Chapter 1 Business Combinations
7) The balance sheets of Palisade Company and Salisbury Corporation were as follows on December 31, 2010:
|
Palisade |
Salisbury |
|
|
Current Assets |
$260,000 |
$120,000 |
|
Equipment-net |
440,000 |
480,000 |
|
Buildings-net |
600,000 |
200,000 |
|
Land |
100,000 |
200,000 |
|
Total Assets |
$1,400,000 |
$1,000,000 |
|
Current Liabilities |
100,000 |
120,000 |
|
Common Stock, $5 par |
1,000,000 |
400,000 |
|
Additional paid-in Capital |
100,000 |
280,000 |
|
Retained Earnings |
200,000 |
200,000 |
|
Total Liabilities and Stockholders' equity |
$1,400,000 |
$1,000,000 |
On January 1, 2011 Palisade issued 30,000 of its shares with a market value of $40 per share in exchange for all of Salisbury's shares, and Salisbury was dissolved. Palisade paid $20,000 to register and issue the new common shares. It cost Palisade $50,000 in direct combination costs. Book values equal market values except that Salisbury's land is worth $250,000.
Required:
Prepare a Palisade balance sheet after the business combination on January 1, 2011.
8) On January 2, 2011, Pilates Inc. paid $900,000 for all of the outstanding common stock of Spinning Company, and dissolved Spinning Company. The carrying values for Spinning Company's assets and liabilities are recorded below.
Cash $200,000
Accounts Receivable 220,000
Copyrights (purchased) 400,000
Goodwill 120,000
Liabilities (180,000)
Net assets $760,000
On January 2, 2011, Spinning anticipated collecting $185,000 of the recorded Accounts Receivable. Pilates entered into the acquisition because Spinning had Copyrights that Pilates wished to own, and also unrecorded patents with a fair value of $100,000.
Required:
Calculate the amount of goodwill that will be recorded on Pilate's balance sheet as of the date of acquisition.
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Rating:
/5
Solution: Chapter 1 Business Combinations