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On January 1, 2013, Pamela Company purchased 75% of the common stock of Snicker Company. Separate...

On January 1, 2013, Pamela Company purchased 75% of the common stock of Snicker Company. Separate balance sheet data for the companies at the combination date are given below:

                                                                                                        Snicker Co.                Snicker Co.

                                                                       Pamela Co.               Book Values               Fair Values

            Cash                                                    $ 18,000                   $155,000                   $155,000

            Accounts receivable 108,000                       20,000                       20,000

            Inventory                                                 99,000                       26,000                       45,000

            Land                                                        60,000                       24,000                       45,000

            Plant assets 525,000                     225,000                     300,000

            Acc. depreciation                                  (180,000)                     (45,000)

            Investment in Snicker Co.                      330,000                                                                      

            Total assets                                          $960,000                   $405,000                   $565,000

            Accounts payable                                 $156,000                   $105,000                   $105,000

            Capital stock                                          600,000                     225,000

            Retained earnings                                   204,000                       75,000

                  Total liabilities & equities $960,000                   $405,000

Determine below what the consolidated balance would be for each of the requested accounts on January 2, 2013.

a. What amount of inventory will be reported?

b. What amount of goodwill will be reported?   

c. What is the amount of consolidated retained earnings?

d. What is the amount of total assets?

Business   Accounting   
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Answer #1

a. amount of inventory = Balance in Pamela Co. + Fair value of snicker inventory

amount of inventory = $99000 + $45000

amount of inventory = $144000

b. Amount of goodwill = $0 (As the Fair value of taken over assets is equal to cost of investment)

c. Amount of Retained Earnings = Earnings of Pamela Co. = $204000

d. Amount of Total Assets = Total Assets of Pamela + Total Fair value of Snicker - Investment

Amount of Total Assets = 960000 + 565000 - 330000

Amount of Total Assets = $1195000

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