On May 1, Year 10, Ribbon Corporation purchased all of the issued and outstanding voting stock of Bow Company. In its separate financial statements, Ribbon accounts for the investment in Bow Company using the cost method.
Using the exhibits, prepare two separate journal entries to record this business combination on the books of Ribbon Corporation.
1. Record the acquisition of Bow Company in the separate financial statements of Ribbon.
| Account | Debit | Credit |
| | $ | |
| | | $ |
| | | $ |
| | | $ |
Available accounts: Cash, Investment in Bow, Additional Paid-in Capital, Common Stock, par $10, Retained Earnings,
2. Prepare the consolidation entry that should be recorded by Ribbon to prepare the consolidated balance sheet on the acquisition date (May 1, Year 10).
Available accounts: Cash, Investment in Bow, Inventory, PP&E net, Goodwill, Liabilities, Common Stock, $10 par, and Additional paid-in capital.
Bow Company Balance Sheet I Bow Company Acquisition-Date Condensed Balance Sheet May 1, Year 10 Assets: Cash Inventories Total current assets $ 60,000 180,000 $240,000 Liabilities: Trade payables Accrued liabilities Current portion note payable Total current liabilities Note payable Total liabilities $ 20,000 15,000 5,000 $ 40,000 80,000 $120,000 Property, plant, and equipment Furniture, computers, equipment Buildings Land Accumulated depreciation PPE (net) 220,000 240,000 80,000 (220,000) $320,000 Shareholders' equity: Common stock Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and equity 100,000 250,000 290,000 $640,000 $760,000 Goodwill Total assets 200,000 $760,000 Intracompany Email (Read Only) To: jscott@ribboncompany.com;
From: moore@ribboncompany.com; Date: May 1, Year 10 Subject: Common stock price for Ribbon Company on May 1, Year 10 Below is a quote for the stock price of Ribbon Company common stock as of today, May 1, Year 10. The stock is trading at $25.00 per share. Ribbon Co. Quote - Ribbon Bid: 25.00 Ask: 25.00 Last: 25.00 Chg (S): -0 Action Quantity Stock Options Order type 2 Ribbon Co. Limit Price A 25.00 BUY 10AM 12PM 2PM Purchase Agreement Purchase Agreement for Bow Company On this date of May 1, Year 10, Ribbon Corporation (Buyer) will transfer as consideration, $120,000 cash and issue 20,000 shares of $10 par value common stock in exchange for all of the issued and outstanding voting stock of Bow Company (Seller). Bow Co. Ribbon Co. Bow Company Ribbon Company Excerpts from Report, p. 11 Property, Plant, & Equipment (net) Computers Furniture Machinery Buildings Land TOTAL Cost $ 25,000 25,000 70,000 120,000 80,000 $320,000 Fair Market Value $ 22,000 21,000 77,000 150,000 110,000 $380,000 Excerpts from Report, p. 18 Liabilities Trade payables Accrued liabilities Note payable Cost $ 20,000 15,000 85,000 $120,000 Fair Market Value $ 20,000 15,000 85,000 $120,000 TOTAL Excerpts from Report, p. 9 Inventory Description Ribbon Beads, buttons, pins, thread Dowels, wire, glue Wire cutters, glue guns, scissors Organizers TOTAL Cost $ 35,000 25,000 48,000 50,000 22.000 $180,000 Fair Market Value $ 28,000 19,000 41,000 44,000 18,000 $150,000 Bow Company Balance Sheet I Bow Company Acquisition-Date Condensed Balance Sheet May 1, Year 10 Assets: Cash Inventories Total current assets $ 60,000 180,000 $240,000 Liabilities: Trade payables Accrued liabilities Current portion note payable Total current liabilities Note payable Total liabilities $ 20,000 15,000 5,000 $ 40,000 80,000 $120,000 Property, plant, and equipment Furniture, computers, equipment Buildings Land Accumulated depreciation PPE (net) 220,000 240,000 80,000 (220,000) $320,000 Shareholders' equity: Common stock Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and equity 100,000 250,000 290,000 $640,000 $760,000 Goodwill Total assets 200,000 $760,000 Intracompany Email (Read Only) To: jscott@ribboncompany.com; From: moore@ribboncompany.com; Date: May 1, Year 10 Subject: Common stock price for Ribbon Company on May 1, Year 10 Below is a quote for the stock price of Ribbon Company common stock as of today, May 1, Year 10. The stock is trading at $25.00 per share. Ribbon Co. Quote - Ribbon Bid: 25.00 Ask: 25.00 Last: 25.00 Chg (S): -0 Action Quantity Stock Options Order type 2 Ribbon Co. Limit Price A 25.00 BUY 10AM 12PM 2PM Purchase Agreement Purchase Agreement for Bow Company On this date of May 1, Year 10, Ribbon Corporation (Buyer) will transfer as consideration, $120,000 cash and issue 20,000 shares of $10 par value common stock in exchange for all of the issued and outstanding voting stock of Bow Company (Seller). Bow Co. Ribbon Co. Bow Company Ribbon Company Excerpts from Report, p. 11 Property, Plant, & Equipment (net) Computers Furniture Machinery Buildings Land TOTAL Cost $ 25,000 25,000 70,000 120,000 80,000 $320,000 Fair Market Value $ 22,000 21,000 77,000 150,000 110,000 $380,000 Excerpts from Report, p. 18 Liabilities Trade payables Accrued liabilities Note payable Cost $ 20,000 15,000 85,000 $120,000 Fair Market Value $ 20,000 15,000 85,000 $120,000 TOTAL Excerpts from Report, p. 9 Inventory Description Ribbon Beads, buttons, pins, thread Dowels, wire, glue Wire cutters, glue guns, scissors Organizers TOTAL Cost $ 35,000 25,000 48,000 50,000 22.000 $180,000 Fair Market Value $ 28,000 19,000 41,000 44,000 18,000 $150,000
