On Dec 31, 2017, the balance sheets of Paper Inc. and Scissors Inc. were as foll

Question

On Dec 31, 2017, the balance sheets of Paper Inc. and Scissors Inc. were as follows aper Inc Scissors ash and Short-Term 20,000 1es $50,000 10,000 $300,000 $120,000 $150,000 entory lant and Equipment (net Total Assets $750,000 urrent Liabilities $15,000 30,000 55,000 50,000 otal Liabilities and Equity S750,000$150,000 75,000 $100,000 150,000 425,000 onds Payable on Shares d Earnings On that date, the fair values of Scissors's Assets and Liabilities were as follows ash & Short-Term Securities 32,000 11,000 150,000 15,000 28,000 ventory lant and Equipment (net) Current Liabilities onds Payable

Explanation / Answer

a) Consideration amount = 6,000 shares*$40 per share = $240,000

Fair value of net assets acquired = Cash and short term securities+Inventory+Plant and equipment-Current Liabilities-Bonds payable = $32,000+$11,000+$150,000-$15,000-$28,000 = $150,000

Goodwill arising from this combination = Consideration - Fair value of net assets = $240,000 - $150,000 = $90,000

(b) Journal Entry (Amount in $)

(c) Paper's Balance Sheet after acquisition (Amount in $)

As the existing shares of Paper Inc is 10,000, the face value per share will be $15 per share ($150,000/10,000 shares). Therefore the face value of shares in consideration will be $90,000 (6,000 shares*$15 per share) and balance $150,000 (6,000 shares*$25 per share) will be a part of retained earnings.

(d) As all the assets and liabilities of Scissors Inc. to Paper Inc., Scissors Inc. will be liquidated and hence no Balance sheet will be prepared post acquisition.

Date Account titles Debit Credit Jan 1, 2018 Cash and Short term securities 32,000 Inventory 11,000 Plant and Equipment 150,000 Goodwill (Bal.fig.) 90,000 Current liabilities 15,000 Bonds payable 28,000 Business acquired 240,000 (To record Paper's acquisition of Scissor's net assets)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.