Question

EXERCISE 3‐4 Purchase, Date of Acquisition LO 7 LO 8 LO 9 On January 1, 2018, Peach Company issued 1,500 of its $20 par value common shares with a fair value of $60 per share in exchange for the 2,000 outstanding common shares of Swartz Company in a purchase transaction. Registration costs amounted to $1,700, paid in cash. Just prior to the acquisition, the balance sheets of the two companies were as follows: Peach Company Swartz Company Cash $ 73,000 $ 13,000 Accounts receivable (net) 95,000 19,000 Inventory 58,000 25,000 Plant and equipment (net) 95,000 43,000 Land  26,000  22,000  Total assets $347,000 $122,000 Accounts payable $ 66,000 $ 18,000 Notes payable 82,000 21,000 Common stock, $20 par value 100,000 40,000 Other contributed capital 60,000 24,000 Retained earnings  39,000  19,000  Total equities $347,000 $122,000 Any difference between the book value of equity and the value implied by the purchase price relates to goodwill. Required: Prepare the journal entry on Peach Company's books to record the exchange of stock. Prepare a Computation and Allocation Schedule for the difference between book value and value implied by the purchase price. Prepare a consolidated balance sheet at the date of acquisition.

Answer 1

1.

No	Account Title and Explanation	Debit	Credit
1	Investment In Swartz Company (1,500×$60)	$90,000
	Common Stock (1,500×$20)		$30,000
	Other Contribution Capital (1,500×$40)		$60,000
2	Other Contributed Capital	$1,700
	Cash		$1,700

B. Computation and Allocation of Difference

	Parent Share	Non Controlling Share	Entire Value
Purchase Price and Implied Value	90,000	0	90,000
(-)Book Value of Equity	$83,000	0	$83,000
Difference between implied &book value	7,000	0	7,000
Good Will	(7,000)	0	(7,000)
Balance	0	0	0

Book Value of Equity = $40,000+$24,000+$19,000=$83,000

3. Peach Company and Subsidiary Consolidated Balancesheet January 1, 2018

Asset	Amount	Amount
Cash ($73,000+$13,000+$1,700)		$84,300
Accounts Receivable ($95, 000+$19,000)		$114,000
Inventory		$83,000
Plant and Equipment		$138,000
Land		$48,000
Good Will($90,000-$83,000)		$7,000
Total Asset		$474,300
Liabilities and Stockholders Equity
Accounts Payable		$84,000
Note Payable		$103,000
Total Liabilities		$187,000
Common stock ($100,000+$30,000)	$130,000
Other Contributed Capital ($60,000+$60,000-$1,700)	$118,300
Retained Earnings	$39,000
Total Stockholders Equity		$287,300
Total Liabilities and Stockholders Equity		$474,300