Question

1. Dr. Pepper Snapple Group (DPSG) acquired the assets and liabilities of Turquoise Water Inc. on September 30, 2020, in a merger. The acquisition involves the following payments:

Cash paid to Turquoise Water shareholders	$85,000,000
Cash paid to Morgan Stanley for consulting services	12,000,000
New stock issued, 100,000 shares, $0.50 par, fair value at acquisition	5,000,000
Stock registration fees, paid in cash	600,000
Earnings contingency, to be paid in three years, present value	2,000,000

Turquoise Water’s balance sheet just prior to the acquisition appears below. Fair value information on Turquoise Water’s assets and liabilities is also provided.

Turquoise Water, Inc.
	Book Value	Fair Value
Assets
Current assets	$   1,000,000	$      800,000
Plant and equipment, net	41,000,000	10,000,000
Patents and trademarks	3,400,000	20,000,000
Total assets	$ 45,400,000
Liabilities & Equity
Current liabilities	$      400,000	400,000
Long-term liabilities	40,000,000	41,000,000
Common stock, par value	500,000
Additional paid-in capital	8,500,000
Retained earnings	(2,000,000)
Accumulated OCI	(1,400,000)
Treasury stock	(600,000)
Total liabilities & equity	$ 45,400,000

In addition to the assets reported on Turquoise Water’s balance sheet, the following previously unreported intangible assets are identified:

	Fair Value
Bottlers’ franchise rights	$ 10,400,000
Skilled workforce	15,000,000
Non-competition agreements	4,000,000
Expected expansion into new product lines	5,000,000
Order backlogs	2,000,000

Required

1. Prepare the journal entry DPSG makes to record this acquisition as a merger.

2. Now assume DPSG acquires all of the stock of Turquoise Water. Prepare the journal entry DPSG makes to record this acquisition as a stock acquisition.

Answer 1

In case of a merger, all the assets and liabilities are to be transferred in the books of acquirer. The amount to be recorded would be the book value and difference if any is recognized as goodwill.

Note that earnings contingency to paid in 3 years is earnout liability and merger expenses are cash paid to Morgan Stanley for consulting expenses.

In case of stock acquisition, the investments are recorded and stocks issued in lieu are recognized. Merger expenses are also recorded.

Date	Particulars	Debit ($)	Credit ($)
a.	Current assets	800,000
	Plant and equipment	10,000,000
	Patents and trademarks	20,000,000
	Bottlers’ franchise rights	10,400,000
	Non-competition agreements	4,000,000
	Order backlogs	2,000,000
	Merger expenses	12,000,000
	Goodwill	86,200,000
	Current Liabilities		400,000
	Long-term liabilities		41,000,000
	Cash		97,600,000
	Common stock at par		50,000
	Additional paid-in capital		4,350,000
	Earnout liability		2,000,000
	(To record acquisition as merger)
b.	Investment in Turquoise water (85 + 5 + 2)	92,000,000
	Merger expenses	12,000,000
	Cash		97,600,000
	Common stock, par		50,000
	Additional paid-in capital		4,350,000
	Earnout liability		2,000,000
	(To record acquisition as stock acquisition)