Dr. M.D.

Chase
Advanced Accounting-230-15B

Long Beach State University

Recording/Analyzing a Purchase Consolidation
Page 1
CONSOLIDATIONS: DATE OF ACQUISITION
These examples will be reviewed in class
Please attempt to complete them prior to class

Assume the following facts:

1. Cost=BV=FMV except as modified below.
2. "P" purchases "S" on 1/1/x1; "S" balance sheet appears below:
S Company
Balance Sheet
1/1/x1
Cash.....................

150,000

A/R......

250,000

Inventory................

300,000

Land.....................

100,000

Building.................

250,000

Equipment................

50,000
$ 1,100,000

Current liabilities...$

100,000

Bonds payable............

300,000

Common stock.............

50,000

Paid In Capital..........

350,000

Retained Earnings........ 300,000

$ 1,100,000
Case 1:
a.

Provide the journal entry to record this purchase as a merger (be careful herea merger differs from a consolidation).

b.

Give the necessary journal entry to record this as a consolidation.

Dr. M.D. Chase

Advanced Accounting-230-15B

Long Beach State University

Recording/Analyzing a Purchase Consolidation
Page 2

Case 2:
Assume the same facts as in Case 1 except:

a.

b.

1.

the FMV of the inventory is $350,000 and the FMV of the equipment is $200,000.

2.

"P" issues 20,000 shares of $10 par common stock ($50 FMV) for 100% of "S" stock.

3.

"P" incurred legal fees of $8,500; Finders fees $1,500; Registration costs $2,500.

4.

"P" is going to present consolidated financial statements.

Analyze the investment

Record the investment

Note that because there is a

difference between FMV and BV
of the assets of S we must
analyze the investment

Dr. M.D. Chase

Advanced Accounting-230-15B

Long Beach State University

Recording/Analyzing a Purchase Consolidation
Page 3

Case 3: Assume the same facts as Case 2 except:

1.

"P" issues 16,000 shares of $10 par ($50 FMV) common stock for m00% of "S".
a.

Analyze the investment

b.

Record the purchase

Case 4:
1.
2.

Is this a bargain purchase?

Why?
Why not?

Assume the same facts as Case 2 except:

"P" issues 12,000 shares of $10 par ($50 FMV) common stock for 100% of "S".
The FMV of the Land, Building and Equipment is $75,000; $175,000 and $50,000 respectively.
a. Analyze the investment
Is this a bargain purchase?
Why?
Why not?

b.

Record the purchase

Dr. M.D. Chase

Advanced Accounting-230-15B

Long Beach State University

Recording/Analyzing a Purchase Consolidation
Page 4

Case 5: Assume the same facts as Case 2 except:

1. "P" purchase 80% of "S" for 16,000 shares ($10 par/$50 FMV).
a.

Analyze the investment

b.

Record the purchase

Dr. M.D. Chase

Advanced Accounting-230-15B

Long Beach State University

Recording/Analyzing a Purchase Consolidation
Page 5

Case 6: Assume the same facts as Case 2 except:

1. "P" purchases 80% of "S" by issuing 12,800 shares of ($10 par/$50 FMV) common stock.
a.

Analyze the investment

b.

Record the purchase

Note that we are now

purchasing only 80% of
Sthis is an important
difference and has
implications that will affect
your analysis of the
investment

Case 7: Assume the same facts as Case 4 except:

1.

"P" purchases 80% of "S" by issuing 9,600 shares of ($10 par/$50 FMV) common stock.

a.

Analyze the investment

b.

Record the purchase

Is this a bargain purchase?

Why?
Why not?