Question

1. Dr. Pepper Snapple Group (DPSG) acquired the assets and liabilities of Turquoise Water Inc. on September 30, 2018, in a merger. The acquisition involves the following payments:

Cash paid to Turquoise Water shareholders	$85,000,000
Cash paid to Morgan Stanley for consulting services	12,000,000
New stock issued, 100,000 shares, $0.50 par, fair value at acquisition	5,000,000
Stock registration fees, paid in cash	600,000
Earnings contingency, to be paid in three years, present value	2,000,000

Turquoise Water’s balance sheet just prior to the acquisition appears below. Fair value information on Turquoise Water’s assets and liabilities is also provided.

Turquoise Water, Inc.
	Book Value	Fair Value
Assets
Current assets	$   1,000,000	$      800,000
Plant and equipment, net	41,000,000	10,000,000
Patents and trademarks	3,400,000	20,000,000
Total assets	$ 45,400,000
Liabilities & Equity
Current liabilities	$      400,000	400,000
Long-term liabilities	40,000,000	41,000,000
Common stock, par value	500,000
Additional paid-in capital	8,500,000
Retained earnings	(2,000,000)
Accumulated OCI	(1,400,000)
Treasury stock	(600,000)
Total liabilities & equity	$ 45,400,000

In addition to the assets reported on Turquoise Water’s balance sheet, the following previously unreported intangible assets are identified:

	Fair Value
Bottlers’ franchise rights	$ 10,400,000
Non-competition agreements	4,000,000
Order backlogs	2,000,000

a. Prepare the journal entry DPSG makes to record this acquisition.

b. Now assume DPSG acquires all of the stock of Turquoise Water. Prepare the journal entry DPSG makes to record this stock acquisition.

Answer 1

a)
Date	Account Titles and Explanation	Debit	Credit
	Current assets	$        800,000.00
	Plant and equipment, net	$   10,000,000.00
	Patents and trademarks	$   20,000,000.00
	Bottlers’ franchise rights	$   10,400,000.00
	Non-competition agreements	$     4,000,000.00
	Order backlogs	$     2,000,000.00
	Merger expenses	$   12,000,000.00
	Goodwill	$   86,200,000.00
	Current liabilities		$      400,000.00
	Long-term liabilities		$ 41,000,000.00
	Common stock, par value		$        50,000.00
	Additional paid-in capital		$   4,350,000.00
	Earnout liability		$   2,000,000.00
	Cash (85,000,000 + 12,000,000 + 600,000)		$97,600,000
b)	Investment in Turquoise Water (85,000,000 + 12,000,000 - 5,000,000)	$   92,000,000.00
	Merger expenses	$   12,000,000.00
	Common stock, par value		$        50,000.00
	Additional paid-in capital		$   4,350,000.00
	Earnout liability		$   2,000,000.00
	Cash (85,000,000 + 12,000,000 + 600,000)		$97,600,000