Prince Corporation acquires Squire Service Corporation for 800,000 shares of Prince stock, valued at $70 per share. Squire is merged into Prince, although it continues
Prince Corporation acquires Squire Service Corporation for 800,000 shares of Prince stock, valued at $70 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $1,920,000 and costs of registering and issuing the new shares are $960,000, both paid in cash. Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows:
Cash | $480,000 | Current liabilities | $4,960,000 |
Accounts receivable | 4,320,000 | Long-term liabilities | 13,760,000 |
Parts inventory | 8,320,000 | Shareholders' equity | 22,560,000 |
Equipment | 28,160,000 | ||
Total assets | $41,280,000 | Total liabilities and equity | $41,280,000 |
In reviewing Squire's assets and liabilities, you determine the following:
- On a discounted present value basis, the accounts receivable have a fair value of $4,160,000, and the long-term liabilities have a fair value of $12,800,000.
- The current replacement cost of the parts inventory is $9,600,000.
- The current replacement cost of the equipment is $31,200,000.
- Squire occupies its service facilities under an operating lease with ten years remaining. The rent is below current market levels, giving the lease an estimated fair value of $2,000,000.
- Squire has long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term of the contracts is estimated at $3,200,000.
- Squire has a skilled and experienced work force. You estimate that the cost to hire and train replacements would be $1,200,000.
- Squire's trade name is well-known among fleet owners and is estimated to have a fair value of $320,000.
Instructions: For all numerical answers below, enter answers using all zeros - do not abbreviate answers to in thousands or in millions.
(a) Calculate the amount of goodwill that Prince records for the acquisition. $Answer
(b) Prepare Prince's journal entry or entries to record the merger with Squire.
General Journal | ||
---|---|---|
Description | Debit | Credit |
Cash | Answer
| Answer
|
Accounts receivable | Answer
| Answer
|
Parts inventory | Answer
| Answer
|
Equipment | Answer
| Answer
|
Intangible: Lease | Answer
| Answer
|
Intangible: Service contracts | Answer
| Answer
|
Intangible: Trade name | Answer
| Answer
|
Goodwill | Answer
| Answer
|
AnswerMerger expensesCashContingent consideration liabilityGain on purchase
| Answer
| Answer
|
AnswerMerger expensesCashContingent consideration liabilityGain on purchase
| Answer
| Answer
|
Current liabilities | Answer
| Answer
|
Long-term liabilities | Answer
| Answer Incorrect Mark 0.00 out of 1.00 |
Capital stock | Answer
| Answer
|
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