EXERCISE 3-2

Any difference between book value of net assets and the value implied by the purchase price relates to subsidiary property plant and equipment except for case (c). In case (c) assume that all book values and fair values are the same.

Stock Purchase Entries LO 7 LO 8

On January 1, 2019, Polo Company purchased 100% of the common stock of Save Company by issuing 40,000 shares of its (Polos) $10 par value common stock with a market price of $17.50 per

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share. Polo incurred cash expenses of $20,000 for registering and issuing the common stock. The stockholders equity section of the two companies balance sheets on December 31, 2018, were:

EXERCISE 3-3

A. Prepare the journal entry on the books of Polo Company to record the purchase of the common stock of Save Company and related expenses.

B. Prepare the elimination entry required for the preparation of a consolidated balance sheet workpaper on the date of acquisition.

Consolidated Balance Sheet, Stock Purchase LO 7 LO 8 On January 2, 2019, Prunce Company acquired 90% of the outstanding common stock

of Sun Company for $192,000 cash. Just before the acquisition, the balance sheets of the two companies were as follows:

Common stock, $10 par value Other contributed capital Retained earnings

Required:

Polo

$350,000 590,000 380,000

Save

$320,000 175,000 205,000

Prunce

Cash $260,000 Accounts receivable (net) 142,000 Inventory 117,000 Plant and equipment (net) 386,000 Land 63,000

Sun

$ 64,000 23,000 54,000 98,000 32,000

$271,000

$ 47,000 39,000 70,000 20,000 95,000

$271,000

Total asset

Accounts payable Mortgage payable Common stock, $2 par value Other contributed capital Retained earnings

Total equities

$968,000

$104,000 72,000 400,000 208,000 184,000

$968,000

EXERCISE 3-4

The fair values of Sun Companys assets and liabilities are equal to their book values with the exception of land.

Required:

A. Prepare a journal entry to record the purchase of Sun Companys common stock. B. Prepare a consolidated balance sheet at the date of acquisition.

Purchase, Date of Acquisition LO 7 LO 8 LO 9 On January 1, 2018, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash. Just prior to the acqui- sition, the balance sheets of the two companies were as follows:

Cash Accounts receivable (net) Inventory Plant and equipment (net) Land

Peach Company

$ 73,000 95,000 58,000 95,000 26,000

Swartz Company

$ 13,000 19,000 25,000 43,000 22,000

Total assets

$347,000

$122,000

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Chapter 3 Consolidated Financial StatementsDate of Acquisition

Accounts payable Notes payable Common stock, $20 par value Other contributed capital Retained earnings

Total equities

Peach Company

$ 66,000 82,000 100,000 60,000 39,000

$347,000

Swartz Company

$ 18,000 21,000 40,000 24,000 19,000

$122,000

EXERCISE 3-5

Any difference between the book value of equity and the value implied by the purchase price relates to goodwill.

Required:

A. Prepare the journal entry on Peach Companys books to record the exchange of stock. B. Prepare a Computation and Allocation Schedule for the difference between book value and

value implied by the purchase price. C. Prepare a consolidated balance sheet at the date of acquisition.

Treasury Stock Held by Subsidiary LO 8 Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2019, for cash. At that time the balance sheet of Spruce Company was as follows:

Current assets Plant and equipment Land

Total assets

Liabilities Common stock, $20 par value Other contributed capital Retained earnings

Total Less treasury stock at cost, 5,000 shares

Total equities

$1,050,000 990,000 170,000

$2,210,000

$ 820,000 900,000 440,000 150,000

2,310,000 100,000

$2,210,000

EXERCISE 3-6

Prepare the elimination entry required for the preparation of a consolidated balance sheet workpa- per on December 31, 2019, assuming:

(1) The purchase price of the stock was $1,400,000. Assume that any difference between the book value of net assets and the value implied by the purchase price relates to subsidiary land.

(2) The purchase price of the stock was $1,160,000. Assume that the subsidiary land has a fair value of $180,000, and the other assets and liabilities are fairly valued.

Elimination Entry, Consolidated Balance Sheet LO 8

On December 31, 2018, Price Company purchased a controlling interest in Shipley Company. The balance sheet of Price Company and the consolidated balance sheet on December 3, 2018, were as follows:

Required:

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Price Company

Consolidated

$ 37,900 57,000 161,600 0 337,000 220,412

$813,912

$112,500 100,000 37,412 300,000 164,000 100,000

$813,912

Cash Accounts receivable Inventory 127,000 Investment in Shipley Company 212,000 Plant and equipment (net) 190,000 Land 120,000

$ 22,000 35,000

Total

Accounts payable Note payable Noncontrolling interest in Shipley Company Common stock Other contributed capital Retained earnings

Total

$706,000

$ 42,000 100,000 0 300,000 164,000 100,000

$706,000

On the date of acquisition, the stockholders equity section of Shipley Companys balance sheet was as follows:

Common stock Other contributed capital Retained earnings

Total

Required:

$ 90,000 90,000 56,000 $236,000

EXERCISE 3-7

A. Prepare the investment elimination entry made to complete a consolidated balance sheet workpaper. Any difference between book value and the value implied by the purchase price relates to subsidiary land.

B. Prepare Shipley Companys balance sheet as it appeared on December 31, 2018.