Question

This modifies and extends Problem 17-A2. However, this problem is self-contained because all the facts are reproduced. Poseidon Publishing Company acquired all the common shares of Neptune Book Company for $105 million cash at the start of the year. Immediately before the business combination, each company had the following condensed balance sheet accounts (in millions):


Assume that the fair values of Neptune’s individual assets and liabilities were equal to their book values.
1. Prepare a tabulation of the consolidated balance sheet accounts immediately after the acquisition. Use the balance-sheet-equation format.
2. Suppose the book values of Neptune’s individual assets are equal to their fair-market values except for equipment. The net book value of equipment is $15 million and its fair-market value is $27 million. The equipment has a remaining useful life of 4 years. Straight-line depreciation is used.
a. Describe how the consolidated balance sheet accounts immediately after the acquisition would differ from those in number 1. Be specific as to accounts and amounts.
b. By how much will consolidated income differ in comparison with the consolidated income that would be reported when the entire excess of purchase cost over book value of net assets was assigned to goodwill? Assume no impairment ofgoodwill.


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  • CreatedNovember 19, 2014
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