Question
On 1/1/20x0, Prospector, Inc. acquired 100% of the outstanding common stock of Sinclair, Inc. for $650,000 cash and 22,000 common shares of their $1 par
On 1/1/20x0, Prospector, Inc. acquired 100% of the outstanding common stock of Sinclair, Inc. for $650,000 cash and 22,000 common shares of their $1 par value common stock. On 1/1/20x1, their common stock traded on public markets for $4.00 per share. Following is Sinclair’s pre-acquisition Balance Sheet at 1/1/20x1:
Sinclair Company | |||
Balance Sheet | |||
1/1/20x0 | |||
Assets | Liabilities and Equity | ||
Cash and short-term investments | $70,000 | Accounts payable | $60,000 |
Accounts receivable | 50,000 | Noncurrent liabilities | 180,000 |
Supplies | 20,000 | Common stock | 300,000 |
Total Current Assets | 140,000 | Additional paid-in capital | 60,000 |
Equipment, net | 240,000 | Retained earnings, 1/1/20x0 | 120,000 |
Buildings, net | 140,000 | ||
Land | 90,000 | ||
Intangible assets | 110,000 | ||
Total Assets | $720,000 | Total Liabilities and Equity | $720,000 |
In addition, Sinclair’s assets and liabilities were understated as follows:
Fair value adjustment | Remaining Useful life | |
Equipment | ($16,000) | 8 years |
Buildings | $100,000 | 20 years |
Land | $74,000 | - |
Intangible assets | $100,000 | 10 years |
Sinclair, Inc.’s net income and dividends declared and paid were:
Fye 20x0 | Fye 20x1 | |
Net income | $96,000 | $132,000 |
Dividends declared and paid | $12,000 | $36,000 |
For fiscal years 20x0 and 20x1, Sinclair did not issue additional common stock or other equity.
Required
- Record Prospector Inc.’s acquisition of Sinclair Corporation on 1/1/20x0.
- Prepare a schedule showing the allocation of the purchase price to the fair value of the net assets acquired, including periodic depreciation/amortizations of the related purchase price adjustments.
- Prepare a schedule showing the computation of goodwill recorded at acquisition, if any.
- Prepare Prospector’s journal entries for 20x0 and 20x1 related to their acquisition of Sinclair Company.
- Prepare the consolidating worksheet journal entries for fiscal year-ending 20x0.
- Prepare the consolidating worksheet journal entries for fiscal year-ending 20x1.
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