Answered Essay: Easton Company acquires 100 percent of the outst

Constructing the Consolidated Balance Sheet at Acquisition
Easton Company acquires 100 percent of the outstanding voting shares of Harris Company on January 1, 2016. To obtain these shares, Easton pays $210,000 in cash and issues 5,000 of its $10 par value common stock. On this date, Easton’s stock has a fair value of $36 per share, and Harris’s book value of stockholders’ equity is $280,000. Easton is willing to pay $390,000 for a company with a book value  for equity of $280,000 because it believes that (1) Harris buildings are undervalued by $40,000, and (2) Harris has an unrecorded patent that Easton values at $30,000. Easton considers the remaining balance sheet items to be fairly valued (no book-to-fair value difference). The remaining $40,000 of the purchase price excess over book value is ascribed to corporate synergies and other general unidentifiable intangible assets (goodwill). The January 1, 2016, balance sheets at the acquisition date follow:Easton Company Harris Company $40,000 90,000 130,000 Cash Receivables Inventory Investment in Harris Land Buildings, net Equipment, net Total assets $84,000 160,000 220,000 390,000 100,000 400,000 120,000 $1,474,000 60,000 110,000 50,000 $480,000 Accounts payable Long-term liabilities Common stock Additional paid-in capital Retained earnings $160,000 380,000 500,000 74,000 360,000 $1,474,000 $30,000 170,000 40,000 240,000 $480,000 Total liabilities & equity a. Show the breakdown of the investment into the book value acquired, the excess of fair value over book value, and the portion of the investment representing goodwill Do not use negative signs with your answers. Cash paid 84,000 Fair market value of shares issued Purchase price Less: Book value of Harris Excess payment Excess payment assigned to specific accounts based on fair market value Buidlings Patent Goodwill

Easton Company Harris Company $40,000 90,000 130,000 Cash Receivables Inventory Investment in Harris Land Buildings, net Equipment, net Total assets $84,000 160,000 220,000 390,000 100,000 400,000 120,000 $1,474,000 60,000 110,000 50,000 $480,000 Accounts payable Long-term liabilities Common stock Additional paid-in capital Retained earnings $160,000 380,000 500,000 74,000 360,000 $1,474,000 $30,000 170,000 40,000 240,000 $480,000 Total liabilities & equity a. Show the breakdown of the investment into the book value acquired, the excess of fair value over book value, and the portion of the investment representing goodwill Do not use negative signs with your answers. Cash paid 84,000 Fair market value of shares issued Purchase price Less: Book value of Harris Excess payment Excess payment assigned to specific accounts based on fair market value Buidlings Patent Goodwill

Expert Answer

 

a).

Particulars Amount ($)
Cash 210000
Fair market value of shares issued(5000*36) 180000
Purchase Price 40000
Less :- Book value of Harris (280000)
Excess payment 150000
Excess payment assigned to specific accounts based on fair market value :-
Buldings(110000-40000) 70000
Patent 30000
Goodwill 50000

b).

Particulars Amounts($)
Cash 124000
Recivables 250000
Inventory 350000
Investment in Harris(390000-140000) 250000
974000
Land 160000
Buildings, net (400000+70000) 470000
Equipment, net 170000
Patent 30000
Goodwill 50000
Total Assets 1854000
Accounts Payable 190000
Long term Liabilities 550000
Common Stock(500000+50000) 550000
Additional Paid in Capital 74000
Retained Earnings(360000 + (5000*26) 490000
Total Liabilities & equity 1854000

c).

C. Goodwill will be tested for impairment and amortized over a fifteen year period.

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