Question

Pace corporation acquired 100 percent of spin company's common stock on January 1, 20X9. Balance sheet data for the two companies immediately following the acquisition follow:

Item Pace Corporation Spin Company
Cash $30,000 $25,000
Accounts Receivable 80,000 40,000
Inventory 150,000 55,000
Land 65,000 40,000
Buildings and Equipment 260,000 160,000
Less: Accumulated Depreciation (120,000) (50,000)
Investment in Spin Company Stock 150,000
Total Assets $615,000 $270,000
Accounts Payable $45,000 $33,000
Taxes Payable 20,000 8,000
Bonds Payable 200,000 100,000
Common Stock 50,000 20,000
Retained Earnings 300,000 109,000
Total Liabilities and Stockholders’ Equity $615,000 $270,000

At the date of the business combination, the book values of Spin's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, and land, which had a fair value of $50,000. The fair value of land for Pace Corporation was estimated at $80,000 immediately prior to the acquisition.

1. Based on the preceding information, at what amount should total land be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $130,000
b. $105,000
c. $115,000
d. $120,000

2. Based on the preceding information, what amount of total assets will appear in the consolidated balance sheet prepared immediately after the business combination?

a. $756,000
b. $735,000
c. $750,000
d. $642,000

3. Based on the preceding information, what is the differential associated with the acquisition?

a. $15,000
b. $21,000
c. $6,000
d. $10,000

4. Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $0
b. $21,000
c. $6,000
d. $15,000

5. Based on the preceding information, what amount of liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $615,000
b. $406,000
c. $300,000
d. $265,000

Answer 1

Pace Corporation and Spin Company

1. Land should be reported in the consolidated balance sheet as

a. $130,000

2. Total assets:

b. $735,000

3. The differential associated with the acquisition:

b. $21,000

4. Goodwill

b. $21,000

5. Amount of liabilities in the consolidated balance sheet:

b. $406,000

Step-by-step explanation:

a) Data:

Item Pace Spin

Corporation Company

Cash $30,000 $25,000

Accounts Receivable 80,000 40,000

Inventory 150,000 55,000

Land 65,000 40,000

Buildings and Equipment 260,000 160,000

Less: Accumulated Depreciation (120,000) (50,000)

Investment: Spin Company Stock 150,000

Total Assets $615,000 $270,000

Accounts Payable $45,000 $33,000

Taxes Payable 20,000 8,000

Bonds Payable 200,000 100,000

Common Stock 50,000 20,000

Retained Earnings 300,000 109,000

Total Liabilities and Stockholders’

Equity $615,000 $270,000

b) Consolidated Balance Sheets

Item Pace Spin Total

Corporation Company Group

Cash $30,000 $25,000 $55,000

Accounts Receivable 80,000 40,000 120,000

Inventory 150,000 60,000 210,000

Land 80,000 50,000 130,000

Buildings and Equipment 260,000 160,000 420,000

Less: Accumulated

Depreciation (120,000) (50,000) (170,000)

Investment:

Spin Company Stock 150,000 0

Goodwill 21,000

Total Assets $630,000 $285,000 $786,000

Accounts Payable $45,000 $33,000 $78,000

Taxes Payable 20,000 8,000 28,000

Bonds Payable 200,000 100,000 300,000

Common Stock 50,000 20,000 50,000

Retained Earnings 300,000 109,000 300,000

Assets Revaluation 15,000 15,000 30,000

Total Liabilities and Stockholders’

Equity $630,000 $285,000 $786,000

c) Differential on acquisition = investment (of subsidiary) - net assets

= $150,000 - ($270,000 - 141,000) = $21,000