1. On July 1, Winter Inc paid $50.000.000 by cash to acquire Summer Inc.
Summer Inc was dissolved
after acquisition. The information of Summer Inc net assets fair value is as follows ( in thousands)
January 1 July 1
Cash $10.000 $12.000
Account Receivable $20.000 $15.000
Inventories $25.000 $32.000
Plants Assets $40.000 $40.000
Account Payable $14.000 $15.000
Notes Payable $28.000 $25.000
Required : calculate the goodwill or the gain from bargain purchase of the business
combination !
Debit ( in thousands )
Cash $ 12.000
Account Receivable 15.000
Inventories 32.000
Plant Assets 40.000
Total $ 99.000
Credit ( in thousands )
Account Payable $ 15.000
Notes Payable 25.000
Total $ 40.000
Net assets = total assets – total liabilites
= $ 99.000 - $ 40.000
= $ 59.000
Gain from bargain purchase = net assets – investment
= $ 59.000 - $ 50.000
= $ 9.000
2. Van N.V. acquired Jong N.V. by issuing convertible bonds for $5.000.000 and 500.000 shares of
$10 par value of common stock with market value of $5.000.000. given below is the information of
Jong N.V. liabilities at the time of acquisition ( in thousand )
Book Value Fair Value
Account Payable $ 3.000 $ 2.500
Unearned Revenues $ 400 $ 400
Interest Payable $ 100 $ 100
Notes Payable $ 6.700 $ 6.700
Bonds Payable $12.000 $10.000
Required : determined the amount of Jong N.V. liabilties to be recognized by Van N.V. as a
result of the acquisition !
Book Value Fair Value
Account Payable $ 3.000 $ 2.500
Uearned Revenues 400 400
Interest Payable 100 100
Notes Payable 6.700 6.700
Bonds Payable 12.000 10.000
Total Liabilities $ 22.200 $ 19.700
3. Pat Corporation paid $ 5.000.000 for Saw Corporation’s voting common stock on January 2, 2011
and saw was dissolved. The purchase price consisted of 100.000 shares of Pat’s common stock with
a market value of $4.000.000 plus $1.000.000 cash. In addtion, Pat paid $100.000 for registering and
issuing the 100.000 shares of common stock and $200.000 for other costs of combination. Balance
sheet information for the companies immediately before the acquisition summarized as follow ( in
thousand )
Pat Saw
Book Value Book Value Fair Value
Cash $ 6.000 $ 480 $ 480
Account Receivable $ 2.600 $ 720 $ 720
Note Receivable - net $ 3.000 $ 600 $ 600
Inventories $ 5.000 $ 840 $ 1.000
Other Current Assets $ 1.400 $ 360 $ 400
Land $ 4.000 $ 200 $ 400
Building Net $18.000 $ 1.200 $ 2.400
Equipment Net $20.000 $ 1.600 $ 1.200
Total Assets $60.000 $ 6.000 $ 7.200
Account Payable $ 2.000 $ 600 $ 600
Mortgage Payable 10% $10.000 $ 1.400 $ 1.200
Capital Stock, $10 par $20.000 $ 2.000
Other paid in capital $16.000 $ 1.200
Retained Earning $12.000 $ 800
Total Equities $60.000 $ 6.000
Required :
a. prepare journal entries for Pat Corporation to record its acquisition of Saw Corporation,
including all allocations to individual assets and liability accounts !
Journal entries to record the acquisition of Saw Corporation
Investment in Saw $ 5.000.000
Capital stock, $10 par $ 1.000.000
Other paid in capital $ 3.000.000
Cash $ 1.000.000
(To record acquisition of saw for $ 100.000 shares of common stock and $ 1.000.000 cash)
Investment expense $ 200.000
Other paid in capital $ 100.000
Cash $ 300.000
(To record payment of coats to register and issue the shares of stock $100.000 and other costs of
combination)
Cash $ 480.000
Account Receivable $ 720.000
Notes Receivable $ 600.000
Inventories $1.000.000
Other current assets $ 400.000
Land $ 400.000
Buildings $2.400.000
Equipment $1.200.000
Account Payable $ 600.000
Mortgage Payable $1.200.000
Investment in Saw $5.000.000
Gain on bargain purchase $ 400.000
(To record the net assets of Saw at fair value and the gain on the bargain purchase)
Gain on bargain purchase calculation
Acquisition price $5.000.000
Fair value of net assets acquired $5.400.000
Gain on bargain purchase $ 400.000
b. Prepare a balance sheet for Pat Corporation on January 2,2011 immediately after the
acquisition and dissolution of Saw
Pat Corporation
Balance Sheet
At January 2,2011
(After Business Combination )
Assets
Current Assets
Cash $ 5.180.000
Account Receivable – net $ 3.320.000
Notes Receivable – net $ 3.600.000
Inventories $ 6.000.000
Other Current Assets $ 1.800.000
Total Current Assets $19.900.000
Plant assets
Land $ 4.400.000
Buiding – net $20.400.000
Equipment – net $21.200.000
Total Plant Assets $46.000.000
Total Assets $65.900.000
Libilities and Stockholders’ Equity
Liabilities
Account Payable $ 2.600.000
Mortgage payable $11.200.000
Total Liabilities $13.800.000
Stockholders’ Equity
Capital Stock $21.000.000
Other Paid In Capital $18.900.000
Retained Earnings $12.200.000
Total Stockholders’ Equity $52.100.000
Total Libilities and Stockholders’ Equity $65.900.000
