On June 30, 2017, Wisconsin, Inc., issued $267,350 in debt and 18,400 new shares
ID: 2392326 • Letter: O
Question
On June 30, 2017, Wisconsin, Inc., issued $267,350 in debt and 18,400 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2017, were as follows Wisconsin Badger s(985,000) 720,000 (265,000) (339,000) 201,000 (138,000) s (208,000) (138,000) Revenues Expenses Net income Retained earnings, 1/1 Net income Dividends declared (843,000) (265,000) 106,250 (1,001, 750) 0 s (346,000) Retained earnings, 6/30 Cash Receivables and inventory Patented technology Equipment (net) $ 59,000 $ 110,750 433,000 929,000 727,000 $2,199,750 180,000 372,000 619,000 (net) $1,230,000 Total assets Liabilities Common stock Additional paid-in capital Retained earningS $ (568, 000) (360,000) (270,000) (414,000) (200,000) (270,000) 346,000) (1,001,750 Total liabilities and equities s (2,199,750) $(1,230,000) Wisconsin also paid $30,800 to a broker for arranging the transaction. In addition, Wisconsin paid $43,100 in stock issuance costs Badger's equipment was actually worth $765,250, but its patented technology was valued at only $350,700 What are the consolidated balances for the following accounts? (Input all amounts as positive values)Explanation / Answer
Under the acquisition method, the shares issued by Wisconsin are recorded at fair value using the following journal entry:
Investment in Badger (value of debt and shares issued). 1,003,350
Common Stock (par value)................................................. 184,000
Additional Paid?In Capital (excess over par value)....... 552,000
Liabilities.................................................................................. 267,350
The payment to the broker is accounted for as an expense. The stock issue cost is a reduction in additional paid?in capital.
Professional Services Expense.............................................. 30,800
Additional Paid?In Capital.......................................................... 43,100
Cash ........................................................................................ 73,900
Allocation of Acquisition-Date Excess Fair Value:
Consideration transferred (fair value) for Badger Stock . $1,003,350
Book Value of Badger, 6/30...................................................... 816,000
Fair Value in Excess of Book Value................................. $187,350
Excess fair value (undervalued equipment)......................... 146,250
Excess fair value (overvalued patented technology)........ (21,300)
Goodwill................................................................................... $ 62,400
CONSOLIDATED BALANCES:
§ Net income (adjusted for professional services expense. The
figures earned by the subsidiary prior to the takeover
are not included)................................................................................ $ 234,200
§ Retained earnings, 1/1 (the figures earned by the subsidiary
prior to the takeover are not included)........................................ 843,000
§ Patented technology (the parent's book value plus the fair
value of the subsidiary)................................................................... 1,279,700
§ Goodwill (computed above)........................................................... 62,400
§ Liabilities (the parent's book value plus the fair value
of the subsidiary's debt plus the debt issued by the parent
in acquiring the subsidiary)............................................................ 1,249,350
§ Common stock (the parent's book value after recording
the newly?issued shares)................................................................ 544,000
§ Additional Paid?in Capital (the parent's book value
after recording the two entries above)......................................... 778,900
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