Solved by verified expert :Pinehollow
acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares
of its $1 par value stock. The shares have a fair value of $15 per share.
Pinehollow also paid $25,000 in direct acquisition costs. Prior to the
transaction, the have companies has the following balance sheets:
…………………………..
Assets
Pinehollow
Stonebriar
Cash
$
150,000
$
50,000
Accounts receivable……………..
500,000
350,000
Inventory………………………
900,000
600,000
Property, plant, and equipment(net).
1,850,000
900,000
……………………Totalassets
$3,400,000
$1,900,000
==========
==========
Liabilities
and Stockholders’ Equity
$
100,000
Current
liabilities……………..
$
300,000
Bonds
payable…………………..
1,000,000
600,000
Common stock ($1
par)……………
300,000
100,000
Paid-in capital in excess of
par….
800,000
900,000
Retained earnings……………….
1,000,000
200,000
……..Totalliabilitiesandequity
$3,400,000
$1,900,000
==========
==========
The fair
values of Stonebriar’s inventory and plant, property and equipment are $700,000
and $1,000,000, respectively.
________________________________________________________________
15.
Refer to the Pinehollow-Stonebriar Scenario. The
journal entry to record the purchase of Stonebriar would include a
a.
credit to common stock for $1,500,000.
b.
credit to additional paid-in capital for $1,100,000.
c.
credit to cash for $1,525,000.
d. debit to investment for
$1,525,000.
2-5
Chapter 2
16. Goodwill associated with the
purchase of Stonebriar is __________.
a.
$100,000
b.
$125,000
c.
$300,000
d. $325,000
17.
On April 1, 20X1, Paape Company paid $950,000 for
all the issued and outstanding stock of Simon Corporation in a transaction
properly recorded as a purchase. The recorded assets and liabilities of the
Prime Corporation on April 1, 20X1, follow:
Cash………………………………………
$ 80,000
Inventory………………………………….
240,000
Property
and equipment
(net of accumulated
depreciation
480,000
of
$320,000)…………………………….
Liabilities………………………………..
(180,000)
On April 1,
20X1, it was determined that the inventory of Paape had a fair value of
$190,000, and the property and equipment (net) had a fair value of $560,000.
What is the amount of goodwill resulting from the business combination?
a.
$0
b.
$120,000
c.
$300,000
d. $230,000
18.
Paro Company purchased 80% of the voting common
stock of Sabon Company for $900,000. There are no liabilities. The following
book and fair values are available:
………………….
Current assets
Book Value
Fair
Value
$100,000
$200,000
Land and
building……………….
200,000
200,000
Machinery………………………
300,000
600,000
Goodwill……………………….
100,000
?
Using the
parent company concept, the machinery will appear on the consolidated balance
sheet at __________.
a.
$600,000
b.
$540,000
c.
$480,000
d. $300,000
2-6
Chapter 2
19. When a company purchases
another company that has existing goodwill and the transaction is accounted for
as a stock acquisition, the goodwill should be treated in the following manner.
a. Goodwill on
the books of an acquired company should be disregarded.
b.
Goodwill is recorded prior to recording fixed
assets.
c. Goodwill is
not recorded until all assets are stated at full fair value.
d. Goodwill is treated
consistent with other tangible assets.
20. The SEC
requires the use of push-down accounting in some specific situations. Push-down
accounting results in:
a.
goodwill be recorded in the parent company separate
accounts.
b.
eliminating subsidiary retained earnings and paid-in
capital in excess of par.
c.
reflecting fair values on the subsidiary’s separate
accounts.
d.
changing the consolidation worksheet procedure
because no adjustment is necessary to eliminate the investment in subsidiary
account.
