Question

Acquisition Entry and Consolidation Working Paper Phoenix, Inc. acquired all of the our ing common stock of Spark Corporation for $400 million cash plus 25 million shares of Phoenix's $10 stand- par value common stock having a market value of $90 per share. Registration fees were merger-related consultant and legal fees were $8 million, paid in cash. Immediately prior to the acquisi- tion, the trial balances of the two companies were as follows: $5 million and Dr (Cr) (in millions) Phoenix Spark . $1,000 .3,500 $200 700 (150) (300) (300) (50) (300) . (2,000) (100) Additional paid-in capital Retained earnings . Totals (1,100) ..$0 A review of the fair values of Spark's assets indicates that current assets are overvalued by $10 million plant and equipment is undervalued by $200 million, and previously unreported brand names and trade- marks have a fair value of $300 million. Required a. Prepare the entry Phoenix makes to record the acquisition of Spark. b. Prepare a working paper to consolidate the balance sheets of Phoenix and Spark at the date of acquisition

Answer 1

Acquisition Entry and Consolidation a. Entry Phoenix would make to record acquisition of Spark Business Purchase A/c S 2,650 To Liquidator of Spark Ltd (Being amount payable as purchase consideration) $ 2,650 b. Consolidation of Balance Sheets Statement of Net Worth Spark Million S Particulars ASSETS Current Plant & Equipment Brand, TMs TOTAL 190 900 300 1,390 LIABILITIES Current Long Term TOTAL 150 300 450 NET WORTH Purchase Consideration Goodwill 940 2,650 1,710

Journal Entries in the books of Phoenix Ltd Debit Credit Million S Particulars Million S Business Purchase A/c Dr 2,650 To Liquidator of Spark Ltd (Being amount payable as purchase consideration 2,650 Amalgamation Expenses A/c Dr 13 To Bank A/C (Being amalgamation exps paid 13 Current Assets A/c Pland & Equipment A/c Brand & TMs A/c Goodwill A/c Dr Dr Dr 190 900 300 1,710 To Business Purchase A/c To Current Liabilities A/c To Long Term Liabilities A/c 2,650 150 300 (Being assets a abilities incorporated Liquidator of Spark Ltd A/c Dr 2,650 To Bank A/C To Equity Share Capital A/c To Securities Premium A/c 400 250 2,000 (Being consideration paid) For consolidating Balance sheet of the new company, all the assets and laibilities of both the be Goodwill and increase in Equity share capital and Securities Premium companies shall be consolidated on item basis. Additional item would