Use the following information for problems 1-4. On January 1, 2012, Adams acquires 100% of Baker in a transaction accounted for using the acquisition method. Adams will use equity accounting for its investment in Baker Baker will remain a wholly owned subsidiary of Adams. The following is information about this acquisition. To pay for this purchase, Adams issues 20,000 shares of common stock with a $5 par and $20 market value. Legal and accounting costs were $50,000. Stock issuance costs were $20,000. If Baker has net income of $50,000 in 2012, Adams will pay an additional $100,000. At acquisition date there is a 40% probability of this occurring. The book value of net assets acquired of Baker was $200,000 at acquisition date. Adams was willing to pay in excess of book value to acquire Baker because Baker had a building (10 year life) with a book value of $300,000 and a fair value of $340,000. Baker has $40,000 in net income in 2012 and pays a dividend of $30,000. Adams has S100,000 of net income in 2012 and pays a dividend of $70,000. Prepare an investment analysis at date of acquisition, including the following: a. Calculate the amount debited to the investment b. Calculate the premium over book value c. Determine the amount of goodwill or if it is a bargain purchase d. How much is the excess depreciation that will be reflected as consolidatiorn 1. entry E in 2012? 2. How much are consolidated dividends in 2012? Use the following information for problems 1-4. On January 1, 2012, Adams acquires 100% of Baker in a transaction accounted for using the acquisition method. Adams will use equity accounting for its investment in Baker Baker will remain a wholly owned subsidiary of Adams. The following is information about this acquisition. To pay for this purchase, Adams issues 20,000 shares of common stock with a $5 par and $20 market value. Legal and accounting costs were $50,000. Stock issuance costs were $20,000. If Baker has net income of $50,000 in 2012, Adams will pay an additional $100,000. At acquisition date there is a 40% probability of this occurring. The book value of net assets acquired of Baker was $200,000 at acquisition date. Adams was willing to pay in excess of book value to acquire Baker because Baker had a building (10 year life) with a book value of $300,000 and a fair value of $340,000. Baker has $40,000 in net income in 2012 and pays a dividend of $30,000. Adams has S100,000 of net income in 2012 and pays a dividend of $70,000. Prepare an investment analysis at date of acquisition, including the following: a. Calculate the amount debited to the investment b. Calculate the premium over book value c. Determine the amount of goodwill or if it is a bargain purchase d. How much is the excess depreciation that will be reflected as consolidatiorn 1. entry E in 2012? 2. How much are consolidated dividends in 2012
