Adv accounting unit 2 | Accounting homework help

  

For this assignment, use your Fundamentals of Advanced Accounting text and the Excel spreadsheet provided on the companion website (linked in Resources) to complete the following:

● Problem 29 on page 82. This problem tests your knowledge of financial statement reporting for consolidated companies. In the spreadsheet, use tab P02-29 for your answers.

Pratt Company acquired all of Spider, Inc.’s outstanding shares on December 31, 2018, for $495,000 cash. Pratt will operate Spider as a wholly owned subsidiary with a separate legal and accounting identity. Although many of Spider’s book values approximate fair values, several of its accounts have fair values that differ from book values. In addition, Spider has internally developed assets that remain unrecorded on its books. In deriving the acquisition price, Pratt assessed Spider’s fair and book value differences as follows:

   

Book Values

Fair Values

  

Computer software

 

  $ 20,000

  $ 70,000

  

Equipment

 

     40,000

     30,000

  

Client contracts

 

          –0–

  100,000

  

In-process research and   development

 

          –0–

    40,000

  

Notes payable

 

(60,000)

(65,000)

At December 31, 2018, the following financial information is available for consolidation:

   

 

Pratt

 

Spider

  

Cash

 

  $    36,000

$      18,000

  

Receivables

 

          116,000

  52,000

  

Inventory

 

  140,000

  90,000

  

Investment in Spider

 

  495,000

    –0–

  

Computer software

 

  210,000

  20,000

  

Buildings (net)

 

  595,000

  130,000

  

Equipment (net)

 

  308,000

  40,000

  

Client contracts

 

    –0–

    –0–

  

Goodwill

 

       –0–

      –0–

  

Total assets

 

  $  1,900,000

  $  350,000

  

Accounts payable

 

  $    (88,000)

  $   (25,000)

  

Notes payable

 

  (510,000)

  (60,000)

  

Common stock

 

  (380,000)

  (100,000)

  

Additional paid-in capital

 

  (170,000)

  (25,000)

  

Retained earnings

 

   (752,000)

  (140,000)

  

Total liabilities and   equities

 

  $(1,900,000)

  $(350,000)

Prepare a consolidated balance sheet for Pratt and Spider as of December 31, 2018.

___________________________________________________________________________________

  

Problem 33 on page 84. This problem tests your application of the statutory merger method for business combinations.

On January 1, NewTune Company exchanges 15,000 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in the acquisition was considered equal to On-the-Go’s fair value. NewTune also paid $25,000 in stock registration and issuance costs in connection with the merger.

Several of On-the-Go’s accounts’ fair values differ from their book values on this date:

   

Book Values

Fair Values

  

Receivables

 

$  65,000

$   63,000

  

Trademarks

 

95,000

225,000

  

Record music catalog

 

60,000

180,000

  

In-process research and development

 

–0–

200,000

  

Notes payable

 

(50,000)

(45,000)

Precombination book values for the two companies are as follows:

   

 

NewTune

On-the-Go

  

Cash

 

$    60,000  

$     29,000  

  

Receivables

 

150,000

65,000

  

Trademarks

 

400,000

95,000

  

Record music catalog

 

840,000

60,000

  

Equipment (net)

 

    320,000

    105,000

  

Totals

 

$  1,770,000  

$  354,000  

  

Accounts payable

 

$ (110,000)

$   (34,000)

page 85

  

Notes payable

 

(370,000)

(50,000)

  

Common stock

 

(400,000)

(50,000)

  

Additional paid-in capital

 

(30,000)

(30,000)

  

Retained earnings

 

   (860,000)

   (190,000)

  

Totals

 

$(1,770,000)

$(354,000)

a.
Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date.

b. Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date.

c. How do the balance sheet accounts compare across parts (a) and (b)?