Question

BACC 460 Assignment 2 (LO2) Before this two companies entered into a business combination, their balance Sheets were as follows Alto Corporation Bajo Company Book Value Fair Value Book Value Fair Value Item Assets Cash & Receivables Inventory Buildings & Equipment Less: Accumulated Depreciation Total Assets $ 153,000 $ 153,000 $ 95,000 $ 95,000 301,000 397,000 83,000 103,000 601,000 439,000 262,000 207,000 (240,000) (70,000) $ 815,000 $ 989,000 $ 370,000 $ 63,000 $ 63,000 $ 193,000 208,000 33,000 $ 30,000 33,000 35,000 Liabilities & Equities Accounts Payable Notes Payable Common Stock: $4 par value $3 par value Additional Paid-In Capital Retained Earnings 179,000 124,000 256,000 84,000 35,000 188,000 Total Liabilities & Equities $ 815,000 $ 370,000 Alto purchased all of Bajo Company's assets and liabilities on January 1, 2019, in exchange for its ordinary shares. Alto issued (60,267.) shares of stock to complete the business combination. To effect the merger, Alto paid finder's fees of $15,000 and legal fees of $4,000. Alto also also paid $5,000 of audit fees related to the issuance of stock, stock registration fees of $3,000, and stock listing application fees of $6,000. Required: a) Prepare a balance sheet of the combined company immediately following the acquisition, assuming Alto's shares were trading at $10 each. b) Prepare all the necessary journal entries

Answer 1

Computation of Net Assets Purchased
Cash	$95,000
Inventory	$103,000
Building & Equipment	$207,000
Accounts Payable	($33,000)
Notes Payable	($35,000)
Net Assets at Fair Value	$337,000
Purchase Consideration paid by Alto Corporation
Number of Common Stock shares issued	60,267
Market Price per Share	$10
Purchase Consideration	$602,670
Computation of Goodwill
Purchase Consideration	$602,670
Net Assets Purchased at Fair Value	$337,000
Goodwill	$265,670
Combined Balance Sheet of Alto Corporation
Assets
Cash & Receivables	$218,000
Inventory	$404,000
Goodwill	$265,670
Buildings & Equipment	$808,000
Less: Accumulated Depreciation	($240,000)
Total Assets	$1,455,670
Liabilities & Equities
Accounts Payable	$96,000
Notes Payable	$228,000
Common Stock - $ 4 par value	$420,068
Additional Paid-In Capital	$485,602
Retained Earnings	$226,000
Total Liabilities & Equities	$1,455,670
Working Notes
Computation of Cash & Receivables of Business Combination
Balance as on 01 January 2018	$153,000
Less:Amounts paid against
Finder's Fees	($15,000)
Legal Fees	($4,000)
Audit Fees	($5,000)
Stock Listing Application Fees	($6,000)
	$123,000
Add:
Balance of Baio Company	$95,000
Cash & Receivables of Business Combination	$218,000
Computation of Retained Earnings of Business Combination
Balance as on 01 January 2018 - Alto	$256,000
Less:Expenses incurred
Finder's Fees	($15,000)
Legal Fees	($4,000)
Audit Fees	($5,000)
Stock Listing Application Fees	($6,000)
Retained Earnings for Business Combination	$226,000
Bifurcation of Common Stock Shares issued
Market Value of Common Stock Shares issued	$602,670
Less:
Par Value of Common Stock Shares @ $ 4 per share	($241,068)
Additional Paid-In Capital	$361,602
Value of Equity Shares after issuance of shares to Biao
Equity Shares - Balance as on 01 January 2018	$179,000
Add: Par Value of New Shares Issued	$241,068
Equity Shares at Par Value	$420,068
Additional Paid-In Capital as on 01 January 2018	$124,000
Add: Additional Paid-In Capital against New Shares Issued	$361,602
Additional Paid-In Capital	$485,602