Question

On January 1, 2014, Punch Corporation purchased 80% of the common stock of Soopy Co. Separate...

On January 1, 2014, Punch Corporation purchased 80% of the common stock of Soopy Co. Separate balance sheet data for the companies at the acquisition date (after the acquisition) are given below:

                                                              Punch               Soopy

Cash $34,000           $206,000

Accounts Receivable 144,000               26,000

Inventory 132,000               38,000

Land 68,000               32,000

Plant assets 700,000             300,000

Accum. Depreciation                            (240,000)             (60,000)

Investment in Soopy                               392,000                           

Total assets                                      $  1,230,000           $ 542,000

Accounts payable                                 $206,000            $142,000

Capital stock 800,000             300,000

Retained earnings   224,000             100,000

Total liabilities & equities $1,230,000           $542,000

At the date of the acquisition, the book values of Soopy's net assets were equal to the fair value except for Soopy's inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts.

a). What amount of total liabilities will be reported?

b). What is the amount of total assets?

c). What amount of Inventory will be reported?

Business   Accounting   
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Homework Answers

Answer #1

Solution:

a). Total liabilities will be reported: 348,000

b). Amount of total assets: 234,000

c). Amount of Inventory: 192,000

Working:

Inventory: Combined inventory ($132,000 + 38,000) + Excess of the fair value over the book value ($22,000) = $192,000

Goodwill = Investment * 80%=392,000

Thus investment = 392,000 * 100/80 = 490,000

Book value = 400,000

490,000 - 400,000 = 90,000

Excess of fair value = 90,000 - 22,000 = 68,000

Cash

240,000

Accounts Receivable

170000

Inventory

192,000

Land

100000

Plant assets-net

700,000

Goodwill

68000

Total assets

1,470,000

　

Total liabilities: 206,000 + 142,000 = 348,000

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