2.2. The balance sheets of
Petrello Company and Sanchez Company as of January 1, 2014, are presented
below. On that date, afer an extended period of negotiation, the two companies
agreed to merge. To effect the merger, Petrello Company is to exchange its unissued
common stock for all the outstanding shares of Sanchez Company in the ratio of
½ share of Petrello for each share of Sanchez. Market values of the shares were
agreed on as Petrello, $48 and Sanchez $24. The fair values of Sanchez
Company’s assets and liabilities are equal to their book values with the
exception of plant and equipment, which has an estimated fair values of
$720,000.
|
Pretello |
Sanchez |
|
|
Cash |
$ 480,000 |
$ 200,000 |
|
Receivables |
480,000 |
240,000 |
|
Inventories |
2,000,000 |
240,000 |
|
Plant and equipment (net) |
3,840,000 |
800,000 |
|
Total assets |
6,800,000 |
1,480,000 |
|
Liabilities |
1,200,000 |
320,000 |
|
Common stock ($16 par value) |
3,440,000 |
800,000 |
|
Other contributed capital |
400,000 |
0 |
|
Retained earnings |
1,760,000 |
360,000 |
|
Total equities |
6,800,000 |
1,480,000 |
Required:
A.
Prepare journal entries in
Pretello book to record the aquisition.
B.
Prepare a balance sheet for
Pretello Company immediately after the merger.
2.4. P
Company Acquired the assets and assumed the liabilities of S Company on January
1, 2014, for $510,000 when S Company’s balance sheet was as follows:
|
Cash |
$ |
Account Payable |
$ 44,400 |
|
Receivables |
55,200 |
Bonds Payable, 10% |
|
|
Inventory |
110,400 |
Due 12/31/2019 |
480,000 |
|
Land |
169,200 |
Common Stock, $2 par v. |
120.000 |
|
Plant and Equipments (net) |
466,800 |
Retained Earnings |
253,200 |
|
Total |
$ 897,600 |
Total |
$ 897,600 |
Fair
value of S Company’s assets and liabilities were equal to their book values
except for the following:
1. Inventory has a fair value of
$126,000
2. Land has a fair value of $198,000
3. The bonds pay interest semiannually
on June 30 and December 31. The current yield rate on bonds of similar risk is
8%
Required: Prepare journal entry on P
Company’s books to record the acquisition of the assets
and assumption of the liabilities of S Company.
2.5.Pritano
Company acquired all the net assets of Succo Company on December 31, 2014, for
$2,160,000 cash. The balance sheet of Succo Company immediately prior to the
acquisition showed:
|
Book Value |
Fair Value |
|
|
Current assets |
$ 960,000 |
$ 960,000 |
|
Plant and equipment |
1,080,000 |
1,440,000 |
|
Total |
$ 2,040,000 |
$ 2,400,000 |
|
Liabilities |
180,000 |
$ 216,000 |
|
Common Stock |
480,000 |
|
|
Other contributed capital |
600,000 |
|
|
Retained Earnings |
780,000 |
|
|
Total |
$ 2,040,000 |
As
part of the negotiations, Pritano agreed to pay the stockholders of Succo
$360,000 cash if the post combination
earnings of Pritano averaged $2,160,000 or more per year over the next two
years.
Required:
Prepare
the journal entries on the books of Pritano to record the acquisition on
December 31, 2014. It is expected that the earnings target is likely to be met.
