Question

International Auto (IA) acquires all of the stock of Genuine Parts (GP) and reports the acquisition as a stock investment on its own books. The acquisition involves the following payments. All amount are in thousands:

Cash paid to GP shareholders	5,000
Cash paid to consultants and lawyers	1,200
Fair value of new IA stock issued, 1,000 shares, $2 par	36,000
Stock registration fees, paid in cash	900
Fair value of earnings contingency	250

The earnings contingency, if paid, will occur three years subsequent to the acquisition. The balance sheet accounts of GP and IA, just prior to the acquisition, are as follows:

	International Auto	Genuine Parts
	Book Value Dr (Cr)	Book Value Dr (Cr)	Fair Value Dr (Cr)
Current Assets	30,000	1,000	1,200
Fixed Assets, net	420,000	27,000	20,000
Trademarks	89,000	3,400	6,000
Current Liabilities	(25,000)	(400)	(400)
Long-Term Liabilities	(350,000)	(26,000)	(25,000)
Common Stock, par value	(8,000)	(500)
Additional paid-in capital	(100,000)	(8,500)
Retained earnings	(45,000)	2,000
Accumulated other comprehensive income	(4,000)	1,400
Treasury stock	3,000	600
Total	0	0

In addition to the assets reported on GP's balance sheet, the following previously unreported intangible assets are identified. Note: Some of these intangibles may not be separately capitalized per ASC Topic 805.

	Fair Value
Licensing agreements	2,400
Skilled workforce	15,000
Order backlogs	5,000
Future synergies between IA and GP supply chains	1,600

Required:

A. Prepare a schedule calculating the excess of acquisition cost over GP's book value, and its allocation to GP's identifiable net assets and goodwill.

B. Prepare a working paper to consolidate the balance sheet of IA and GP at the date of acquisition.

Answer 1

Notes: Difference of 10,000 in the Balance sheet of IA (i.e. if you some the all the figures it will not come to 0). So, that difference included in the additional paid in capital therefore revised figure before acquisition (100,000 + 10,000) = 110,000.