Question
Problem 1 On 1/1/20x1, Petwoud Company acquired 100% of the $1 par value outstanding voting common stock of Supagud, Inc. for a cash payment of
Problem 1
On 1/1/20x1, Petwoud Company acquired 100% of the $1 par value outstanding voting common stock of Supagud, Inc. for a cash payment of $600,000. At the acquisition date, the fair value of Petwoud Companys common stock was $20 per share. Below is the summary balance sheet information of Supagud, Inc. at acquisition (1/1/20x1):
| Debit | Credit |
Accounts payable |
| 60,000 |
Accounts receivable | 50,000 |
|
Additional paid-in capital |
| 60,000 |
Buildings (net) (20-year life) | 140,000 |
|
Cash and short-term investments | 70,000 |
|
Common stock |
| 300,000 |
Equipment (net) (8-year life) | 240,000 |
|
Intangible assets (indefinite life) | 110,000 |
|
Land | 90,000 |
|
Long-term liabilities (mature 12/31/x3) |
| 180,000 |
Retained earnings, 1/1/x1 |
| 120,000 |
Supplies | 20,000 |
|
Totals | 720,000 | 720,000 |
Book value of net equity | 480,000 |
During fiscal year-ending 12/31/20x1 and 12/31/20x2, Supagud, Inc. generated net income and paid dividends as follows:
| Net income | Dividends |
20x1 | $104,000 | $13,000 |
20x2 | $142,000 | $30,000 |
As of 1/1/20x1, Supagud's land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000. According to Petwoud Companys analysis, they will record any excess of consideration paid over fair value of assets and liabilities acquired as a Patent asset to be amortized over 6 years.
Required
- Using the acquisition method and assuming that Petwoud dissolves Supagud, Inc. so it is no longer in business, prepare Petwoud Companys journal entry to record the acquisition of Supagud, Inc. at 1/1/20x1.
For B. and C. below, assume Supagud remains in business as a separate operating company and that, for internal accounting purposes, Petwoud accounts for their investment in Supagud, Inc. using the equity method:
- Prepare Petwoud Companys journal entry to record the acquisition of Supagud, Inc. at 1/1/20x1.
- Prepare Petwoud Companys worksheet consolidation journal entries for:
- December 31, 20x1 and
- December 31, 20x2.
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