on its other operations (i.e., excluding the film rental contracts) during 20X8.
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