On January 1, 2019, Pippen Co. issued 50,000 shares of its $1 par value common stock (market price per share was $10) and transfer $250,000 in cash to purchase all of the outstanding shares of common stock of Scottie Co.

As part of the acquisition agreement (1) Pippen contracted with the selling Scottie Co. stockholders to pay (on May 1, 2020) additional $40,000 in cash if 2019 consolidated revenue is greater than $900,000. On January 1, 2019, the fair value of this provision is $25,000 and (2) Pippen was obligated to replace the share based payment awards held by Scottie’s employee. On January 1, 2019, Pippen issued to Scottie’s employees 10,000 share options with a total fair value of $20,000. Pippen determined that 40% of the replacement award is attributable to the pre-combination services that have already been rendered by the employees, while the remaining 60% of the replacement award is attributable services to be rendered by the employees over the next 4 years.

The following costs in relation to the acquisition were incurred and paid by Pippen on 1/1/2019:

• Printer’s and underwriting fees in relation to the common stock issued of $5,000 and
• Finder’s and financial due diligence fees of $7,000.

The book values of Scottie assets and liabilities equal their fair values except for

• Inventory - fair value of $40,000
• Equipment – fair value of $90,000
• Customer list – fair value of $160,000
• Notes payable – fair value of $80,000

Below are the January 1, 2019, balance sheets of Pippen Co. and Scottie Co. before all the journal entries in respect to this acquisition were recorded by Pippen.

Balance sheet	Pippen	Scottie
Cash	$400,000	$100,000
Accounts receivable	27,000	125,000
Inventory	20,000	45,000
Property and Equipment	315,000	70,000
Customer list	100,000	-
Patents	38,000	160,000
Total assets	$900,000	$500,000
Accounts payable	80,000	65,000
Notes payable	150,000	50,000
Bonds payable	145,000	100,000
Retained earnings	165,000	115,000
Common stock ($1 par)	120,000	60,000
Additional paid-in capital	240,000	110,000
Liabilities and Equity	$900,000	$500,000

(1) What was the total fair value of consideration transferred to acquire Scottie Co.?

(2) Record Pippen’s pre-consolidation journal entries on January 1, 2019?

(3) Prepare the 5 columns consolidation spreadsheet on January 1, 2019.

1/1/2019	Pippen	Scottie	Dr	Cr	Consolidated F-S
Cash	400,000	100,000
Accounts receivable	27,000	125,000
Inventory	20,000	45,000
Property and Equipment	315,000	70,000
Customer list	100,000
Patents	38,000	160,000
Total assets
Accounts payable	80,000	65,000
Notes payable	150,000	50,000
Bonds payable	145,000	100,000
Retained earnings	165,000	115,000
Common stock	120,000	60,000
Additional paid-in capital	240,000	110,000
Liabilities and Equity

(4) Calculate the goodwill recognized on the acquisition day.

(5) Prepare to consolidated financial statements on January 1, 2019, and write the consolidation journal entry.

Answer rating: 100% (QA)

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