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Tutorial 1 (For Student)

Pale Company transferred assets including land, buildings, equipment, cash, and inventory to its newly created subsidiary Bright Company in exchange for shares of Bright's stock. Pale recorded the transfer of assets at carrying value as a reduction of assets and Bright recorded the receipt of assets and issuance of stock at the same values. Lester Company similarly transferred assets including cash, accounts receivable, inventory, land, buildings, and equipment to its new subsidiary Mumby Corporation in exchange for stock, recording the transfer and receipt at book values. Sun Corporation acquired Tender Company's net assets for $60,000, their fair value, recording the investment at cost and paying a $4,000 finder's fee. Goodwill results from Public

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415 views2 pages

Tutorial 1 (For Student)

Pale Company transferred assets including land, buildings, equipment, cash, and inventory to its newly created subsidiary Bright Company in exchange for shares of Bright's stock. Pale recorded the transfer of assets at carrying value as a reduction of assets and Bright recorded the receipt of assets and issuance of stock at the same values. Lester Company similarly transferred assets including cash, accounts receivable, inventory, land, buildings, and equipment to its new subsidiary Mumby Corporation in exchange for stock, recording the transfer and receipt at book values. Sun Corporation acquired Tender Company's net assets for $60,000, their fair value, recording the investment at cost and paying a $4,000 finder's fee. Goodwill results from Public

Uploaded by

dee davyan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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TOPIC : BUSINESS COMBINATION

TUTORIAL 1

1. Pale Company was established on January 1, 2011. Along with other assets, it
immediately purchased land for $80,000, a building for $240,000, and equipment
for $90,000. On January 1, 2015, Pale transferred these assets, cash $21,000, and
inventory costing $37,000 to a newly created subsidiary, Bright Company in
exchange for 10,000 shares of Bright’s $6 par value stock. Pale uses straight line
depreciation and useful lives of 40 years and 10 years for the building and
equipment respectively, with no estimated residual value.
Required:
a. Give the journal entry that Pale recorded when it transferred the assets to Bright
b. Give the journal entry that Bright recorded for the receipt of assets and issuance
of common stock to Pale.

2. Lester Company transferred the following assets to a newly created subsidiary,


Mumby Corporation, in exchange for 40,000 shares of its $3 par value stock:

Cost Book value


Cash $40,000 $40,000
Accounts Receivable 75,000 68,000
Inventory 50,000 50,000
Land 35,000 35,000
Buildings 160,000 125,000
Equipment 240,000 180,000

Required

a. Give the journal entry in which Lester recorded the transfer of assets to Mumby
Corporation.
b. Give the journal entry in which Mumby recorded the receipt of assets and
issuance of common stock to Lester.

3. Sun Corporation concluded the fair value of Tender Company was $60,000 and paid
that amount to acquire its net assets. Tender reported assets with a book value of

T6/0517 Page 1
$55,000 and fair value of $71,000 and liabilities with a book value and fair value of
$20,000 on the date of combination. Sun also paid $4,000 to a search firm for
finder’s fees related to acquisition.

Required

Give the journal entries to be made by Sun to record its investment in Tender and its
payment of the finder’s fees.

4. Samper Company reported the book value of tis net assets at $160,000 when
Public Corporation acquired 100 percent of its voting stock for cash. The fair value
of Samper’s net assets was determined to be $190,000 on that date.

Required

Determine the amount of goodwill to be reported in consolidated financial


statements presented immediately following the combination and the amount at
which Public will record its investment in Samper if the amount paid by Public is

a. $310,000.
b. $196,000.
c. $150,000.

5. On April 1, Par Company paid $1,600,000 for all the issued and outstanding
common stock of Son Corporation in a transaction properly accounted for as an
acquisition. Son Corporation is dissolved. The recorded assets and liabilities of Son
Corporation on April 1 follow:

Cash $160,000
Inventory 480,000
Property and equipment (net of accumulated depreciation 960,000
of $640,000)
Liabilities (360,000)

On April 1, it was determined that the inventory of Son had a fair value of $380,000
and the property and equipment (net) had a fair value of $1,120,000. What is the
amount of goodwill resulting from the acquisition?

T6/0517 Page 2

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