Question

Pace corporation acquired 100 percent of spin company's common stock on January 1, 20X9. Balance sheet data for the two companies immediately following the acquisition follow:

Item Pace Corporation Spin Company
Cash $30,000 $25,000
Accounts Receivable 80,000 40,000
Inventory 150,000 55,000
Land 65,000 40,000
Buildings and Equipment 260,000 160,000
Less: Accumulated Depreciation (120,000) (50,000)
Investment in Spin Company Stock 150,000
Total Assets $615,000 $270,000
Accounts Payable $45,000 $33,000
Taxes Payable 20,000 8,000
Bonds Payable 200,000 100,000
Common Stock 50,000 20,000
Retained Earnings 300,000 109,000
Total Liabilities and Stockholders’ Equity $615,000 $270,000

At the date of the business combination, the book values of Spin's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, and land, which had a fair value of $50,000. The fair value of land for Pace Corporation was estimated at $80,000 immediately prior to the acquisition.

1. Based on the preceding information, at what amount should total land be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $130,000
b. $105,000
c. $115,000
d. $120,000

2. Based on the preceding information, what amount of total assets will appear in the consolidated balance sheet prepared immediately after the business combination?

a. $756,000
b. $735,000
c. $750,000
d. $642,000

3. Based on the preceding information, what is the differential associated with the acquisition?

a. $15,000
b. $21,000
c. $6,000
d. $10,000

4. Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $0
b. $21,000
c. $6,000
d. $15,000

5. Based on the preceding information, what amount of liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $615,000
b. $406,000
c. $300,000
d. $265,000

Answer 1

Answer:

Pace Corporation and Spin Company

1. Land should be reported in the consolidated balance sheet as

a. $130,000

2. Total assets:

b. $735,000

3. The differential associated with the acquisition:

b. $21,000

4. Goodwill

b. $21,000

5. Amount of liabilities in the consolidated balance sheet:

b. $406,000

Explanation:

a) Data:

Item                                                       Pace              Spin

                                                       Corporation     Company  

Cash                                                  $30,000        $25,000

Accounts Receivable                          80,000          40,000

Inventory                                            150,000          55,000

Land                                                    65,000          40,000

Buildings and Equipment                260,000         160,000

Less: Accumulated Depreciation   (120,000)        (50,000)

Investment: Spin Company Stock   150,000

Total Assets                                   $615,000       $270,000

Accounts Payable                         $45,000         $33,000

Taxes Payable                                20,000              8,000

Bonds Payable                             200,000          100,000

Common Stock                              50,000           20,000

Retained Earnings                       300,000          109,000

Total Liabilities and Stockholders’

  Equity                                      $615,000       $270,000

b) Consolidated Balance Sheets

Item                                     Pace             Spin            Total

                                      Corporation     Company    Group

Cash                                   $30,000      $25,000          $55,000

Accounts Receivable           80,000        40,000           120,000

Inventory                             150,000        60,000          210,000

Land                                     80,000        50,000           130,000

Buildings and Equipment 260,000       160,000         420,000

Less: Accumulated

  Depreciation                  (120,000)      (50,000)         (170,000)

Investment:

 Spin Company Stock      150,000                                 0

Goodwill                                                                           21,000

Total Assets                    $630,000    $285,000       $786,000

Accounts Payable            $45,000       $33,000         $78,000

Taxes Payable                   20,000            8,000           28,000

Bonds Payable                200,000        100,000         300,000

Common Stock                 50,000         20,000           50,000

Retained Earnings          300,000        109,000        300,000

Assets Revaluation           15,000          15,000          30,000

Total Liabilities and Stockholders’

  Equity                        $630,000     $285,000     $786,000

c) Differential on acquisition = investment (of subsidiary) - net assets

= $150,000 - ($270,000 - 141,000)  = $21,000