Question

Comparative balance sheets for Pin and San Corporations at December 31, 2010, are as follows (in thousands): Pin San Current assets $1,040 $ 480 Land 400 800 Buildings—net 2,400 800 Equipment—net 1,760 1,920 Total assets $5,600 $4,000 Current liabilities $ 400 $ 480 Capital stock, $10 par 4,000 1,600 Additional paid-in capital 400 1,120 Retained earnings 800 800 Total equities $5,600 $4,000 On January 2, 2011, Pin issues 120,000 shares of its stock with a market value of $40 per share for all the outstanding shares of San Corporation in an acquisition. San is dissolved. The recorded book values reflect fair values, except for the buildings of Pin, which have a fair value of $3,200,000, and the current assets of San, which have a fair value of $800,000. Pin pays the following expenses in connection with the business combination: Costs of registering and issuing securities $120,000 Other direct costs of combination 200,000 Required: Prepare the balance sheet of Pin Corporation immediately after the acquisition..

Answer 1

Initial computations:
Fair Value: Cost of investment in San at January 2
(120,000 shares $40)	$4,800,000
Book value of net assets ($4,000,000 - $480,000)	(3,520,000)
Excess fair value over book value	$1,280,000
Excess assigned to:
Current assets	$  320,000
Remainder to goodwill	960,000
Excess fair value over book value	$1,280,000

$200,000 direct costs of combination are expensed. The excess fair value of Pin's buildings is not considered.

Pin Corporation

Balance Sheet at January 2, 2011

Assets

Current assets
($1,040,000 + $480,000 + $320,000 excess - $320,000 direct costs)	$ 1,520,000
Land ($400,000 + $800,000)	1,200,000
Buildings - net ($2,400,000 + $800,000)	3,200,000
Equipment - net ($1,760,000 + $1,920,000)	3,680,000
Goodwill	960,000
Total assets	$10,560,000
Liabilities and Stockholders' Equity
Current liabilities ($400,000 + $480,000)	$   880,000
Capital stock, $10 par ($4,000,000 + $1,200,000 new issue)	5,200,000
Additional paid-in capital	3,880,000
[$400,000 + ($30 120,000 shares) - $120,000 costs of issuing   and registering securities]
Retained earnings (subtract $200,000 expensed direct cost)	600,000
Total liabilities and stockholders' equity	$10,560,000