Asked by Megan Green on Jun 20, 2024
Verified
On April 1, 2019, the balance sheets of Optimum Inc. and Electra Inc. were as follows:
Optimum Inc Electra Inc Cash and Short-Term Securities $380,000$20,000 Inventory $50,000$10,000 Plant and Equipment (net) $320,000$120,000 Total Assets $750,000$150,000 Current Liabilities $75,000$15,000 Bonds Payable $100,000$30,000 Common Shares $150,000$55,000 Retained Earnings $425,000$50,000 Total Liabilities and Equity $750,000$150,000\begin{array}{|l|r|r|}\hline & \text { Optimum Inc } & \text { Electra Inc } \\\hline \begin{array}{l}\text { Cash and Short-Term } \\\text { Securities }\end{array} & \$ 380,000 & \$ 20,000 \\\hline \text { Inventory } & \$ 50,000 & \$ 10,000 \\\hline \text { Plant and Equipment (net) } & \$ 320,000 & \$ 120,000 \\\hline \text { Total Assets } & \$ 750,000 & \$ 150,000 \\\hline \text { Current Liabilities } & \$ 75,000 & \$ 15,000 \\\hline \text { Bonds Payable } & \$ 100,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 150,000 & \$ 55,000 \\\hline \text { Retained Earnings } & \$ 425,000 & \$ 50,000 \\\hline \text { Total Liabilities and Equity } & \$ 750,000 & \$ 150,000 \\\hline\end{array} Cash and Short-Term Securities Inventory Plant and Equipment (net) Total Assets Current Liabilities Bonds Payable Common Shares Retained Earnings Total Liabilities and Equity Optimum Inc $380,000$50,000$320,000$750,000$75,000$100,000$150,000$425,000$750,000 Electra Inc $20,000$10,000$120,000$150,000$15,000$30,000$55,000$50,000$150,000 On that date, the fair values of Electra's Assets and Liabilities were as follows:
Short-Term Securities $32,000 Inventory $5,000 Plant and Equipment (net) $150,000 Current Liabilities $15,000 Bonds Payable $28,000\begin{array}{|l|r|}\hline \text { Short-Term Securities } & \$ 32,000 \\\hline \text { Inventory } & \$ 5,000 \\\hline \text { Plant and Equipment (net) } & \$ 150,000 \\\hline \text { Current Liabilities } & \$ 15,000 \\\hline \text { Bonds Payable } & \$ 28,000\\\hline \end{array} Short-Term Securities Inventory Plant and Equipment (net) Current Liabilities Bonds Payable $32,000$5,000$150,000$15,000$28,000 On April 1, 2019, Optimum issued 5,000 new common shares with a market value of $50.00 per share as consideration for Electra's net assets. Prior to the issue, Optimum had 10,000 outstanding common shares.
Required:
a) Calculate the amount of Goodwill arising from this combination.
b) Prepare the journal entry to record Optimum's acquisition of Electra's assets.
c) Prepare Optimum's Consolidated Balance Sheet immediately following its acquisition of Electra's assets.
d) Prepare Electra's Balance Sheet following the acquisition.
Goodwill
An intangible asset that arises when a company acquires another for a price higher than the fair value of its net identifiable assets.
Fair Values
The monetary amount expected from selling an asset or required to cover a liability, in a well-organized deal among market stakeholders, at the time of assessment.
- Determine and perceive goodwill emanating from corporate unions.
- Assemble and decipher consolidated financial statements after an acquisition, encompassing necessary consolidation entries and adjustments.
- Determine and quantify the equitable market value of assets and liabilities garnered in a business amalgamation.
Verified Answer
YG
Yissel GomezJun 27, 2024
Final Answer :
a)
Purchase Price: $250,000 Less: Fair value of Net Assets Acquired: $144,000 Goodwill: $106,000\begin{array}{|l|l|}\hline \text { Purchase Price: } & \$ 250,000 \\\hline \text { Less: Fair value of Net Assets Acquired: } & \$ 144,000 \\\hline \text { Goodwill: } & \$ 106,000\\\hline\end{array} Purchase Price: Less: Fair value of Net Assets Acquired: Goodwill: $250,000$144,000$106,000 b)
Cash & Short-Term Securities $32,000 Inventory $5,000 Plant & Equipment (net) $150,000 Current Liabilities $15,000 Bonds Payable $28,000 Goodwill $106,000 Common Shares $250,000\begin{array}{|l|r|r|}\hline \text { Cash \& Short-Term Securities } & \$ 32,000 \\\hline \text { Inventory } & \$ 5,000 & \\\hline \text { Plant \& Equipment (net) } & \$ 150,000 & \\\hline \text { Current Liabilities } & & \$ 15,000 \\\hline\text { Bonds Payable } & & \$ 28,000 \\\hline \text { Goodwill } & \$ 106,000 & \\\hline \text { Common Shares } & & \$ 250,000\\\hline\end{array} Cash & Short-Term Securities Inventory Plant & Equipment (net) Current Liabilities Bonds Payable Goodwill Common Shares $32,000$5,000$150,000$106,000$15,000$28,000$250,000 c) OPTIMUM INC.
Consolidated Balance Sheet
as at April 1, 2019
ASSETS: Cash & Short-Term Securities $412,000 Inventory $55,000 Plant & Equipment (net) $470,000 Goodwill $106,000 Total Assets $1,043,000 LIABLITES: Current Liabilities $90,000 Bonds Payable $128,000 Total Liabilities $218,000 Shareholders’ Equity Common Shares $400,000 Retained Earnings $425,000 Total Shareholders’ Equity $825,000 Total Liabilities and Shareholders’ Equity $1,043,000\begin{array}{|l|r|}\hline \text { ASSETS: } & \\\hline \text { Cash \& Short-Term Securities } & \$ 412,000 \\\hline \text { Inventory } & \$ 55,000 \\\hline \text { Plant \& Equipment (net) } & \$ 470,000 \\\hline \text { Goodwill } & \$ 106,000 \\\hline \text { Total Assets } & \$ 1,043,000 \\\hline \text { LIABLITES: } & \\\hline \text { Current Liabilities } & \$ 90,000 \\\hline \text { Bonds Payable } & \$ 128,000 \\\hline \text { Total Liabilities } & \$ 218,000 \\\hline \text { Shareholders' Equity } & \\\hline \text { Common Shares } & \$ 400,000 \\\hline \text { Retained Earnings } & \$ 425,000 \\\hline \text { Total Shareholders' Equity } & \$ 825,000 \\\hline \text { Total Liabilities and Shareholders' Equity } & \$ 1,043,000\\\hline\end{array} ASSETS: Cash & Short-Term Securities Inventory Plant & Equipment (net) Goodwill Total Assets LIABLITES: Current Liabilities Bonds Payable Total Liabilities Shareholders’ Equity Common Shares Retained Earnings Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity $412,000$55,000$470,000$106,000$1,043,000$90,000$128,000$218,000$400,000$425,000$825,000$1,043,000 d) ELECTRA INC.
Balance Sheet
as at April 1, 2019
ASSETS: Investment in Optimum Inc. $250,000 TOTAL ASSETS $250,000 Shareholders’ Equity: Common Shares $55,000 Retained Earnings $195,000 Total Shareholder’s’Equity $250,000\begin{array}{|l|r|}\hline \text { ASSETS: } & \\\hline \text { Investment in Optimum Inc. } & \$ 250,000 \\\hline \text { TOTAL ASSETS } & \$ 250,000 \\\hline \text { Shareholders' Equity: } & \\\hline \text { Common Shares } & \$ 55,000 \\\hline \text { Retained Earnings } &\$ 195,000 \\\hline \text { Total Shareholder's'Equity } &\$ 250,000 \\\hline\end{array} ASSETS: Investment in Optimum Inc. TOTAL ASSETS Shareholders’ Equity: Common Shares Retained Earnings Total Shareholder’s’Equity $250,000$250,000$55,000$195,000$250,000
Purchase Price: $250,000 Less: Fair value of Net Assets Acquired: $144,000 Goodwill: $106,000\begin{array}{|l|l|}\hline \text { Purchase Price: } & \$ 250,000 \\\hline \text { Less: Fair value of Net Assets Acquired: } & \$ 144,000 \\\hline \text { Goodwill: } & \$ 106,000\\\hline\end{array} Purchase Price: Less: Fair value of Net Assets Acquired: Goodwill: $250,000$144,000$106,000 b)
Cash & Short-Term Securities $32,000 Inventory $5,000 Plant & Equipment (net) $150,000 Current Liabilities $15,000 Bonds Payable $28,000 Goodwill $106,000 Common Shares $250,000\begin{array}{|l|r|r|}\hline \text { Cash \& Short-Term Securities } & \$ 32,000 \\\hline \text { Inventory } & \$ 5,000 & \\\hline \text { Plant \& Equipment (net) } & \$ 150,000 & \\\hline \text { Current Liabilities } & & \$ 15,000 \\\hline\text { Bonds Payable } & & \$ 28,000 \\\hline \text { Goodwill } & \$ 106,000 & \\\hline \text { Common Shares } & & \$ 250,000\\\hline\end{array} Cash & Short-Term Securities Inventory Plant & Equipment (net) Current Liabilities Bonds Payable Goodwill Common Shares $32,000$5,000$150,000$106,000$15,000$28,000$250,000 c) OPTIMUM INC.
Consolidated Balance Sheet
as at April 1, 2019
ASSETS: Cash & Short-Term Securities $412,000 Inventory $55,000 Plant & Equipment (net) $470,000 Goodwill $106,000 Total Assets $1,043,000 LIABLITES: Current Liabilities $90,000 Bonds Payable $128,000 Total Liabilities $218,000 Shareholders’ Equity Common Shares $400,000 Retained Earnings $425,000 Total Shareholders’ Equity $825,000 Total Liabilities and Shareholders’ Equity $1,043,000\begin{array}{|l|r|}\hline \text { ASSETS: } & \\\hline \text { Cash \& Short-Term Securities } & \$ 412,000 \\\hline \text { Inventory } & \$ 55,000 \\\hline \text { Plant \& Equipment (net) } & \$ 470,000 \\\hline \text { Goodwill } & \$ 106,000 \\\hline \text { Total Assets } & \$ 1,043,000 \\\hline \text { LIABLITES: } & \\\hline \text { Current Liabilities } & \$ 90,000 \\\hline \text { Bonds Payable } & \$ 128,000 \\\hline \text { Total Liabilities } & \$ 218,000 \\\hline \text { Shareholders' Equity } & \\\hline \text { Common Shares } & \$ 400,000 \\\hline \text { Retained Earnings } & \$ 425,000 \\\hline \text { Total Shareholders' Equity } & \$ 825,000 \\\hline \text { Total Liabilities and Shareholders' Equity } & \$ 1,043,000\\\hline\end{array} ASSETS: Cash & Short-Term Securities Inventory Plant & Equipment (net) Goodwill Total Assets LIABLITES: Current Liabilities Bonds Payable Total Liabilities Shareholders’ Equity Common Shares Retained Earnings Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity $412,000$55,000$470,000$106,000$1,043,000$90,000$128,000$218,000$400,000$425,000$825,000$1,043,000 d) ELECTRA INC.
Balance Sheet
as at April 1, 2019
ASSETS: Investment in Optimum Inc. $250,000 TOTAL ASSETS $250,000 Shareholders’ Equity: Common Shares $55,000 Retained Earnings $195,000 Total Shareholder’s’Equity $250,000\begin{array}{|l|r|}\hline \text { ASSETS: } & \\\hline \text { Investment in Optimum Inc. } & \$ 250,000 \\\hline \text { TOTAL ASSETS } & \$ 250,000 \\\hline \text { Shareholders' Equity: } & \\\hline \text { Common Shares } & \$ 55,000 \\\hline \text { Retained Earnings } &\$ 195,000 \\\hline \text { Total Shareholder's'Equity } &\$ 250,000 \\\hline\end{array} ASSETS: Investment in Optimum Inc. TOTAL ASSETS Shareholders’ Equity: Common Shares Retained Earnings Total Shareholder’s’Equity $250,000$250,000$55,000$195,000$250,000
Learning Objectives
- Determine and perceive goodwill emanating from corporate unions.
- Assemble and decipher consolidated financial statements after an acquisition, encompassing necessary consolidation entries and adjustments.
- Determine and quantify the equitable market value of assets and liabilities garnered in a business amalgamation.
Related questions
Sonic Enterprises Inc Has Decided to Purchase 100% of the ...
The Collins Company Paid $1,050,000 to Purchase 70% of Revsine ...
On January 2,2015,the Rambler Company Purchased 40% of the Outstanding ...
On September 1, 20X7, Spike Limited Decided to Buy 100 ...
Cheers Acquired 100% of Tapp's Shares for $144,000 ...