Question

2. On 12/31, Choco acquired Cake by issuing 40,000 shares of its common stock when the market value (=fair value) is $32/share. Cake will remain incorporated. Choco has common stock with $15 par, 50,000 shares outstanding and Cake has $5 par, 60,000 shares outstanding

Choco Book Values	Cake Book Values	Cake Fair Values
Cash and Receivable	350,000	180,000	170,000
Inventories	250,000	100,000	150,000
Land	700,000	120,000	240,000
Building and equipment	600,000	600,000	900,000
Patented technology	100,000	0	60,000
Accounts Payable	300,000	120,000	150,000
Long-term debt	0	400,000	350,000
Common Stock	750,000	300,000
Additional paid in capital	500,000	60,000
Retained earnings 12/31	450,000	120,000
Revenues	350,000	160,000
Expenses	310,000	130,000

Q1. Prepare journal entry for acquisition in Choco’s book.

Q2. Prepare fair value allocation and goodwill schedule at the date of the acquisition.

Q3. Choco paid $14,000 in cash for legal fee. What is the journal entry?

Q4. Choco also paid $12,000 in cash for stock issuance cost. What is the journal entry?

Answer 1

Q1.

Particulars	Debit	Credit
Cash and Receivable A/c – Dr	170000
Inventories – Dr	150000
Land – Dr	240000
Building & Equipment – Dr	900000
Patented Technology – Dr	60000
Goodwill – Dr	260000
To Long Term Debt		350000
To Accounts Payable		150000
To Common Stock (40000 shares of 15)		600000
To Additional paid in Capital 40000 X (32-15)		680000

Q2.

Fair Value of Consideration

Shares issued 40000 shares of fair value 32 each = 1280000

Less Fair value of Acquired Net Assets (as per below working) = 1020000

Goodwill = 260000

working:

Cash and Receivable A/c – Dr	170000
Inventories – Dr	150000
Land – Dr	240000
Building & Equipment – Dr	900000
Patented Technology – Dr	60000
Total Assets	1520000
(-) Long Term Debt	350000
(-)Accounts Payable	150000
Net Assets	1020000

Q3.

Acquisition Expenses - Dr 14000

To Cash 14000

(Being cash paid for acquisition legal fees)

Alternate entry:

Goodwill - Dr 14000

To Cash 14000

(Being Cash paid for acquisition legal fees)

Q4.

Additional Paid in capital - Dr 12000

To Cash 12000

(Being stock issuance charges paid)