On April 1, 2020, ABC Corporation purchased all assets and assumed liabilities of XYZ. The shares of
Question:
On April 1, 2020, ABC Corporation purchased all assets and assumed liabilities of XYZ. The shares of BBBB Corporation was selling at $80 per share at that time. Acquirer ABC paid P560,000 in exchange of all the assets of XYZ. The balance sheet of the two entities prior to the date of combination showed the following information:
ABC | XYZ | |||||
Book Values | Book Values | Fair Values | ||||
Cash | $1,500,000 | $60,000 | $60,000 | |||
Accounts Receivable | 720,000 | 100,000 | 100,000 | |||
Inventory | 500,000 | 70,000 | 115,000 | |||
Land | 400,000 | 50,000 | 70,000 | |||
Buildings and Equipment | 800,000 | 550,000 | 350,000 | |||
Less: Accumulated Depreciation | (200,000) | (150,000) | ||||
Short-term Payables | 300,000 | 10,000 | 10,000 | |||
Long-term Payables | 800,000 | 200,000 | 180,000 | |||
Common Stock $15 | 150,000 | |||||
Common Stoch par $100 | 1,000,000 | |||||
Additional Paid-in Capital | 220,000 | |||||
Additional Paid-in Capital | 1,000,000 | |||||
Retained Earnings | 100,000 | |||||
Retained Earnings | 700,000 |
Information regarding the regular operations of the two entities are as follows:
ABC | XYZ | |||||
2020 | 2021 | 2022 | 2020 | 2021 | 2022 | |
Sales | 400,000 | 520,000 | 380,000 | 100,000 | 120,000 | 80,000 |
Cost of Sales | 280,000 | 360,000 | 240,000 | 40,000 | 45,000 | 35,000 |
Expenses | 50,000 | 60,000 | 40,000 | 25,000 | 28,000 | 25,000 |
The following were also incurred to complete the business combination of the two entities:
Pre-acquisition audit fee | 10,000 |
General Administrative cost | 5,000 |
Other pre acquisition costs | 7,000 |
Contingent consideration was agreed to be $50,000. It was determined that the probability of the agreed condition from happening is 50%. Income, purchases, and expenses throughout each year were evenly earned, purchased, and incurred. All sales are in cash. Expenses and purchases are paid in cash. Purchases every year amounts to $200,000 and $50,000, for ABC and XYZ respectively. The short-term payables was paid only in 2022 since it was refinanced in 2021. Receipts from the accounts receivable was in 2022 due to some new contractual agreements between the company and their debtors in 2021.
Requirement: Provide all entries in the books of the acquirer and acquire in relation to the combination. Make a combined statement of financial position for 2021.
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy