Question
On January 1, 2020, Groenedal Company acquired 100 percent of the outstanding common stock of Aadorp Company. To acquire these shares, Groenedal issued 200,000 in
On January 1, 2020, Groenedal Company acquired 100 percent of the outstanding common stock of Aadorp Company. To acquire these shares, Groenedal issued 200,000 in long-term liabilities and 20,000 shares of common stock having a par value of 1 per share but a fair value of 10 per share. Groenedal paid 30,000 to accountants, lawyers and brokers for assistance in the acquisition and another 12,000 in connection with stock issuance costs.
Prior to these transactions, the balance sheets for the two companies were as follows:
Groenedal, book value | Aadorp, book value | |
Cash | 60,000 | 20,000 |
Receivables | 270,000 | 90,000 |
Inventory | 360,000 | 140,000 |
Land | 200,000 | 180,000 |
Buildings (net) | 420,000 | 220,000 |
Equipment (net) | 160,000 | 50,000 |
Accounts payable | -150,000 | -40,000 |
Long-term liabilities | -430,000 | -200,000 |
Common stock ( 1 par value) | -110,000 | - |
Common stock ( 20 par value) | - | -120,000 |
Additional paid-in capital | -360,000 | - |
Retained earnings, 1/1/2020 | -420,000 | -340,000 |
In Groenedals appraisal of Aadorp, three accounts were undervalued on the subsidiarys books: Inventory by 5,000, Land by 20,000, and Buildings by 30,000. Groenedal plans to maintain Aadorps separate legal identity and to operate Aadorp as a wholly owned subsidiary.
Question 4
Determine the amounts that Groenedal Company would report in its postacquisition (single) balance sheet. In preparing the postacquisition balance sheet, any required adjustments to income accounts from the acquisition should be closed to Groenedals retained earnings.
Question 5
Prepare a worksheet to consolidate the balance sheets of these two companies as of January 1, 2020.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started