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Home Assignment Ch.1

Phen Ltd acquired Sung Ltd on August 17, 2014 by issuing 500,000 shares of common stock and paying $1,000,000 for Sung's net assets. The journal entries to record the acquisition include debits to the assets and credits to investment in Sung Ltd for $11,000 and a gain from bargain purchase of $2,300. Jose SA acquired Carlos SA by issuing 200,000 shares worth $10,000,000. The balance sheet after the acquisition shows Jose's assets increasing with the addition of Carlos' assets and liabilities, an investment in Carlos SA of $10,000, and paid in capital in excess of par of $8,000.

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115 views6 pages

Home Assignment Ch.1

Phen Ltd acquired Sung Ltd on August 17, 2014 by issuing 500,000 shares of common stock and paying $1,000,000 for Sung's net assets. The journal entries to record the acquisition include debits to the assets and credits to investment in Sung Ltd for $11,000 and a gain from bargain purchase of $2,300. Jose SA acquired Carlos SA by issuing 200,000 shares worth $10,000,000. The balance sheet after the acquisition shows Jose's assets increasing with the addition of Carlos' assets and liabilities, an investment in Carlos SA of $10,000, and paid in capital in excess of par of $8,000.

Uploaded by

Sausan Sania
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Home Assignment 1

Sausan Sania (008201800087)

P 1-1 Acquisition Journal Entries

Phen Ltd issued 500,000 common shares of $10 at par, and paid $1,000,000 for the net assets of Sung Ltd
on August 17, 2014. The market value for Phen Ltd's stock was $20 per share. Sung Ltd was dissolved
immediately after the acquisition. The Information related to Sung Ltd's net assets is as follows (in
thousands).

Book Value Fair Value


Cash $ 2,000 $ 2,000
Trade receivable $ 800 $ 600
Inventories $ 3,200 $ 3,000
Prepaid expenses $ 1,000 $ 1,000
Land $ 6,000 $ 6,800
Buillding-net $ 10,000 $ 10,100
Equipment-net $ 3,500 $ 3,000
Trade payable $ 1,300 $ 1,500
Notes payable $ 4,300 $ 4,600
Bonds payable $ 6,600 $ 7,100
Common stocks, $5 par $ 5,300
Retained Earnings $ 9,000
$ 53,000 $ 39,700
Required: Prepare all necessary journal entries for the acquisition

Answer: (In Thousands)


Total consideration at fair value: $ 1,000 + (500 of shares x $ 20)
Fair value of net assets acquired: $ 26,500 (assets) - $ 13,200 (liabilities)
Gain from bargain purchase

Journal entries for the acquisition (in thousands):

Investment in Sung Ltd $ 11,000


Common Stock, $10 par
Additional Paid in Capital
Cash

Cash $ 2,000
Trade Receivables $ 600
Inventories $ 3,000
Prepaid Expenses $ 1,000
Land $ 6,800
Building-net $ 10,100
Equipment-net $ 3,000
Trade Payable $ 1,500
Notes Payable $ 4,600
Bonds Payable $ 7,100
Investment in Sung Ltd. $ 11,000
Gain from bargain purchase $ 2,300
P 1-2 Balance Sheet after an Acquisition

000 for the net assets of Sung Ltd On December 31, Jose SA acquired Carlos SA by issuing 200,000 commo
hare. Sung Ltd was dissolved $10. The market value for those common shares was $ 10,000,000 at th
net assets is as follows (in are the balance sheet and fair value information of Jose SA immediately
thousands)

Jose SA
(Book Value)
Cash $ 2,000
Other current assets $ 13,000
Plants assets $ 15,000
Current liabilities $ 5,000
Other liabilities $ 12,000
Common stocks, $ 10 par $ 10,000
Retained Earnings $ 3,000

Required: Prepare the balance sheet after the acquisition

Answer: Computation (In thousands)


Investment in Carlos SA
Common stocks ($10 x $200)
Additional paid in capital

$ 11,000 Investment in Carlos SA


$ 13,300 Net Asset of Carlos SA (Book Value): $ 26,000 (asset) - $ 17,000 (liabiliti
$ 2,300 Goodwill

Balance Sheet
$ 5,000 Jose SA
$ 5,000 Assests:
$ 1,000 Cash $ 2,000
Other Current Assets $ 13,000
Plant Assets 15,00
Goodwill
Total Assets
Liabillities and Stockholder's Equity:
Current Liabilities $ 5,000
Other Liabilities $ 12,000
Common Stock (100000+2000)
paid in Capital in Excess of Par
Retained Earning
Total Liabillities and Stockholder's Equity
rlos SA by issuing 200,000 common shares with par value of
mon shares was $ 10,000,000 at the date of acquisition. Below
nformation of Jose SA immediately before the acquisition (in

Jose SA Carlos SA Carlos SA


(Fair Value) (Book Value) (Fair Value)
$ 2,000 $ 1,000 $ 1,000
$ 20,000 $ 8,000 $ 12,000
$ 20,000 $ 10,000 $ 13,000
$ 4,000 $ 2,000 $ 4,000
$ 12,000 $ 8,000 $ 13,000
$ 5,000
$ 4,000

after the acquisition

$ 10,000
on stocks ($10 x $200) $ 2,000
onal paid in capital $ 8,000

$ 10,000
26,000 (asset) - $ 17,000 (liabilities) $ 9,000
$ 1,000

ance Sheet
Carlos SA Consolidation

$ 1,000 $ 3,000
$ 12,000 $ 25,000
$ 13,000 $ 28,000
$ 1,000
$ 57,000

$ 4,000 $ 9,000
$ 13,000 $ 25,000
$ 12,000
$ 8,000
$ 3,000
$ 57,000

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