Asked by Chelianne Leata Miller on May 03, 2024
Verified
Sonic Enterprises Inc has decided to purchase 100% of the voting shares of Jackson Inc. for $300,000 in cash on May 1, 2019. On the date, the balance sheets of each of these companies were as follows:
Sonic Inc Jackson Inc Cash and Short-Term Securities $750,000$30,000 Inventory $60,000$20,000 Plant and Equipment (net) $280,000$140,000 Total Assets $1,090,000$190,000 Current Liabilities $150,000$25,000 Bonds Payable $120,000$30,000 Common Shares $120,000$70,000 Retained Earnings $700,000$65,000 Total Liabilities and Equity $1,090,000$190,000\begin{array}{|l|r|r|}\hline & \text { Sonic Inc } & \text { Jackson Inc } \\\hline \begin{array}{l}\text { Cash and Short-Term } \\\text { Securities }\end{array} & \$ 750,000 & \$ 30,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 20,000 \\\hline \text { Plant and Equipment (net) } & \$ 280,000 & \$ 140,000 \\\hline \text { Total Assets } & \$ 1,090,000 & \$ 190,000 \\\hline \text { Current Liabilities } & \$ 150,000 & \$ 25,000 \\\hline \text { Bonds Payable } & \$ 120,000 & \$ 30,000 \\\hline \text { Common Shares } & \$ 120,000 & \$ 70,000 \\\hline \text { Retained Earnings } & \$ 700,000 & \$ 65,000 \\\hline \text { Total Liabilities and Equity } & \$ 1,090,000 & \$ 190,000\\\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 Sonic Inc $750,000$60,000$280,000$1,090,000$150,000$120,000$120,000$700,000$1,090,000 Jackson Inc $30,000$20,000$140,000$190,000$25,000$30,000$70,000$65,000$190,000 On that date, the fair values of Jackson's assets and liabilities were as follows:
Cash and Short-Term Securities $40,000 Inventory $15,000 Plant and Equipment (net) $250,000 Current Liabilities $25,000 Bonds Payable $25,000\begin{array}{|l|r|}\hline \text { Cash and Short-Term Securities } & \$ 40,000 \\\hline \text { Inventory } & \$ 15,000 \\\hline \text { Plant and Equipment (net) } & \$ 250,000 \\\hline \text { Current Liabilities } & \$ 25,000 \\\hline \text { Bonds Payable } & \$ 25,000\\\hline\end{array} Cash and Short-Term Securities Inventory Plant and Equipment (net) Current Liabilities Bonds Payable $40,000$15,000$250,000$25,000$25,000 Sonic's Book Values approximated their Fair Values on that date.
Required:
a) Calculate the amount of Goodwill arising from this combination.
b) Prepare the journal entry to record Sonic's acquisition of Jackson's Shares.
c) Prepare Sonic's Consolidated Balance Sheet immediately following its acquisition of Jackson's assets.
Goodwill
An intangible asset that represents the excess of the purchase price over the fair value of identifiable net assets of a business acquired.
Journal Entry
A record in the accounts of a business which shows a financial transaction, including debits and credits, to maintain the accuracy of the financial statements.
Consolidated Balance Sheet
A financial statement combining all assets, liabilities, and equity of a parent company and its subsidiaries, presenting the financial position of the entire group.
- Assess and understand goodwill produced by the combining of enterprises.
- Formulate and expound upon consolidated financial statements after acquisition, including the essential consolidation entries and adjustments.
- Identify and gauge the equitable value of assets and liabilities incorporated through a business consolidation.
Verified Answer
KC
Katisha CarterMay 10, 2024
Final Answer :
a)
Purchase Price $300,000 Less: Net Book Value of net Assets 135,000‾ Acquired: Acquisition Differential $165,000 Allocated: Cash and Short-Term Securities: $40,00010,000−30,000 Inventory: $15,000−20,000(5,000) Plant and Equipment (net) $250,000−110,000140,000 Bonds Payable 25,000−30,0005,000‾ Goodwill: $45,000\begin{array}{|l|r|}\hline \text { Purchase Price } & \$ 300,000 \\\hline \text { Less: Net Book Value of net Assets } & \underline{135,000} \\ \text { Acquired: } & \\\hline \text { Acquisition Differential } &\$ 165,000\\\hline \text { Allocated: } & \\\hline \text { Cash and Short-Term Securities: } \$ 40,000 & 10,000 \\-30,000 & \\\hline \text { Inventory: } \$ 15,000-20,000 & (5,000) \\\hline \text { Plant and Equipment (net) } \$ 250,000- & 110,000 \\140,000 & \\\hline \text { Bonds Payable } 25,000-30,000 & \underline{5,000} \\\hline \text { Goodwill: } & \$ 45,000\\\hline\end{array} Purchase Price Less: Net Book Value of net Assets Acquired: Acquisition Differential Allocated: Cash and Short-Term Securities: $40,000−30,000 Inventory: $15,000−20,000 Plant and Equipment (net) $250,000−140,000 Bonds Payable 25,000−30,000 Goodwill: $300,000135,000$165,00010,000(5,000)110,0005,000$45,000 b)
Investment in Jackson Inc. $300,000 Cash $300,000\begin{array}{|l|r|r|}\hline \text { Investment in Jackson Inc. } & \$ 300,000 & \\\hline \text { Cash } & & \$ 300,000 \\\hline\end{array} Investment in Jackson Inc. Cash $300,000$300,000 c) SONIC INC.
Consolidated Balance Sheet
as at May 1, 2019
ASSETS Cash & Short-Term Securities (750,000−$490,000300,000+30,000+10,000) Inventory (60,000+20,000−5,000)$75,000 Plant & Equipment (net) (280,000+$530,000140,000+110,000) Goodwill $45,000 Total Assets $1,140,000 LLABLITES Current Liabilities (150,000+25,000)$175,000 Bonds Payable (120,000+30,000−5,000)$145,000 Total Liabilities $320,000 Shareholder’s’ Equity Common Shares $120,000 Retained Earnings $700,000 Total Shareholders’ Equity $820,000 Total Liabilities and Shareholders’ Equity $1,140,000\begin{array}{|l|l|}\hline \text { ASSETS } & \\\hline \text { Cash \& Short-Term Securities }(750,000- & \$ 490,000 \\300,000+30,000+10,000) \\\hline \text { Inventory }(60,000+20,000-5,000) & \$ 75,000 \\\hline\text { Plant \& Equipment (net) }(280,000+ & \$ 530,000 \\140,000+110,000) &\\\hline \text { Goodwill } & \$ 45,000 \\\hline \text { Total Assets } & \$ 1,140,000 \\\hline \text { LLABLITES } & \\\hline \text { Current Liabilities }(150,000+25,000) & \$ 175,000 \\\hline \text { Bonds Payable }(120,000+30,000-5,000) & \$ 145,000 \\\hline \text { Total Liabilities } & \$ 320,000 \\\hline \text { Shareholder's' Equity } & \\\hline \text { Common Shares } & \$ 120,000 \\\hline \text { Retained Earnings } & \$ 700,000 \\\hline \text { Total Shareholders' Equity } & \$ 820,000 \\\hline \text { Total Liabilities and Shareholders' Equity } & \$ 1,140,000\\\hline\end{array} ASSETS Cash & Short-Term Securities (750,000−300,000+30,000+10,000) Inventory (60,000+20,000−5,000) Plant & Equipment (net) (280,000+140,000+110,000) Goodwill Total Assets LLABLITES Current Liabilities (150,000+25,000) Bonds Payable (120,000+30,000−5,000) Total Liabilities Shareholder’s’ Equity Common Shares Retained Earnings Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity $490,000$75,000$530,000$45,000$1,140,000$175,000$145,000$320,000$120,000$700,000$820,000$1,140,000 Note that Sonic's Fair Values are not relevant to the Answer.
Purchase Price $300,000 Less: Net Book Value of net Assets 135,000‾ Acquired: Acquisition Differential $165,000 Allocated: Cash and Short-Term Securities: $40,00010,000−30,000 Inventory: $15,000−20,000(5,000) Plant and Equipment (net) $250,000−110,000140,000 Bonds Payable 25,000−30,0005,000‾ Goodwill: $45,000\begin{array}{|l|r|}\hline \text { Purchase Price } & \$ 300,000 \\\hline \text { Less: Net Book Value of net Assets } & \underline{135,000} \\ \text { Acquired: } & \\\hline \text { Acquisition Differential } &\$ 165,000\\\hline \text { Allocated: } & \\\hline \text { Cash and Short-Term Securities: } \$ 40,000 & 10,000 \\-30,000 & \\\hline \text { Inventory: } \$ 15,000-20,000 & (5,000) \\\hline \text { Plant and Equipment (net) } \$ 250,000- & 110,000 \\140,000 & \\\hline \text { Bonds Payable } 25,000-30,000 & \underline{5,000} \\\hline \text { Goodwill: } & \$ 45,000\\\hline\end{array} Purchase Price Less: Net Book Value of net Assets Acquired: Acquisition Differential Allocated: Cash and Short-Term Securities: $40,000−30,000 Inventory: $15,000−20,000 Plant and Equipment (net) $250,000−140,000 Bonds Payable 25,000−30,000 Goodwill: $300,000135,000$165,00010,000(5,000)110,0005,000$45,000 b)
Investment in Jackson Inc. $300,000 Cash $300,000\begin{array}{|l|r|r|}\hline \text { Investment in Jackson Inc. } & \$ 300,000 & \\\hline \text { Cash } & & \$ 300,000 \\\hline\end{array} Investment in Jackson Inc. Cash $300,000$300,000 c) SONIC INC.
Consolidated Balance Sheet
as at May 1, 2019
ASSETS Cash & Short-Term Securities (750,000−$490,000300,000+30,000+10,000) Inventory (60,000+20,000−5,000)$75,000 Plant & Equipment (net) (280,000+$530,000140,000+110,000) Goodwill $45,000 Total Assets $1,140,000 LLABLITES Current Liabilities (150,000+25,000)$175,000 Bonds Payable (120,000+30,000−5,000)$145,000 Total Liabilities $320,000 Shareholder’s’ Equity Common Shares $120,000 Retained Earnings $700,000 Total Shareholders’ Equity $820,000 Total Liabilities and Shareholders’ Equity $1,140,000\begin{array}{|l|l|}\hline \text { ASSETS } & \\\hline \text { Cash \& Short-Term Securities }(750,000- & \$ 490,000 \\300,000+30,000+10,000) \\\hline \text { Inventory }(60,000+20,000-5,000) & \$ 75,000 \\\hline\text { Plant \& Equipment (net) }(280,000+ & \$ 530,000 \\140,000+110,000) &\\\hline \text { Goodwill } & \$ 45,000 \\\hline \text { Total Assets } & \$ 1,140,000 \\\hline \text { LLABLITES } & \\\hline \text { Current Liabilities }(150,000+25,000) & \$ 175,000 \\\hline \text { Bonds Payable }(120,000+30,000-5,000) & \$ 145,000 \\\hline \text { Total Liabilities } & \$ 320,000 \\\hline \text { Shareholder's' Equity } & \\\hline \text { Common Shares } & \$ 120,000 \\\hline \text { Retained Earnings } & \$ 700,000 \\\hline \text { Total Shareholders' Equity } & \$ 820,000 \\\hline \text { Total Liabilities and Shareholders' Equity } & \$ 1,140,000\\\hline\end{array} ASSETS Cash & Short-Term Securities (750,000−300,000+30,000+10,000) Inventory (60,000+20,000−5,000) Plant & Equipment (net) (280,000+140,000+110,000) Goodwill Total Assets LLABLITES Current Liabilities (150,000+25,000) Bonds Payable (120,000+30,000−5,000) Total Liabilities Shareholder’s’ Equity Common Shares Retained Earnings Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity $490,000$75,000$530,000$45,000$1,140,000$175,000$145,000$320,000$120,000$700,000$820,000$1,140,000 Note that Sonic's Fair Values are not relevant to the Answer.
Learning Objectives
- Assess and understand goodwill produced by the combining of enterprises.
- Formulate and expound upon consolidated financial statements after acquisition, including the essential consolidation entries and adjustments.
- Identify and gauge the equitable value of assets and liabilities incorporated through a business consolidation.
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