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Problem 1: Here are the trial balances for the Poster Co. and the Sign Co. just before the books were closed on December 31, 2020. Fair market values for selected Sign Co. accounts are shown. Poster Sign Trial Trial Balance Balance Current assets 175,000 70,000 Noncurrent assets (net) 255,000 105,000 Liabilities (65,000) (45,000) Common Stock (Par) $15 (300,000) Common Stock (Par) $30 (60,000) Additional paid in capital (10,000) (20,000) Retained earnings 1/1/20 (65,000) (30,000) Revenues (110,000) (90,000) Expenses 120,000 70,000 On December 31, 2020, Poster Co. purchased 100% of Sign Company's stock by issuing 4,500 shares of its own stock and paying $110,000 cash. On that date, the market value of Poster Company's stock was $25 per share. There were no combination costs or stock issuance costs. Sign Co. was dissolved immediately after the takeover and no longer existed independently. Make all necessary journal entries in Poster Company's records to recognize this acquisition. Sign Fair Mkt Values 75,000 144,000 (45,000) Problem 2: Promise Company acquired all of SaidSo, Inc.'s outstanding shares on January 1. Promise paid $300,000 and issued $200,000 in long-term liabilities and paid $30,000 in legal fees. Promise also agreed to pay $80,000 to the former owners of SaidSo contingent on meeting certain revenue goals during the following year. Promise estimated the present value of its probability adjusted expected payment for the contingency or contingent obligation at $63,000 Precombination book values for SaidSo, Inc. are as follows: Current assets $ 80,000 Equipment 90,000 Buildings 175,000 Goodwill 31,000 Total 376,000 Current liabilities (45,000) Common stock (180,000) Retained earnings (115,000) Revenues (136,000) Expenses 100,000 Total $ (376,000) Promise's appraisal of SaidSo found two balance sheet accounts that differed from fair value. Equipment was undervalued by $15,000 and Buildings by $5,000. Promise noted that SaidSo has unrecorded client contracts worth $60,000 and research and development activity in process with an appraised fair value of $90,000 a. What is the total consideration given by Promise? (Show your calculations.) b. What values for each of the acquired assets and liabilities will be used in the consolidation? $ $ Problem 3: Planet Company acquired all of the stock of Star Company on January 1, 2021 for $1,200,000 cash. There were no combination or stock issuance costs. Fair market value differed from book value for two items: item book value fair value Land $325,000 $300,000 $275,000 $400,000 Buildings (20 year life) In 2021, Star Company reported income of $60,000 and paid dividends of $26,000 a. Calculate the annual amortization of any difference between fair market value and Star's book values b. Then, indicate how much investment income Planet Company would recognize in 2021 under each of the following methods: Initial Value Method Partial Equity Method Equity Method Problems 4 and 5 Plant Company acquired of the common stock of Shoot Company on January 1, year one, for On that date, Shoot had the following trial balance: account debit credit Additional paid in capital $100,000 Building (10-year life) $250,000 Common stock 170,000 Current assets 180,000 Equipment (6-yr life) 160,000 Land 110,000 310,000 Liabilities (due in 4 years) Retained earnings 1/year 1 120,000 Totals $700,000 $700,000 During year one, Shoot reported net income of During year one, Shoot paid dividends of During year two, Shoot reported net income of During year two, Shoot paid dividends of On January 1, year one, fair values were: Land $122,000 $295,000 Building Equipment $172,000 There was no impairment of any goodwill arising from the acquisition. Please indicate clearly which method you choose for Plant to use to account for its acquisition of Shoot Company. Problem 4. Use the data for the Plant Company acquisition of the Shoot to prepare the consolidation worksheet entries for December 31 of year one. Problem 5. Use the data for the Plant Company acquisition of the Shoot Company to prepare the consolidation worksheet entries for December 31 of year two. 100% $600,000 $70,000 $30,000 $80,000 $40,000 PROBLEM 1 NO PROBLEM 2 NO POSTER CO JOURNAL ENTRIES DATE ENTRIES 1 31/12/2020 Shares purchased Cash 2 31/12/2020 investment Sign co Entries Long Term liabilities Total value Total consideration 1 Cash 2 Current assets Equipment Building Goodwill Client Contract Development and research Total 3 Current liabilities Total liabilities DEBIT 110000 2500 $$ 300,000 200,000 63,000 563,000 80,000 105,000 180,000 31,000 60,000 90,000 546,000 45,000 CREDIT 110000 2500 $$ 45000 PROBLEM 3 NO A B PROBLEM 4&5 NO Entries 1 No Entry Buildings 1 intial value method income 2 Partial equity method income 3 Equity method Entries 1 Investment in sample co retained earnings 2 Dividends Investment in sample co 3 plant Deffered tax liablity combination value reserve 4 Depreciation expense acuumulated depreciation 5 Equipment Deffered tax liablity combination value reserve 6 Depreciation expense acuumulated depreciation 7 Land Deffered tax liablity combination value reserve $$ $6,250 $26,000 $60,000 $53,750 DEBIT 80000 40000 24000 22833 36000 32667 36000 CREDIT 80000 40000 7200 16800 22833 10800 25200 32667 10800 25200 Problem 1 Item C assets NC assets GW Liabilities C Stock APIC Cash No S, A invest total possible actual points points 2 2 3 1 3 3 2 ~~ 2 2 20 notes This problem is not complete. The full consideration given is not shown and the acquired assets and liabilities have not been added to the parent's records at fair value which is necessary because the subsidiary was dissolved. 2 2 Problem score Problem 2 Item not fees Cash LT Liab Cont. C assets Eq't Bldg CContracts IPR&D CLiab GW possible actual points points 1 1 1 1 1 1 1 1 2 2 2 222 2 4 20 notes 2 The goodwill is not right because it seems that the full consideration from part a was not used in comparison to the sum of the fair values of the other assets and liabilities to find the goodwill. 16 Problem score 222 22 Problem 3 amort'n iv method p. equity equity Problem 4 Item C* S, stock S (R/E) A, Land A, Bldg A, Eq't A, GW || D E Item possible actual points points 5 5 5 5 5 5 20 20 possible actual points points 1 2 3 1 2 2 3 2 2 2 20 | | 5 5 0 notes Problem score notes This problem asked you to choose which method the parent uses to track its investment in the subsidiary -- initial value, partial equity or equity. Without making this choice, some entries cannot be scored. The journal entries are not in good form and they should be labeled (S, A, etc.) for clarity. Problem score Problem 5 C* S, stock S (R/E) A, Land A, Bldg A, Eq't A, GW || D E Item possible actual points points 2 1 3 1 2 23 2 3 2 2 2 20 0 notes This problem is separate from problem 4 because it requires all the worksheet entries (S, A etc.) for the second year of ownership. This problem cannot be scored. Problem score