E1-9 Acquisition of Net Assets
Sun Corporation will record the following journal entries:
(1)
(2)
Assets
Goodwill
Liabilities
Cash
Merger Expense
Cash
71,000
9,000
20,000
60,000
4,000
4,000
E1-11 Stock Acquisition
Journal entry to record the purchase of Tippy Inc., shares:
Investment in Tippy Inc., Common Stock
Common Stock
Additional Paid-In Capital
$986,000 = $58 x 17,000 shares
$425,000 = $25 x 17,000 shares
$561,000 = ($58 - $25) x 17,000 shares
986,000
425,000
561,000
E1-13 Goodwill Recognition
Journal entry to record acquisition of Spur Corporation net assets:
Cash and Receivables
Inventory
Land
Plant and Equipment
Patent
Goodwill
Accounts Payable
Cash
40,000
150,000
30,000
350,000
130,000
55,000
85,000
670,000
E1-15 Bargain Purchase
Journal entry to record acquisition of Sorden Company net assets:
Cash and Receivables
Inventory
Land
Plant and Equipment
Discount on Bonds Payable
Accounts Payable
Bonds Payable
Gain on Bargain Purchase of Subsidiary
50,000
200,000
100,000
300,000
16,000
50,000
580,000
36,000
The gain represents the excess of the $600,000 fair value of the net assets
acquired ($650,000 - $50,000) over the $564,000 paid to purchase ownership.
E1-17 Assignment of Goodwill
a. No impairment loss will be recognized. The fair value of the reporting unit
($530,000) is greater than the carrying value of the investment ($500,000)
and goodwill does not need to be tested for impairment.
b. An impairment of goodwill of $15,000 will be recognized. The implied value of
goodwill is $45,000 ($485,000 - $440,000), which represents a $15,000
decrease from the original $60,000.
c. An impairment of goodwill of $50,000 will be recognized. The implied value of
goodwill is $10,000 ($450,000 - $440,000), which represents a $50,000
decrease from the original $60,000.
E1-23 Recording a Business Combination
Merger Expense
Deferred Stock Issue Costs
Cash
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Goodwill (1)
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Additional Paid-In Capital (2)
Deferred Stock Issue Costs
54,000
29,000
83,000
70,000
110,000
200,000
100,000
350,000
30,000
195,000
100,000
5,000
320,000
211,000
29,000
(1) Computation of goodwill:
Fair value of Sparse as a whole
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Goodwill
$560,000
$830,000
(300,000)
(530,000)
$ 30,000
(2) Computation of additional paid-in capital:
Market value of shares issued
($14 x 40,000)
Par value of shares issued ($8 x 40,000)
Additional paid-in capital from issuing shares
Stock issue costs
Additional paid-in capital recorded
$560,000
(320,000)
$240,000
(29,000)
$211,000
E1-24 Reporting Income
20X2:
Net income
Earnings per share
=
=
$6,028,000 [$2,500,000 + $3,528,000]
$5.48 [$6,028,000 / (1,000,000 + 100,000*)]
20X1:
Net income
Earnings per share
=
=
$4,460,000 [previously reported]
$4.46 [$4,460,000 / 1,000,000]
* 100,000 = 200,000 shares x ½ year