Acct Acquisitions and mergers

Problem #1

Pam Corporation issues 50,000 shares of its own $10 par common stock for all the outstanding stock of Sam Corporation in merger consummated on July 1, 19X7 (Sam Corporation dissolved). On this date, Pam stock is quoted at $23 per share. For this acquisition, Pam paid $10,000 legal fee and $5,000 for printing new stocks. Summary balance sheet data for the two companies at July 1, 19X7, just before combination, are as follow:

__________________ _______________________ __________________________

Pam Corporation Saam Corporation

___________________ Book Value Mkt Value Book Value Mkt Value

Accounts Receivable $2,800,000 $2,700,000 $250,000 $230,000

Plant assets 2,200,000 $2,500,000 650,000 850,000

Total assets $5,000,000 $5,200,000 $900,000

Accounts Payable $1,200,000 $1,200,000 $200,000 $200,000

Common stock--$10 par 3,000,000 350,000

Additional paid-in capital 300,000 100,000

Retained earnings 500,000 250,000

Total Equities $5,000,000 $900,000

An unrecorded patent for the amount of $100,000 with remaining useful life of 10-years was acquired from Saam Corporation in the process of acquisition.

Required:

1. If the business combination is treated as a purchase, show the journal entries for this acquisition. Show all your calculations.

2. Prepare balance sheet for Pam Corporation right after the acquisition.

Problem 2

Luball Corporation acquired an 80 percent interest in Tocurt Corporation on January 2, 20X2 for $800,000. On this date the capital stock and retained earnings of the two companies were as follows: ______________________________________________________

Luball Tocurt

______________________________________________________

Capital stock $2,000,000 $500,000

Retained earnings 600,000 200,000

_____________________________________________________

The assets and liabilities of Tocurt were stated at their fair values when Luball acquired its 80 percent interest. Luball uses the equity method to account for its investment in Tocurt.

Net income and dividends for 20X2 for the affiliated companies were:

______________________________________________________________

Luball Tocurt

_____________________________________________________________

Net income $300,000 $90,000

Dividends declared 180,000 50,000

Dividends payable Dec. 31, 20X2 90,000 25,000

____________________________________________________________

Required:

Calculate the amounts at which the following items should appear in the consolidated Financial statement on December 31, 20X2:

1. Capital stock

2. Goodwill

3. Consolidated retained earnings

4. Minority interest

5. Dividends payable

6. Investment income

7. Consolidated (controlling group) Net Income

8. Minority (non-controlling) income.

Which of the following will be debited to the Investment account when the equity method is used?

	a.	Depreciation of excess purchase cost attributable to investee equipment
	b.	Investee declaration of dividends
	c.	Investee net profits
	d.	Investee net losses On January 2, 20X1 Troquel Corporation bought 10 percent of Zafacon Corporation's capital stock for $80,000.  Zafacon's net income for the years ended December 31, 20X1 and December 31, 20X2 were $30,000 and $20,000, respectively.  During 20X2 Zafacon declared a dividend of $60,000.  No dividends were declared in 20X1.  What would be the balance of its investment account at the end of 20X2? a. Zero b. None of them. c. $80,000   d. $84,000 e. $79,000 On June 1, 2011, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000. On December 31, 2011, Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2011 consolidated balance sheet was a. $120,000. b. $180,000. c. $130,000. d. $170,000