Question

Pace Company purchased 20,000 of the 25,000 shares of Saddler Corporation for $533,300. On January 3, 2014, the acquisition date, Saddler Corporation’s capital stock and retained earnings account balances were $508,500 and $101,800, respectively

The following values were determined for Saddler Corporation on the date of purchase:

Book Value Fair Value
Inventory $50,600 $68,800
Other current assets 197,800 197,800
Marketable securities 100,100 125,300
Plant and equipment 305,900 330,200

Required:
Prepare a Computation and Allocation Schedule for the difference between book value and the value implied by the purchase price in the consolidated statements workpaper.

Answer 1

Pace Company

Computation and Allocation Schedule for the difference between book value and the value implied by the purchase price in the consolidated statements workpaper:

Book Value Fair Value Differential

Inventory $50,600 $68,800 $18,200

Other current assets 197,800 197,800 0

Marketable securities 100,100 125,300 25,200

Plant and equipment 305,900 330,200 24,300

Goodwill 9,300

Total $654,400 $722,100 $77,000

Before Goodwill:

Total $654,400 $722,100 $67,700

Step-by-step explanation:

a) Data and Calculations:

Purchase of 20,000 of the 25,000 shares = 80% equity

Saddler Corporation’s:

Capital stock = $508,500

Retained earnings = $101,800

Total equity = $610,300

Purchase price = $533,300

Differential = $77,000

Saddler Corporation's Assets:

Book Value Fair Value Differential

Inventory $50,600 $68,800 $18,200

Other current assets 197,800 197,800 0

Marketable securities 100,100 125,300 25,200

Plant and equipment 305,900 330,200 24,300

Goodwill 9,300

Total $654,400 $722,100 $77,000

b) The Differential between the fair value of the net assets and the purchase price is allocated to Goodwill on acquisition.