Baker Corporation has the following account balances at December 31, Year 4:
Receivables ............ $ 80,000
Inventory .............. 200,000
Land ............... 600,000
Building (net) .......... 500,000
Liabilities ............. 400,000
Common shares ......... 200,000
Retained earnings, 1/1/Year 4 .... 700,000
Revenues ............. 300,000
Expenses ............. 220,000
Several of Baker’s accounts have fair values that differ from carrying amount:
Land, $400,000; building, $600,000; inventory, $280,000; and liabilities, $330,000. Home Inc. purchases all of the outstanding shares of Baker by issuing 20,000 common shares with a market value of $56 per share. Stock issuance costs amount to $10,000.
Required:
(a) What is the acquisition cost in this business combination?
(b) What is the carrying amount of Baker’s net assets on the date of the takeover?
(c) How does the issuance of these shares affect the shareholders’ equity accounts of Home, the parent?
(d) How are the stock issuance costs handled?
(e) What amounts are incorporated on the consolidated balance sheet for each of Baker’s assets (including goodwill, if any) and liabilities at the date of acquisition?
(f) How do Baker’s revenues and expenses affect consolidated totals? Why?
(g) How do Baker’s common shares affect consolidated totals?
(h) If Home’s shares had been worth only $40 per share rather than $56, how would the consolidation of Baker’s assets and liabilities have been affected?