Question

Bakel Corporation has the following December 31 account balances:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (400,000)
Common stock . . . . . . . . . . . . . . . . . . . . . (100,000)
Additional paid-in capital . . . . . . . . . . . . . (100,000)
Retained earnings, 1/1 . . . . . . . . . . . . . . . (700,000)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . (300,000)
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 220,000

Several of Bakel’s accounts have fair values that differ from book value: land—$400,000; building—$600,000; inventory—$280,000; and liabilities—$330,000. Homewood, Inc., obtains all of Bakel’s outstanding shares by issuing 20,000 shares of common stock having a $5 par value but a $55 fair value. Stock issuance costs amount to $10,000.
a. What is the purchase price in this combination?
b. What is the book value of Bakel’s net assets on the date of the takeover?
c. How are the stock issuance costs handled?
d. How does the issuance of these shares affect the stockholders’ equity accounts of Homewood, the parent?
e. What allocations are made of Homewood’s purchase price to specific accounts and to goodwill?
f. If Bakel had in-process research and development assets (with no alternative future uses) valued at $60,000, how would the allocations in part (e) change? Where is acquired in-process research and development typically reported on consolidated financial statements?
g. How do Bakel’s revenues and expenses affect consolidated totals? Why?
h. How do Bakel’s common stock and additional paid-in capital balances affect consolidated totals?
i. In financial statements prepared immediately following the takeover, what impact will this acquisition have on the various consolidated totals?
j. If Homewood’s stock had been worth only $40 per share rather than $55, how would the consolidation of Bakel’s assets and liabilities have been affected?



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  • CreatedOctober 04, 2014
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