Sunday 28-11-2010 / / College of commerce
one hour
(30 marks) / Accounting department
Name: …………………………………………………… Id.:…………………………
Question 1: (5 marks)
PPP Corporation purchased the net assets of SSS Inc on January 2, 2010 for $280,000 and also paid $10,000 in direct acquisition costs. SSS's balance sheet on January 2, 2010 was as follows:Accounts receivable-net $ 90,000 Current liabilities $ 35,000
Inventory 180,000 Long term debt 80,000
Land 20,000 Common stock ($1 par) 10,000
Building-net 30,000 Paid-in capital 215,000
Equipment-net 40,000 Retained earnings 20,000
Total assets $360,000 Total liab. & equity $360,000
Fair values agree with book values except for inventory, land, and equipment, that have fair values of $200,000, $25,000 and $35,000, respectively. SSS has patent rights valued at $10,000.
Required:
Prepare PPP's general journal entry for the cash purchase of SSS's net assets.
Question 2: (7 marks)
On January 2, 2010PPP Corporation issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of SSS Company’s outstanding common shares in an acquisition. PPP paid $15,000 for registering and issuing securities and $10,000 for other direct costs of the business combination. The fair value and book value of SSS's identifiable assets and liabilities were the same. Summarized balance sheet information for both companies just before the acquisition on January 2, 2010 is as follows:PPP / SSS
Cash / $ 150,000 / $ 120,000
Inventories / 320,000 / 400,000
Other current assets / 500,000 / 500,000
Land / 350,000 / 250,000
Plant assets-net / 4,000,000 / 1,500,000
Total Assets / $5,320,000 / $2,770,000
Accounts payable / $1,000,000 / $ 300,000
Notes payable / 1,300,000 / 660,000
Capital stock, $5 par / 2,000,000 / 500,000
Paid-in capital / 1,000,000 / 100,000
Retained Earnings / 20,000 / 1,210,000
Total Liabilities & Equities / $5,320,000 / $2,770,000
Required:
Prepare a balance sheet for PPP Corporation immediately after the business combination.
PPP Corporation
Balance Sheet
January 1, 2010
Assets: Liabilities:
Cash Accounts payable
Inventory Notes payable
Other current assets Total liabilities
Total current assets
Land Equity:
Plant assets-net Common stock ($5 par)
Goodwill Paid-in capital
Total L.T. assets Retained earnings
Total equity
Total assets Total liab.& eq.
Question 3: (8 marks)
PPP Corporation paid $200,000 cash for 40% of the voting common stock of SSS Inc. on January 1, 2010. Book value and fair value information for Swamp on this date is as follows:Assets / Book
Values / Fair
Values
Cash / $ 60,000 / $ 60,000
Accounts receivable / 120,000 / 120,000
Inventories / 80,000 / 100,000
Equipment / 340,000 / 400,000
$ 600,000 / $ 680,000
Liabilities & Equities
Accounts payable / $ 200,000 / $ 200,000
Note payable / 120,000 / 100,000
Capital stock / 200,000
Retained earnings / 80,000
$ 600,000 / $ 300,000
Required:
Prepare an allocation schedule for PPP’s investment in SSS.
Computation and Allocation of Difference Schedule
Parent Non-Entire
ShareControllingValue
Share
Purchase price and implied value ………… ……………… …………
Less: Book value of equity acquired:
Common stock ………… ……………… …………
Other contributed capital ………… ……………… …………
Retained earnings ………… ……………… …………
Totalbook value ………… ……………… …………
Difference between implied and book value
Inventory ………… ……………… …………
Equipment ………… ……………… …………
Notes payable ………… ……………… …………
……………. ………… ……………… …………
……………. ………… ……………… …………
Balance
Question 4: (10 marks)
PPP Inc. acquired an 85% interest in SSS Corporation on January 2, 2010 for $38,000 cash when SSS had Capital Stock of $15,000 and Retained Earnings of $25,000. SSS’s assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000. Balance sheets for PPP and SSS on January 2, 2010, immediately after the business combination, are presented in the first two columns of the consolidated balance sheet working papers.PPP Corporation and Subsidiary
Consolidated Balance Sheet Working Papers
at January 1, 2010
PPP / Clock / Eliminations / Balance
Sheet
Debit / Credit
ASSETS:
Cash / $ / 68,000 / $ 4,000
Accounts
Receivable-net / 75,000 / 9,000
Inventories / 39,000 / 10,000
Plant assets-
Net / 170,000 / 35,000
Investment in
SSS / 38,000
Goodwill
Total
Assets / $ / 390,000 / $58,000
EQUITIES & LIB.:
Payables / $ / 120,000 / $18,000
Capital stock / 100,000 / 15,000
Retained
Earnings / 170,000 / 25,000
noncontrolling
Interest
Total equities & LIB. / $ / 390,000 / $58,000
Required:
Complete the consolidation balance sheet working papers for PPP and subsidiary at January 1, 2010.
With best wishes
Mohammad Marwan Al Ashi
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