Problem III. (30 points). On January 1, 2016, Parent Corporation acquired 100% o
ID: 3168064 • Letter: P
Question
Problem III. (30 points).
On January 1, 2016, Parent Corporation acquired 100% of the common shares of Sub Corporation paying $1,800,000 in cash, $350,000 (present value) in contingent performance consideration to be paid if revenue targets are achieved during 2016, and issued 20,000 shares of Parent’s common shares ($10 par) at a fair value of $80 per share. Sub will continue to operate as a separate legal entity. In addition to the acquisition, Parent Corp. spent $65,000 in direct combination costs and $28,000 in stock issue costs.
In addition, Sub Corporation’s computers and equipment (20-year remaining life) were overvalued by $620,000, capitalized software (8-year life) was undervalued by $800,000, Notes payable were overvalued by $100,000 (5-year life), and unrecorded in-process research and development of $680,000 (unlimited life). The net assets of Sub Corp. are provided below:
(1a) Prepare the allocation of the acquisition of Sub Corporation; show all of your calculations in good form:
(1b) Prepare a schedule calculating the excess amortization as a result of the acquisition above:
(2) Prepare the journal entry to record the acquisition of Sub Corp. on January 1, 2016:
(3) Prepare the journal entry or entries to record the direct combination costs and the stock issue costs on January 1, 2016:
After the combination and the direct combination and stock issue costs were recorded and posted, the post-acquisition balance sheet at January 1, 2016 was as follows:
Note: The Investment account and Parent Corp’s equity accounts were intentionally left blank, as well as Total Assets and the Parent’s equity account balances at 1-1-16.
(4) Without preparing a worksheet, prepare Consolidation Worksheet S at January 1, 2016:
S
(5) Without preparing a worksheet, prepare Consolidation Worksheet A at January 1, 2016:
A
Sub Corp's Book Values Cash Receivables (net) Invent Computers and Equipment (net) Capitalized Software (net) In-Process R & D Notes Payable S 430,000 160,000 880,000 3,420,000 1,400,000 Net Assets S 2,290,000Explanation / Answer
Acquisition Allocation
Cash $1,800,000
Contingent performance Consideration $350,000
Common Stock issued (20000*80) $1,600,000
$3,750,000
Computation of Goodwill
Fair Value of Consideration Given(3750000) $ 3,750,000.00
Fair value of Consideration Acquired $ 4,150,000.00
Goodwill/(Bargain Purchase) $ (400,000.00)
Computation of additional paid in capital
No. of shares issued 20000
Issue price in excess of par value($80-$10) $70
Total (20000*$70) $1,400,000
Less:Deferred stock issue cost $28,000
Increase in additional paid in capital $1,372,000
Fair value of consideration acquired
Cash $ 430,000.00
Receivables (net) $ 160,000.00
Inventory $ 880,000.00
Computers and Equipment (net) $ 2,800,000.00
Capitalized Software (net) $ 2,200,000.00
In-Process R & D $ 680,000.00
Notes Payable $ (3,000,000.00)
Net Assets $ 4,150,000.00
2 Cash $ 430,000.00
Receivables (net) $ 160,000.00
Inventory $ 880,000.00
Computers and Equipment (net) $2,800,000.00
Capitalized Software (net) $2,200,000.00
In-Process R & D $ 680,000.00
Bargain Purchase $ 400,000.00
Notes Pyable $3,000,000
Cash $1,800,000
Contingent performance Consideration $350,000
Common Stock issued (20000*10) $200,000
Additional paid in capital $1,372,000
Stock issue exps $28,000
3 Business Combination exp Dr. $65,000
To cash $65,000
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