Last_Exam

Answer The Following Problems:

Problem (1)

P Company acquired the assets and assumed the liabilities of S Company on January 1, 2007, for $510,000 when S Company's balance sheet was as follows:

Fair Values of S Company's assets and Liabilities were equal to their book values except for the following:

1. Inventory has fair value of $126,000.
2. Land has a fair value of $198,000
3. The bonds pay interest semiannual on June 30 and December 31. the current yield rate on bonds of similar risk is 8%.

Required:

Prepared the journal entry on P Company's books to record the acquisition of the assets and assumption of the liabilities of S Company.

Problem (2)

On January 2, 2008, Prunce Company acquired 90% of the outstanding common stock of Sun Company for $192,000 cash. Just before acquisition, the balance sheet of the two companies were as follows:

The fair values of Sun Company's assets and liabilities are equal to their book values with exemption of land.

Required:

1. Prepare a journal entry to record the purchase of Sun Company's common stock.
2. Prepare a consolidated balance sheet at the date of acquisition.

Problem (3)

Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta:

Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $48,000.

Alpha Company expects a return on its investment of 15%. Assume that Alpha prefers to use cash earnings rather than accrual-based earnings to estimate its offering price, and that it estimates the total valuation of Beta to be equal to the present value of cash-based earnings (rather than excess earnings) discounted over a five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.)

Required:

1. Compute (a) an offering price based on the information above that Alpha might be willing to pay, and (b) the amount of goodwill included in that price.
2. Compute the amount of goodwill actually recorded , assuming the negotiations result in a final purchase price of $625,000 cash.

Problem (3)

Pace Company purchased 20,000 0f the 25,000 shares of Saddler Corporation for $525,000. On January 3, 2008, the acquisition date, Saddler Corporation's capital stock and retained earnings account balances were $500,000 and $100,000, respectively.

The following values were determined for Saddler Corporation on the date of purchase:

Required:

1. Prepare the entry on the books of Pace Company to record its investment in Saddler Corporation.
2. Prepare a Computation and Allocation Schedule for the difference between book value and the value implied by the purchase price in the consolidated statements workpaper.

Problem (4)

Price Company purchased 90% of the outstanding common stock of Score Company on January 1, 2006, for $450,000. At that time, Score Company had stockholders' equity consisting of common stock, $200,000; other contributed capital, $160,000; and retained earnings, $90,000.

On December 31, 2010, trial balance for Price Company and Score Company were as follows:

Price Company's note receivable is receivable from Score Company. Interest of $7,500 was paid by Score to Price during 2010. Any difference between book value and the value implied by the purchase price related to goodwill.

Required:

Prepare a consolidated statements workpaper on December 31, 2010.

Good Luck