Accounting - Excerise 2-2
Solutions Guide: Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as is
EXERCISE 2-2 Acquisition Method The balance sheets of Petrello Company and Sanchez Company as of January 1, 2011, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of ½ share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Company’s assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000. Petrello Sanchez Cash $ 480,000 $ 200,000 Receivables 480,000 240,000 Inventories 2,000,000 240,000 Plant and equipment (net) 3,840,000 800,000 Total assets $6,800,000 $1,480,000 Liabilities $1,200,000 $ 320,000 Common stock, $16 par value 3,440,000 800,000 Other contributed capital 400,000 —0— Retained earnings 1,760,000 360,000 Total equities $6,800,000 $1,480,000 Prepare a balance sheet for Petrello Company immediately after the merger.
Cash $680,000
Receivables 720,000
Inventories 2,240,000
Plant and Equipment (net) ($3,840,000 + $720,000) 4,560,000
Goodwill 120,000 Total Assets $8,320,000
Liabilities 1,520,000
Common Stock, $16 par ($3,440,000 + (.50 $800,000)) 3,840,000
Other Contributed Capital ($400,000 + $800,000) 1,200,000
Retained Earnings 1,760,000 Total Equities $8,320,000
Entries on Petrello Company’s books would be:
Cash 200,000
Receivables 240,000
Inventory 240,000
Plant and Equipment 720,000
Goodwill * 120,000 Liabilities 320,000 Common Stock (25,000 $16) 400,000 Other Contributed Capital ($48 - $16) 25,000 800,000 * ($48 25,000) – [($1,480,000 – ($800,000 –
EXERCISE 2-2 Acquisition Method The balance sheets of Petrello Company and Sanchez Company as of January 1, 2011, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of ½ share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Company’s assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000. Petrello Sanchez Cash $ 480,000 $ 200,000 Receivables 480,000 240,000 Inventories 2,000,000 240,000 Plant and equipment (net) 3,840,000 800,000 Total assets $6,800,000 $1,480,000 Liabilities $1,200,000 $ 320,000 Common stock, $16 par value 3,440,000 800,000 Other contributed capital 400,000 —0— Retained earnings 1,760,000 360,000 Total equities $6,800,000 $1,480,000 Prepare a balance sheet for Petrello Company immediately after the merger.
Cash $680,000
Receivables 720,000
Inventories 2,240,000
Plant and Equipment (net) ($3,840,000 + $720,000) 4,560,000
Goodwill 120,000 Total Assets $8,320,000
Liabilities 1,520,000
Common Stock, $16 par ($3,440,000 + (.50 $800,000)) 3,840,000
Other Contributed Capital ($400,000 + $800,000) 1,200,000
Retained Earnings 1,760,000 Total Equities $8,320,000
Entries on Petrello Company’s books would be:
Cash 200,000
Receivables 240,000
Inventory 240,000
Plant and Equipment 720,000
Goodwill * 120,000 Liabilities 320,000 Common Stock (25,000 $16) 400,000 Other Contributed Capital ($48 - $16) 25,000 800,000 * ($48 25,000) – [($1,480,000 – ($800,000 –