Assignment Two

Problem 1: Glass Company is thinking about acquiring Plastic Company. Glass Company is considering two methods of accomplishing control and is wondering how the accounting treatment will differ under each method. Glass Company has estimated that the fair values of Plastic's net assets are equal to their book values, except for the equipment which is understated by Br. 20,000. The following balance sheets have been prepared on the date of acquisition:

Assets

Glass

Plastic

Cash

Br.520,000

Br.40,000

Accounts receivable

50,000

70,000

Inventory

50,000

100,000

Property, plant, and equipment (net)

250,000

250,000

Total assets

Br.870,000

Br.460,000

Liabilities and Equity

Current liabilities

Br.140,000

Br.80,000

Bonds payable

250,000

100,000

Stockholders' equity:

Common stock, (Br. 100 par)

200,000

150,000

Retained earnings

280,000

130,000

Total liabilities and equity

Br.870,000

Br.460,000

Required:

1. Assume Glass Company purchased the net assets directly from Plastic Company for Br. 530,000 on cash
2. Prepare the entry that Glass Company would make to record the purchase.
3. Prepare the balance sheet for Glass Company immediately following the purchase.
4. Assume that 100% of the outstanding stock of Plastic Company is purchased from the former stockholders for a total of Br. 530,000.
5. Prepare the entry that Glass Company would make to record the purchase.
6. State how the investment would appear on Glass's unconsolidated balance sheet prepared immediately after the purchase.

Indicate how the consolidated balance sheet would appear.