On January I, Chester Inc. acquires I 00% of Festus Corp.'s outstanding common stock by issuing 100,000 shares of Chester's $ I par value common voting stock. In addition, Chester paid $1,800,000 in cash. Chester also incurred direct combination costs of
4. On January I, Chester Inc. acquires \(100 \%\) of Festus Corp.'s outstanding common stock by issuing 100,000 shares of Chester's \(\$\) I par value common voting stock. In addition, Chester paid \(\$ 1,800,000\) in cash. Chester also incurred direct combination costs of \(\$ 350,000\) and stock issuance costs of \(\$ 650,000\).
On January \(1,\) Chester's voting common stock had a market value of \(\$ 35.50\) per share. Festus' voting common shares were selling for \(\$ 12.50\) pr share. Festus' balances on the acquisition date, just prior to acquisition are listed below.
Required:
1.Using the Acquisition Method, compute the value of Chester's investment account on the date of acquisition, January 1 .
2. Prepare the necessary journal entries regarding the acquisition of Festus?
3. What amount of Goodwill Should Chester record?
Homework Answers
| A | Value of shares issued | $3,850,000 | |
| Cash paid | $1,800,000 | ||
| Value of Chester's Investment | $5,650,000 | ||
| Note: | As per ASC 805, direct costs, as well as issuance costs, do not form part of the purchase consideration. Hence these costs are treated seperately. | ||
Computation of the consolidation balance for the equipment account as of December 31, 2011 by using the partial equity method.
Particulars Amount Book value of equipment 31-Dec.2011 $975000
Add: Book value of equipment 31.12.2011 $105000
Add: (Kenneth Equipment fair value minus book value(120000-90000) $ 30000
Less: Amortization (30000 / 10*2) $ (6000)
Consolidated balance for the equipment $1104000
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