Chapter 3 Problems

Chapter 3 Problems - Assignment Problems For Chapter 3 Page...

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Assignment Problems For Chapter 3 (The solutions for these problems are only available in the solutions manual that has been provided to your instructor.) Assignment Problem Three - 1 (Purchase Of Assets) On December 31, 2009, the assets and liabilities of the Davis Company and the Jones Company have fair values and book values as follows: Davis and Jones Companies Balance Sheets As At December 31, 2009 Davis Jones Book Value Fair Value Cash $ 450,000 $ $ 375,000 $ Accounts Receivable 560,000 545,000 420,000 405,000 Inventories 1,200,000 1,150,000 875,000 950,000 Net Plant And Equipment 2,800,000 3,200,000 1,575,000 1,250,000 Total Assets $5,010,000 $5,345,000 $3,245,000 $2,980,000 Current Liabilities $ 325,000 $ $ 295,000 $ Bonds Payable 1,400,000 870,000 910,000 Future Income Tax Liability 780,000 N/A 430,000 No Par Common Stock 2,100,000 Retained Earnings 605,000 Total Equities The No Par Common Stock of the Davis Company, prior to the business combination, consists of 42,000 shares issued at an average price of $50 per share. The No Par Common Stock of the Jones Company consists of 60,000 shares issued at an average price of $20 per share. On December 31, 2009, the Davis Company issues 30,000 shares of its No Par Common Stock in return for all of the assets and liabilities of the Jones Company. On this date the Davis Company shares are trading at $65 per share while the Jones Company shares are trading at $32.50 per share. Required: Prepare the December 31, 2009 Balance Sheet that would be required for the combined company resulting from the business combination transaction. Assignment Problem Three - 2 (Contingent Consideration, GAAP Conversion) On December 31, 2009, Public Ltd. acquires all of the outstanding shares of Private Inc. The consideration consists of 100,000 Public Ltd. shares plus $1,300,000 in cash. At the time of issue, the Public Ltd. shares are trading at $10.50. As part of the acquisition contract, Public Ltd. agrees that, if by the end of 2010 their shares are not trading at a price of $12.00 or more, it will pay an additional $150,000 in cash to the former shareholders of Private Inc. Public management estimates the fair value of this contingent payment to be $60,000 on December 31, 2009. Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems Page 4
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On December 31, 2009, the pre-business combination Balance Sheets of the two Companies are as follows: Public Ltd. and Private Inc. Balance Sheets As At December 31, 2009 Public Ltd. Private Inc. Cash $1,892,000 $ 342,000 Accounts Receivable 767,000 Nil Inventories 1,606,000 641,000 Land 462,000 107,000 Plant And Equipment - Cost 3,272,000 2,727,000 Accumulated Amortization ( 1,203,000) ( 776,000) Patent N/A 103,000 Goodwill 372,000 Total Assets $7,168,000 $3,144,000 Current Liabilities $ 458,000 Bonds Payable - Par 1,507,000 $ 800,000 Bond Payable - Premium 48,000 23,000 Public Common Stock - No Par (250,000 Shares) 2,500,000 Private Common Stock - No Par 1,200,000 Retained Earnings 2,655,000 1,121,000 Total Equities Other Information: 1. The stock of Public Ltd. is traded on a national stock exchange. As a consequence, they are required to prepare audited financial statements.
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This note was uploaded on 03/09/2011 for the course ACCT 354 taught by Professor Wilson during the Spring '11 term at Concordia AB.

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Chapter 3 Problems - Assignment Problems For Chapter 3 Page...

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