Overview
1. Zaid Ltd and Zafar Ltd agreed to merge on January 1, 2019. On the date of the merger agreement, the companies reported the following data: (5 Marks)
Zaid Ltd | Zafar Ltd | |||
Book Value | Fair Value | Book Value | Fair Value | |
Current Assets | 190,000 | 240,000 | 50,000 | 62,000 |
Long Term Assets | 600,000 | 500,000 | 300,000 | 275,000 |
Accumulated Depreciation | (130,000) | (50,000) | ||
Total Assets | 660,000 | 740,000 | 300,000 | 337,000 |
Current Liabilities | 100,000 | 120,000 | 75,000 | 75,000 |
Common Stock | 300,000 | 50,000 | ||
Capital in excess of Par Value | 40,000 | 10,000 | ||
Retained Earnings | 220,000 | 165,000 | ||
Total Liabilities | 660,000 | 300,000 |
Zaid Ltd has 15,000 shares of its $20 par value shares outstanding on January 1, 20X3, and Zafar Ltd has 10,000 shares of $5 par value stock outstanding. The market values of the shares are $400 and $75, respectively.
Required:
Zaid Ltd issues 1,000 shares of stock in exchange for all of Zafar Ltd’s net assets. Prepare a balance sheet for the combined entity immediately following the merger.
Solution:
2) Plant Inc. a calendar year reporting company acquired 80% of Seed Inc.’s outstanding common stock for $ 484,000 on Dec. 31, 2018, when the fair value of Seed’s Net Assets was $ 568,000. The following data summarize the fair value calculation: (7 Marks )
Book Value Element | Amount $ | Life Remaining |
Common Stock | 150,000 | |
Retained Earnings | 135,000 | |
Under –Or-Over Valuation | ||
Inventory | (9700) | 2 Months |
Land | 48,000 | Indefinite |
Equipment | 96,000 | 8 Years |
Covenant –Not-To Compete | 40,000 | 5 Years |
Goodwill Element | 108,700 | Indefinite |
Total Cost | 568,000 |
Plant Inc. & Seed Inc.
Worksheet
As at Dec. 31, 2018
Balance Sheet | Plant ($) | Seed ($) |
Cash | 148,000 | 47,000 |
Account Receivable | 103,500 | 118,000 |
Inventory | 152,500 | 126,000 |
Investment in Seed - | ||
Book Value | 228,000 | |
Excess Cost | 226,400 | |
Land | 168,000 | 127,000 |
Building & Equipment | 400,000 | 309,000 |
Accumulated Depreciation | -16,000 | -102,000 |
Total Assets | 1,410,400 | 625,000 |
Payable & Accruals | 265,400 | 120,000 |
Long Term Assets | 290,000 | 220,000 |
Common Stock | 450,000 | 150,000 |
Retained Earnings | 405,000 | 135,000 |
Total Liabilities & Equity | 1,410,400 | 625,000 |
You are required to
(a) Prepare an Analysis of the Investment Account Through Dec. 31, 2018. Show clearly Book Value and Excess Value calculation by preparing tables.
(b) Prepare all consolidation (Elimination Entries) as of Dec. 31, 2018.
(c) Prepare a Consolidated Worksheet as at Dec. 31, 2018.
Solution:
- Baskin Corporation pays $ 420,000 for Camlin Inc. and that the estimated FMV of Assets, Liabilities and Equity are as follows: (3 Mark)
Account Receivable 100,000
Inventory 50,000
PP & E 200,000
Total Assets 350,000
Liabilities 70,000
Retained Earnings 80,000
Common Stock 200,000
Liabilities & Equities 350,000
Determine the amount of Goodwill.
Solution: