Company as of December 31. Also included are fair values for Sol Company accounts.
| Padre Company |
Sol Company | ||||||||||||||
| Book Values | Book Values | Fair Values | |||||||||||||
| 12/31 | 12/31 | 12/31 | |||||||||||||
| Cash | $ | 571,500 | $ | 52,250 | $ | 52,250 | |||||||||
| Receivables | 235,500 | 350,000 | 350,000 | ||||||||||||
| Inventory | 425,000 | 250,000 | 307,800 | ||||||||||||
| Land | 602,500 | 216,000 | 188,900 | ||||||||||||
| Building and equipment (net) | 632,500 | 365,000 | 429,300 | ||||||||||||
| Franchise agreements | 312,000 | 256,000 | 286,000 | ||||||||||||
| Accounts payable | (333,000 | ) | (141,000 | ) | (141,000 | ) | |||||||||
| Accrued expenses | (157,000 | ) | (52,250 | ) | (52,250 | ) | |||||||||
| Long-term liabilities | (957,500 | ) | (725,000 | ) | (725,000 | ) | |||||||||
| Common stock—$20 par value | (660,000 | ) | |||||||||||||
| Common stock—$5 par value | (210,000 | ) | |||||||||||||
| Additional paid-in capital | (70,000 | ) | (90,000 | ) | |||||||||||
| Retained earnings, 1/1 | (557,500 | ) | (244,000 | ) | |||||||||||
| Revenues | (990,000 | ) | (411,000 | ) | |||||||||||
| Expenses | 946,000 | 384,000 | |||||||||||||
Note: Parentheses indicate a credit balance.
| On December 31, Padre acquires Sol’s outstanding stock by paying $127,500 in cash and issuing 16,400 shares of its own common stock with a fair value of $40 per share. Padre paid legal and accounting fees of $21,500 as well as $6,800 in stock issuance costs. |
| Determine the value that would be shown in Padre’s consolidated financial statements for each of the accounts listed. |
Accounts
| Amounts | |
| Inventory | $732,800 |
| Land | $791,400 |
| Buildings and equipment | $1,061,800 |
| Franchise agreements | $598,000 |
| Goodwill | $87,500 |
| Revenues | $990,000 |
| Additional paid-in capital | $391,200 |
| Expenses | $967,500 |
| Retained earnings, 1/1 | $557,500 |
| Retained earnings, 12/31 |
Answer
Inventory = $732800 (Padre’s book value plus Sol’s fair value)
Land = $791400 (Padre’s book value plus Sol’s fair value)
Buildings and equipment = $1,061,800 (Padre’s book value plus Sol’s fair value)
Franchise agreements = $598,000 (Padre’s book value plus Sol’s fair value)
Goodwill = $87500 (calculated above)
Revenues = $990,000 (only parent company operational figures are reported at date of acquisition)
Additional paid-in capital = $391200 (Padre’s book value adjusted for stock issue less stock issuance costs)
Expenses = $637,500 (only parent company operational figures plus acquisition-related costs arereported at date of acquisition)
Retained earnings, 1/1 = $557,500 (Padre’s book value)
Retained earnings, 12/31 = $ 844200
| P | S | Total | |
| Retained earnings, 1/1 | 557500 | 244000 | 801500 |
| Add: | |||
| Net income( Revenue-Loss) | 44000 | 27000 | 71000 |
| Less | |||
| legal and accounting fees | -21500 | ||
| stock issuance costs | -6800 | ||
| 573200 | 271000 | 844200 |
