Name: Solution Manual Advanced Financial Accounting Christensen Cottrell Budd 13th edition - Updated 2024
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Solution Manual Advanced Financial Accounting Christensen Cottrell Budd 13th edition – Updated 2024

Complete Solution Manual With Answers

Sample Chapter is Posted Below

Chapter 01 – Intercorporate Acquisitions and Investments in Other Entities

CHAPTER 1

INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES

ANSWERS TO QUESTIONS

Q1-1 Complex organizational structures often result when companies do business in a complex

business environment. New subsidiaries or other entities may be formed for purposes such as

extending operations into foreign countries, seeking to protect existing assets from risks

associated with entry into new product lines, separating activities that fall under regulatory

controls, and reducing taxes by separating certain types of operations.

Q1-2 The split-off and spin-off result in the same reduction of reported assets and liabilities. Only

the stockholders’ equity accounts of the company are different. The number of shares outstanding

remains unchanged in the case of a spin-off and retained earnings or paid-in capital is reduced.

Shares of the parent are exchanged for shares of the subsidiary in a split-off, thereby reducing

the outstanding shares of the parent company.

Q1-3 Enron’s management used special-purpose entities to avoid reporting debt on its balance

sheet and to create fictional transactions that resulted in reported income. It also transferred bad

loans and investments to special-purpose entities to avoid recognizing losses in its income

statement.

Q1-4 (a) A statutory merger occurs when one company acquires another company and the

assets and liabilities of the acquired company are transferred to the acquiring company; the

acquired company is liquidated, and only the acquiring company remains. The acquiring company

can give cash or other assets in addition to stock.

(b) A statutory consolidation occurs when a new company is formed to acquire the assets and

liabilities of two combining companies. The combining companies dissolve, and the new company

is the only surviving entity.

another company and the acquired company is not liquidated; both companies remain as

separate but related corporations.

Q1-5 A noncontrolling interest exists when the acquiring company gains control but does not

own all the shares of the acquired company. The non-controlling interest is made up of the shares

not owned by the acquiring company.

Q1-6 Goodwill is the excess of the sum of (1) the fair value given by the acquiring company, (2)

the fair value of any shares already owned by the parent and (3) the acquisition-date fair value of

any noncontrolling interest over the acquisition-date fair value of the net identifiable assets

acquired in the business combination.

Q1-7 A differential is the total difference at the acquisition date between the sum of (1) the fair

value given by the acquiring company, (2) the fair value of any shares already owned by the

parent and (3) the acquisition-date fair value of any noncontrolling interest and the book value of

the net identifiable assets acquired is referred to as the differential.

1-1

Q1-8 The purchase of a company is viewed in the same way as any other purchase of assets.

The acquired company is owned by the acquiring company only for the portion of the year

subsequent to the combination. Therefore, earnings are accrued only from the date of purchase

forward.

Q1-9 None of the retained earnings of the subsidiary should be carried forward under the

acquisition method. Thus, consolidated retained earnings immediately following an acquisition is

limited to the balance reported by the acquiring company.

Q1-10 Additional paid-in capital reported following a business combination is the amount

previously reported on the acquiring company’s books plus the excess of the fair value over the

par or stated value of any shares issued by the acquiring company in completing the acquisition

less any sock issue costs.

Q1-11 When the acquisition method is used, all costs incurred in bringing about the combination

are expensed as incurred. None are capitalized. However, costs associated with the issuance of

stock are recorded as a reduction of additional paid-in capital.

Q1-12 When the acquiring company issues shares of stock to complete a business combination,

the excess of the fair value of the stock issued over its par value is recorded as additional paid-in

capital. All costs incurred by the acquiring company in issuing the securities should be treated as

a reduction in the additional paid-in capital. Items such as audit fees associated with the

registration of the new securities, listing fees, and brokers’ commissions should be treated as

reductions of additional paid-in capital when stock is issued.

Q1-13 If the fair value of a reporting unit acquired in a business combination exceeds its carrying

amount, the goodwill of that reporting unit is considered unimpaired. On the other hand, if the

carrying amount of the reporting unit exceeds its fair value, impairment of goodwill is implied. An

impairment must be recognized if the carrying amount of the goodwill assigned to the reporting

unit is greater than the implied value of the carrying unit’s goodwill. The implied value of the

reporting unit’s goodwill is determined as the excess of the fair value of the reporting unit over the

fair value of its net identifiable assets.

Q1-14 A bargain purchase occurs when the fair value of the consideration given in a business

combination, along with the fair value of any equity interest in the acquiree already held and the

fair value of any noncontrolling interest in the acquiree, is less than the fair value of the acquiree’s

net identifiable assets.

Q1-15 The acquirer should record the clarification of the acquisition-date fair value of buildings

as a reduction to buildings and addition to goodwill.

Q1-16 The acquirer must revalue the equity position to its fair value at the acquisition date and

recognize a gain. A total of $250,000 ($25 x 10,000 shares) would be recognized in this case

assuming that the $65 per share price is the appropriate fair value for all shares (i.e. there is no

control premium for the new shares purchased).

1-2

SOLUTIONS TO CASES

C1-1 Assignment of Acquisition Costs

MEMO

To: Vice-President of Finance

Troy Company

From: , CPA

Re: Recording Acquisition Costs of Business Combination

Troy Company incurred a variety of costs in acquiring the ownership of Kline Company and

transferring the assets and liabilities of Kline to Troy Company. I was asked to review the relevant

accounting literature and provide my recommendations as to what was the appropriate treatment

of the costs incurred in the Kline Company acquisition.

Current accounting standards require that acquired companies be valued under ASC 805 at the

fair value of the consideration given in the exchange, plus the fair value of any shares of the

acquiree already held by the acquirer, plus the fair value of any noncontrolling interest in the

acquiree at the combination date [ASC 805]. All other acquisition-related costs directly traceable

to an acquisition should be accounted for as expenses in the period incurred [ASC 805]. The

costs incurred in issuing common or preferred stock in a business combination are required to be

treated as a reduction of the recorded amount of the securities (which would be a reduction to

additonal paid-in capital if the stock has a par value or a reduction to common stock for no par

stock).

A total of $720,000 was paid in completing the Kline acquisition. Kline should record the $200,000

finders’ fee and $90,000 legal fees for transferring Kline’s assets and liabilities to Troy as

acquisition expense in 20X7. The $60,000 payment for stock registration and audit fees should

be recorded as a reduction of paid-in capital recorded when the Troy Company shares are issued

to acquire the shares of Kline. The only cost potentially at issue is the $370,000 legal fees resulting

from the litigation by the shareholders of Kline. If this cost is considered to be a direct acquisition

cost, it should be included in acquisition expense. If, on the other hand, it is considered to be

related to the issuance of the shares, it should be debited to paid-in capital.

Primary citation

ASC 805

C1-2 Evaluation of Merger

a. AT&T had a vast cable customer base, but felt that TimeWarner’s content would greatly

enhance the demand for its cable services.

b. AT&T provided TimeWarner shareholders with AT&T stock and an equal value of cash.

c. The cash portion of the merger was funded primarily with debt.

d. This would be a statutory merger since (1) the AT&T name survived through the merger and

(2) the acquisition was formalized when AT&T gave both stock and cash.

1-3

C1-3 Business Combinations

It is very difficult to develop a single explanation for any series of events. Merger activity in the

United States is impacted by events both within the U.S. economy and those around the world.

As a result, there are many potential answers to the questions posed in this case.

a. One factor that may have prompted the greater use of stock in business combinations in the

middle and late 1990s is that many of the earlier combinations that had been effected through the

use of debt had unraveled. In many cases, the debt burden was so heavy that the combined

companies could not meet debt payments. Thus, this approach to financing mergers had

somewhat fallen from favor by the mid-nineties. Further, with the spectacular rise in the stock

market after 1994, many companies found that their stock was worth much more than previously.

Accordingly, fewer shares were needed to acquire other companies.

b. Two of major factors appear to have had a significant influence on the merger movement in the

mid-2000s. First, interest rates were very low during that time, and a great amount of unemployed

cash was available worldwide. Many business combinations were effected through significant

borrowing. Second, private equity funds pooled money from various institutional investors and

wealthy individuals and used much of it to acquire companies.

Many of the acquisitions of this time period involved private equity funds or companies that

acquired other companies with the goal of making quick changes and selling the companies for a

profit. This differed from prior merger periods where acquiring companies were often looking for

long-term acquisitions that would result in synergies.

In late 2008, a mortgage crisis spilled over into the credit markets in general, and money for

acquisitions became hard to get. This in turn caused many planned or possible mergers to be

canceled. In addition, the economy in general faltered toward the end of 2008 and into 2009.

Since that time, companies have turned their attention to global expansion.

c. Establishing incentives for corporate mergers is a controversial issue. Many people in our

society view mergers as not being in the best interests of society because they are seen as

lessening competition and often result in many people losing their jobs. On the other hand, many

mergers result in companies that are more efficient and can compete better in a global economy;

this in turn may result in more jobs and lower prices. Even if corporate mergers are viewed

favorably, however, the question arises as to whether the government, and ultimately the

taxpayers, should be subsidizing those mergers through tax incentives. Many would argue that

the desirability of individual corporate mergers, along with other types of investment opportunities,

should be determined on the basis of the merits of the individual situations rather than through

tax incentives.

Perhaps the most obvious incentive is to lower capital gains tax rates. Businesses may be more

likely to invest in other companies if they can sell their ownership interests when it is convenient

and pay lesser tax rates. Another alternative would include exempting certain types of

intercorporate income. Favorable tax status might be given to investment in foreign companies

through changes in tax treaties. As an alternative, barriers might be raised to discourage foreign

investment in United States, thereby increasing the opportunities for domestic firms to acquire

ownership of other companies.

1-4

d. In an ideal environment, the accounting and reporting for economic events would be accurate

and timely and would not influence the economic decisions being reported. Any change in

reporting requirements that would increase or decrease management’s ability to “manage”

earnings could impact management’s willingness to enter new or risky business fields and affect

the level of business combinations. Greater flexibility in determining which subsidiaries are to be

consolidated, the way in which intercorporate income is calculated, the elimination of profits on

intercompany transfers, or the process used in calculating earnings per share could impact such

decisions. The processes used in translating foreign investment into United States dollars also

may impact management’s willingness to invest in domestic versus international alternatives.

C1-4 Determination of Goodwill Impairment

MEMO

TO: Chief Accountant

Plush Corporation

From: , CPA

Re: Determining Impairment of Goodwill

Once goodwill is recorded in a business combination, it must be accounted for in accordance with

current accounting literature. Goodwill is carried forward at the original amount without

amortization, unless it becomes impaired. The amount determined to be goodwill in a business

combination must be assigned to the reporting units of the acquiring entity that are expected to

benefit from the synergies of the combination. [ASC 350-20-35-41]

This means the total amount assigned to goodwill may be divided among a number of reporting

units. Goodwill assigned to each reporting unit must be tested for impairment annually and

between the annual tests in the event circumstances arise that would lead to a possible decrease

in the fair value of the reporting unit below its carrying amount [ASC 350-20-35-30, ASU 2017-

04].

As long as the fair value of the reporting unit is greater than its carrying value, goodwill is not

considered to be impaired. If the fair value is less than the carrying value, an impairment loss

must be reported for the amount by which the carrying amount of reporting unit exceeds its fair

value. However, the impairment cannot exceed the amount of goodwill originally recognized for

that reporting unit [ASC 350-20-35-11, ASU 2017-04]

At the date of acquisition, Plush Corporation recognized goodwill of $20,000 ($450,000 –

$430,000) and assigned it to a single reporting unit. Even though the fair value of the reporting

unit increased to $485,000 at December 31, 20X5, Plush Corporation must test for impairment of

goodwill if the carrying value of Plush’s investment in the reporting unit is above that amount. That

would be the case if the carrying value were determined to be $500,000. If the carrying value of

the reporting unit’s net assets exceeds the fair value of the reporting unit’s net assets, an

impairment is recorded for the amount by which the carrying amount exceeds the fair value (but

the impairment is limited to the amount of goodwill reported by that unit). If the carrying amount

were $500,000 and the fair value of the reporting unit were $485,000, The impairment would be

$15,000 ($500,000 – $485,000). On the other hand, if the fair value were greater than the carrying

value, there would be no goodwill impairment. For example, if the carrying value of the reporting

unit were determined to be $470,000, there would be no impairment.

1-5

With the information provided, we do not know if there has been an impairment of the goodwill

involved in the purchase of Common Corporation. However, Plush must follow the procedures

outlined here in testing for impairment at December 31, 20X5.

Primary citations

ASC 350-20-35-11

ASC 350-20-35-30

ASC 350-20-35-41

ASU 2017-04

C1-5 Risks Associated with Acquisitions

Alphabet discloses on pages 9-10 of its 10-K that acquisitions, investments, and divestitures are

an important part of its corporate strategy. The company goes on to discuss relevant risks

associated with these activities. The specific risk areas identified include:

 The use of management time on acquisitions-related activities may temporarily divert

management’s time and focus from normal operations.

 After acquiring companies, there is a risk that Alphabet may not successfully develop the

business and technologies of the acquired firms.

 It can be difficult to implement controls, procedures, and policies appropriate for a public

company that were not already in place in the acquired company.

 Integrating the accounting, management information, human resources, and other

administrative systems can be challenging.

 The company sometimes encounters difficulties in transitioning operations, users, and

customers into Alphabet’s existing platforms.

 Government “red tape” in obtaining necessary approvals can reduce the potential strategic

benefits of acquisitions.

 There are many difficulties associated with foreign acquisitions due to differences in

culture, language, economics, currencies, politic, and regulation.

 Since corporate cultures can vary significantly, there are potential difficulties in integrating

the employees of an acquired company into the Google organization.

 It can be difficult to retain employees who worked for companies that Alphabet acquires.

 There may be legal liabilities for activities of acquired companies.

 Litigation of claims against acquired companies or as a result of acquisitions can be

problematic.

 Anticipated benefits of acquisitions may not materialize.

 Acquisitions through equity issuances can result in dilution to existing shareholders.

Similarly, the issuance of debt can result in other costs. Impairments, restructuring

charges, and other unfavorable results can result.

C1-6 Leveraged Buyouts

a. A leveraged buyout (LBO) involves acquiring a company in a transaction or series of planned

transactions that include using a very high proportion of debt, often secured by the assets of the

target company. Normally, the investors acquire all of the stock or assets of the target company.

A management buyout (MBO) occurs when the existing management of a company acquires all

or most of the stock or assets of the company. Frequently, the investors in LBOs include

management, and thus an LBO may also be an MBO

1-6

b. The FASB has not dealt with leveraged buyouts in either current pronouncements or exposure

drafts of proposed standards. The Emerging Issues Task Force has addressed limited aspects of

accounting for LBOs. In EITF 84-23, “Leveraged Buyout Holding Company Debt,” the Task Force

did not reach a consensus. In EITF 88-16, “Basis in Leveraged Buyout Transactions,” the Task

Force did provide guidance as to the proper basis that should be recognized for an acquiring

company’s interest in a target company acquired through a leveraged buyout.

c. Whether an LBO is a type of business combination is not clear and probably depends on the

structure of the buyout. The FASB has not taken a position on whether an LBO is a type of

business combination. The EITF indicated that LBOs of the type it was considering are similar to

business combinations. Most LBOs are effected by establishing a holding company for the

purpose of acquiring the assets or stock of the target company. Such a holding company has no

substantive operations. Some would argue that a business combination can occur only if the

acquiring company has substantive operations. However, neither the FASB nor EITF has

established such a requirement. Thus, the question of whether an LBO is a business combination

is unresolved.

d. The primary issue in deciding the proper basis for an interest in a company acquired in an LBO,

as determined by EITF 88-16, is whether the transaction has resulted in a change in control of

the target company (a new controlling shareholder group has been established). If a change in

control has not occurred, the transaction is treated as a recapitalization or restructuring, and a

change in basis is not appropriate (the previous basis carries over). If a change in control has

occurred, a new basis of accounting may be appropriate.

1-7

SOLUTIONS TO EXERCISES

E1-1 Multiple-Choice Questions on Complex Organizations

1. b – As companies grow in size and respond to their unique business environment, they often

develop complex organizational and ownership structures.

(a) Incorrect. The need to avoid legal liability is not a direct result of increased complexity.

increased number and type of divisions and product lines in companies.

(d) Incorrect. This statement is false. There has been an impact on organizational

structure and management.

2. d – A transfer of product to a subsidiary does not constitute a sale for income purposes and

as such would not increase profit for the parent.

(a) Incorrect. Shifting risk is a common reason for establishing a subsidiary.

(b) Incorrect. Corporations often establish subsidiaries in other regulatory environments

so that the parent company is not explicitly affected by the regulatory control.

benefits that exist in different regions.

3. a – When a merger occurs, all the assets and liabilities are transferred to the purchasing

company and any excess of the purchase price over the fair value of the net assets is

recorded as goodwill on the purchaser’s books.

(b) Incorrect. This combination results in a parent-subsidiary relationship in which an

investment in Spade would be recorded. In the event that goodwill were present in this

transaction, it would be reported on the consolidated books and not Poker’s books.

is recorded.

(d) Incorrect. In a split-off, no change to net assets occurs, and consequently no goodwill

is recorded.

4. b – In an internal expansion in which the existing company creates a new subsidiary, the

assets and liabilities are recorded at the carrying values of the original company.

(a) Incorrect. This is not in accordance with GAAP; assets are transferred at the parent’s

book (carrying) value.

assets are transferred at the parent’s book value.

(d) Incorrect. Not in accordance with US GAAP – Goodwill is not created when a

company creates a subsidiary through internal expansion.

5. d – This is the proper impairment test required under US GAAP, according to FASB 142/ASC

350.

(a) Incorrect. This is not the proper test for impairment under US GAAP.

(b) Incorrect. This is not the proper test for impairment under US GAAP.

1-8

E1-2 Multiple-Choice Questions on Recording Business Combinations

[AICPA Adapted]

1. a – Goodwill equals the excess sum of the consideration given over the sum of the fair value

of identifiable assets less liabilities.

(b) Incorrect. Assets considered only need be identifiable, not just tangible. For example,

patents would be identifiable, but not tangible.

and intangible identifiable assets.

(d) Incorrect. The calculation of goodwill requires a remeasurement of the assets and

liabilities at fair value, not book value.

2. c – “Costs of issuing equity securities used to acquire the acquire are treated in the same

manner as stock issue costs are normally treated, as a reduction in the paid-in capital

associated with the securities” A reduction to the paid-in capital account results in a

reduction in the fair value of the securities issued.

(a) Incorrect. Stock issue costs are not expensed but are charged as a reduction in paid-

in capital.

(b) Incorrect. Stock issue costs result in a reduction of stockholder’s equity, not an

increase.

(d) Incorrect. Stock issue costs result in a reduction of equity, and are not capitalized.

They are not added to goodwill.

3. d – When a new company is acquired, the assets and liabilities are recorded at fair value.

(a) Incorrect. Historical cost is not always reflective of actual value, thus fair values are

used.

(b) Incorrect. Book value is often different than fair value, thus fair value is the appropriate

basis.

4. d – This combination would result in a bargain purchase.

(a) Incorrect. Deferred credits do not arise as a result of fair value of identifiable assets

exceeding fair value of the consideration.

(b) Incorrect. The fair value is not reduced, and deferred credits do not arise in this

situation.

5. c – $875,000 – $800,000 = $75,000. Total consideration given – FV of net assets = Goodwill

1-9

E1-3 Multiple-Choice Questions on Reported Balances [AICPA Adapted]

1. d – $2,900,000. New APIC Balance = existing APIC on Poe’s books + APIC from new stock

issuance. (200,000*($18-$10) + $1,300,000 = $2,900,000)

2. d – $600,000. The total balance in the investment account is equal to the total consideration

given in the combination. (10,000 *$60 per share = $600,000)

3. c – $150,000. Goodwill = Consideration given – FV of net assets acquired. FV of Net Assets:

$80,000 + $190,000 + $560,000 – $180,000 = $650,000. (800,000 – 650,000 = 150,000)

4. c – $4,000,000. The increase in net assets is solely attributable to the FV of the consideration

given, the nonvoting preferred stock.

(a) Incorrect. This answer only reflects the book value of Master’s net assets.

(b) Incorrect. This answer only reflects the fair value of Master’s net assets.

(d) Incorrect. The additional stock related to the finder’s fee is not capitalized, but rather

expensed.

E1-4 Multiple-Choice Questions Involving Account Balances

1. c – When the parent creates the subsidiary, the equipment is transferred at cost with the

accompanying accumulated depreciation (which in effect is the book value).

($100,000/10 = $10,000 per year * 4 = $40,000.)

(a) Incorrect. When a subsidiary is created internally, the assets are transferred as they

were on the parent’s books (carrying value). Fair value is not considered.

(b) Incorrect. This is the proper carrying value of the asset, but it should be recorded at

cost with the accompanying accumulated depreciation.

(d) Incorrect. When a subsidiary is created internally, the assets are transferred as they

were on the parent’s books (carrying value).

2. c – The assets are transferred at the carrying value on Pead’s books, and thus no change in

reported net assets occurs.

(a) Incorrect. No change occurs.

(b) Incorrect. No change occurs.

(d) Incorrect. No change occurs.

3. b – APIC = $140,000 (BV) – 7,000 * $8 = $84,000.

4. b – $35,000. Since the carrying value of the reporting unit ($330,000) is lower than the fair

value of the reporting unit’s net assets ($350,000), the goodwill of the reporting unit is not

impaired and will remain at its carrying value of $35,000

5. c – $15,000. The carrying value of the reporting unit’s net assets ($575,000) exceeds the

estimated fair value of the reporting unit ($560,000). The goodwill should be impaired by

the amount by which the carrying value of the unit’s net assets exceeds the estimated fair

value of the reporting unit, $15,000 ($575,000 – $560,000).

1-10

E1-5 Asset Transfer to Subsidiary

a. Journal entry recorded by Pale Company for transfer of assets to Sight Company:

Investment in Sight Company Common Stock 408,000

Accumulated Depreciation – Buildings 24,000

Accumulated Depreciation – Equipment 36,000

Cash 21,000

Inventory 37,000

Land 80,000

Buildings 240,000

Equipment 90,000

b. Journal entry recorded by Sight Company for receipt of assets from Pale Company:

Cash 21,000

Inventory 37,000

Land 80,000

Buildings 240,000

Equipment 90,000

Accumulated Depreciation – Buildings 24,000

Accumulated Depreciation – Equipment 36,000

Common Stock 60,000

Additional Paid-In Capital 348,000

1-11

E1-6 Creation of New Subsidiary

a. Journal entry recorded by Pester Company for transfer of assets to Shumby Corporation:

Investment in Shumby Corporation Common Stock 498,000

Allowance for Uncollectible Accounts Receivable 7,000

Accumulated Depreciation – Buildings 35,000

Accumulated Depreciation – Equipment 60,000

Cash 40,000

Accounts Receivable 75,000

Inventory 50,000

Land 35,000

Buildings 160,000

Equipment 240,000

b. Journal entry recorded by Shumby Corporation for receipt of assets from Pester Company:

Cash 40,000

Accounts Receivable 75,000

Inventory 50,000

Land 35,000

Buildings 160,000

Equipment 240,000

Allowance for Uncollectible

Accounts Receivable 7,000

Accumulated Depreciation – Buildings 35,000

Accumulated Depreciation – Equipment 60,000

Common Stock 120,000

Additional Paid-In Capital 378,000

1-12

E1-7 Balance Sheet Totals of Parent Company

a. Journal entry recorded by Phoster Corporation for transfer of assets and accounts payable to

Skine Company:

Investment in Skine Company Common Stock 66,000

Accumulated Depreciation 28,000

Accounts Payable 22,000

Cash 15,000

Accounts Receivable 24,000

Inventory 9,000

Land 3,000

Depreciable Assets 65,000

b. Journal entry recorded by Skine Company for receipt of assets and accounts payable from

Phoster Corporation:

Cash 15,000

Accounts Receivable 24,000

Inventory 9,000

Land 3,000

Depreciable Assets 65,000

Accumulated Depreciation 28,000

Accounts Payable 22,000

Common Stock 48,000

Additional Paid-In Capital 18,000

1-13

E1-8 Acquisition of Net Assets

Pun Corporation will record the following journal entries:

(1) Assets 71,000

Goodwill 9,000

Liabilities 20,000

Cash 60,000

(2) Acquisition Expense 4,000

Cash 4,000

E1-9 Reporting Goodwill

a. Goodwill: $120,000 = $310,000 – $190,000

Investment: $310,000

b. Goodwill: $6,000 = $196,000 – $190,000

Investment: $196,000

c. Goodwill: $0; no goodwill is recorded when the purchase price is below the fair

value of the net identifiable assets.

Investment: $190,000; recorded at the fair value of the net identifiable assets.

E1-10 Stock Acquisition

Journal entry to record the purchase of Sippy Inc., shares:

Investment in Sippy Inc., Common Stock 986,000

Common Stock 425,000

Additional Paid-In Capital 561,000

$986,000 = $58 x 17,000 shares

$425,000 = $25 x 17,000 shares

$561,000 = ($58 – $25) x 17,000 shares

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E1-11 Balances Reported Following Combination

a. Stock Outstanding: $200,000 + ($10 x 8,000 shares) b. Cash and Receivables: $150,000 + $40,000 c. Land: $100,000 + $85,000 d. Buildings and Equipment (net): $300,000 + $230,000 e. Goodwill: ($50 x 8,000) – $355,000 f. Additional Paid-In Capital:

$20,000 + [($50 – $10) x 8,000] $280,000

190,000

185,000

530,000

45,000

340,000

g. Retained Earnings 330,000

E1-12 Goodwill Recognition

Journal entry to record acquisition of Spur Corporation net assets:

Cash and Receivables 40,000

Inventory 150,000

Land 30,000

Plant and Equipment 350,000

Patent 130,000

Goodwill 55,000

Accounts Payable 85,000

Cash 670,000

$670,000

Computation of goodwill

Fair value of consideration given Fair value of assets acquired Fair value of liabilities assumed $700,000

(85,000)

Fair value of net assets acquired Goodwill $ 55,000

615,000

1-15

E1-13 Acquisition Using Debentures

Journal entry to record acquisition of Sorden Company net assets:

Cash and Receivables 50,000

Inventory 200,000

Land 100,000

Plant and Equipment 300,000

Discount on Bonds Payable 17,000

Goodwill 8,000

Accounts Payable 50,000

Bonds Payable 625,000

$608,000

Computation of goodwill

Fair value of consideration given Fair value of assets acquired Fair value of liabilities assumed $650,000

(50,000)

Fair value of net assets acquired Goodwill $ 8,000

600,000

E1-14 Bargain Purchase

Journal entry to record acquisition of Sorden Company net assets:

Cash and Receivables 50,000

Inventory 200,000

Land 100,000

Plant and Equipment 300,000

Discount on Bonds Payable 16,000

Accounts Payable 50,000

Bonds Payable 580,000

Gain on Bargain Purchase of Subsidiary 36,000

$564,000

Computation of Bargain Purchase Gain

Fair value of consideration given Fair value of assets acquired Fair value of liabilities assumed $650,000

(50,000)

Fair value of net assets acquired Bargain Purchase Gain $ 36,000

600,000

1-16

E1-15 Goodwill Impairment

a. Goodwill of $80,000 will be reported. The fair value of the reporting unit ($340,000) is

greater than the carrying amount of the reporting unit ($290,000). As a result, no

impairment loss will be recorded.

b. An impairment loss of $10,000 ($290,000 – $280,000) will be recognized. Therefore,

goodwill of $70,000 will be reported (80,000 – 10,000 impairment loss).

c. An impairment loss of $30,000 ($290,000 – $260,000) will be recognized. Therefore,

goodwill of $50,000 will be reported (80,000 – 30,000 impairment loss).

E1-16 Goodwill Impairment

a. No impairment loss will be recognized. The estimated fair value of the reporting unit

($530,000) is greater than the carrying value of the reporting unit’s net assets

($500,000).

b. A goodwill impairment of $15,000 will be recognized ($500,000 – $485,000).

c. A goodwill impairment of $50,000 will be recognized ($500,000 – $450,000).

E1-17 Goodwill Assigned to Reporting Units

Goodwill of $146,000 ($50,000 + $48,000 + $8,000 + $40,000) should be reported,

computed as follows:

Reporting Unit A: A goodwill impairment of $10,000 should be recognized ($700,000 –

$690,000). Thus, goodwill of $50,000 ($60,000 – $10,000 impairment) should be reported

on December 31, 20X7..

Reporting Unit B: There is no goodwill impairment because the fair value of the reporting

unit exceeds the carrying value. Goodwill of $48,000 should be reported on December

31, 20X7.

Reporting Unit C: A goodwill impairment of $20,000 should be recognized ($380,000 –

$370,000). Thus, goodwill of $8,000 ($28,000 – $20,000 impairment) should be reported

on December 31, 20X7.

Reporting Unit D: There is no goodwill impairment because the fair value of the reporting

unit exceeds the carrying value. Goodwill of $40,000 should be reported.

1-17

E1-18 Goodwill Measurement

a. The fair value of the reporting unit ($580,000) is greater than the carrying value of the

investment ($550,000). Thus, goodwill is not impaired Goodwill of $150,000 will be

reported.

b. The carrying value of the reporting unit ($550,000) exceeds the fair value of the reporting

unit ($540,000). Thus, an impairment of goodwill of $10,000 ($550,000 – $540,000)

must be recognized. Goodwill of $140,000 will be reported.

c. The carrying value of the reporting unit ($550,000) exceeds the fair value of the reporting

unit ($500,000). Thus, an impairment loss of $50,000 ($550,000 – $500,000) must be

recognized. Goodwill of $100,000 will be reported.

d. The carrying value of the reporting unit ($550,000) exceeds the fair value of the reporting

unit ($460,000). Thus, an impairment loss of $90,000 ($550,000 – $460,000) must be

recognized. Goodwill of $60,000 will be reported.

E1-19 Computation of Fair Value

Amount paid $517,000

Book value of assets $624,000

Book value of liabilities (356,000)

Book value of net assets $268,000

Adjustment for research and development costs (40,000)

Adjusted book value $228,000

Fair value of patent rights 120,000

Goodwill recorded 93,000 (441,000)

Fair value increment of buildings and equipment $ 76,000

Book value of buildings and equipment 341,000

Fair value of buildings and equipment $417,000

1-18

E1-20 Computation of Shares Issued and Goodwill

a. b. 15,600 shares were issued, computed as follows:

Par value of shares outstanding following merger Paid-in capital following merger 650,800

Total par value and paid-in capital $327,600

$978,400

Par value of shares outstanding before merger $218,400

Paid-in capital before merger 370,000

Increase in par value and paid-in capital Divide by price per share (588,400)

$390,000

÷ $25

Number of shares issued 15,600

The par value is $7, computed as follows:

Increase in par value of shares outstanding

($327,600 – $218,400)

Divide by number of shares issued $109,200

Par value ÷ 15,600

$ 7.00

c. Goodwill of $34,000 was recorded, computed as follows:

Increase in par value and paid-in capital Fair value of net assets ($476,000 – $120,000) $390,000

(356,000)

Goodwill $ 34,000

E1-21 Combined Balance Sheet

Pam Corporation and Slest Company

Combined Balance Sheet

January 1, 20X2

Cash and Receivables $ 240,000 Accounts Payable $ 125,000

Inventory 460,000 Notes Payable 235,000

Buildings and Equipment 840,000 Common Stock 244,000

Less: Accumulated Depreciation (250,000) Additional Paid-In Capital 556,000

Goodwill 75,000 Retained Earnings 205,000

$1,365,000 $1,365,000

Computation of goodwill

Fair value of compensation given $480,000

Fair value of net identifiable assets

($490,000 – $85,000) (405,000)

Goodwill $ 75,000

Computation of APIC

Fair value of compensation given ($60 x 8,000 shares)

Less par value of shares issued ($8 x 8,000)

Plus existing APIC from Pam’s books $480,000

(64,000)

140,000

Additional Paid-In Capital $ 556,000

1-19

E1-22 Recording a Business Combination

Acquisition Expense 54,000

Deferred Stock Issue Costs 29,000

Cash 83,000

Cash 70,000

Accounts Receivable 110,000

Inventory 200,000

Land 100,000

Buildings and Equipment 350,000

Goodwill (1) 30,000

Accounts Payable 195,000

Bonds Payable 100,000

Bond Premium 5,000

Common Stock 320,000

Additional Paid-In Capital (2) 211,000

Deferred Stock Issue Costs 29,000

$560,000

Computation of goodwill

Fair value of consideration given (40,000 x $14) Fair value of assets acquired Fair value of liabilities assumed $830,000

(300,000)

Fair value of net assets acquired (530,000)

Goodwill $ 30,000

Computation of additional paid-in capital

Number of shares issued 40,000

Issue price in excess of par value ($14 – $8) Total $240,000

Less: Deferred stock issue costs Increase in additional paid-in capital x $6

(29,000)

$211,000

E1-23 Reporting Income

20X2: Net income Earnings per share = $6,028,000 [$2,500,000 + $3,528,000]

= $5.48 [$6,028,000 / (1,000,000 + 100,000*)]

20X1: Net income = $4,460,000 [previously reported]

Earnings per share = $4.46 [$4,460,000 / 1,000,000]

* 100,000 = 200,000 shares x ½ year

1-20

SOLUTIONS TO PROBLEMS

P1-24 Assets and Accounts Payable Transferred to Subsidiary

a. Journal entry recorded by Pab Corporation for its transfer of

assets and accounts payable to Sollon Company:

Investment in Sollon Company Common Stock 320,000

Accounts Payable 45,000

Accumulated Depreciation – Buildings 40,000

Accumulated Depreciation – Equipment 10,000

Cash 25,000

Inventory 70,000

Land 60,000

Buildings 170,000

Equipment 90,000

b. Journal entry recorded by Sollon Company for receipt of assets

and accounts payable from Pab Corporation:

Cash 25,000

Inventory 70,000

Land 60,000

Buildings 170,000

Equipment 90,000

Accounts Payable 45,000

Accumulated Depreciation – Buildings 40,000

Accumulated Depreciation – Equipment 10,000

Common Stock 180,000

Additional Paid-In Capital 140,000

1-21

P1-25 Creation of New Subsidiary

a. Journal entry recorded by Pagle Corporation for transfer of assets

and accounts payable to Sand Corporation:

Investment in Sand Corporation Common Stock 400,000

Allowance for Uncollectible Accounts Receivable 5,000

Accumulated Depreciation 40,000

Accounts Payable 10,000

Cash 30,000

Accounts Receivable 45,000

Inventory 60,000

Land 20,000

Buildings and Equipment 300,000

b. Journal entry recorded by Sand Corporation for receipt of assets and

accounts payable from Pagle Corporation:

Cash 30,000

Accounts Receivable 45,000

Inventory 60,000

Land 20,000

Buildings and Equipment 300,000

Allowance for Uncollectible Accounts Receivable 5,000

Accumulated Depreciation 40,000

Accounts Payable 10,000

Common Stock 50,000

Additional Paid-In Capital 350,000

P1-26 Incomplete Data on Creation of Subsidiary

a. The book value of assets transferred was $152,000 ($3,000 + $16,000 + $27,000 + $9,000 +

$70,000 + $60,000 – $21,000 – $12,000).

b. Plumb Company would report its investment in Stew Company equal to the book value of net

assets transferred of $138,000 ($152,000 – $14,000).

c. 8,000 shares ($40,000/$5).

d. Total assets declined by $14,000 (book value of assets transferred of $152,000 – investment

in Stew Company of $138,000).

e. No effect. The shares outstanding reported by Plumb Company are not affected by the

creation of Stew Company.

1-22

P1-27 Acquisition in Multiple Steps

Peal Corporation will record the following entries:

(1) Investment in Seed Company Stock 85,000

Common Stock – $10 Par Value 40,000

Additional Paid-In Capital 45,000

(2) Acquisition Expense 3,500

Additional Paid-In Capital 2,000

Cash 5,500

P1-28 Journal Entries to Record a Business Combination

Journal entries to record acquisition of SKK net assets:

(1) Acquisition Expense 14,000

Cash 14,000

Record payment of legal fees.

(2) Deferred Stock Issue Costs 28,000

Cash 28,000

Record costs of issuing stock.

(3) Cash and Receivables 28,000

Inventory 122,000

Buildings and Equipment 470,000

Goodwill 12,000

Accounts Payable 41,000

Notes Payable 63,000

Common Stock 96,000

Additional Paid-In Capital 404,000

Deferred Stock Issue Costs 28,000

Record purchase of SKK Corporation.

Computation of goodwill

Fair value of consideration given (24,000 x $22) $528,000

Fair value of net assets acquired

($620,000 – $104,000) (516,000)

Goodwill $ 12,000

Computation of additional paid-in capital

Number of shares issued 24,000

Issue price in excess of par value ($22 – $4) Total $432,000

Less: Deferred stock issue costs Increase in additional paid-in capital x $18

(28,000)

$404,000

1-23

P1-29 Recording Business Combinations

Acquisition Expense 38,000

Deferred Stock Issue Costs 22,000

Cash 60,000

Cash and Equivalents 41,000

Accounts Receivable 73,000

Inventory 144,000

Land 200,000

Buildings 1,500,000

Equipment 300,000

Goodwill 127,000

Accounts Payable 35,000

Short-Term Notes Payable 50,000

Bonds Payable 500,000

Common Stock $2 Par 900,000

Additional Paid-In Capital 878,000

Deferred Stock Issue Costs 22,000

$1,800,000

Computation of goodwill

Fair value of consideration given (450,000 x $4) Fair value of net assets acquired ($41,000

+ $73,000 + $144,000 + $200,000 + $1,500,000

+ $300,000 – $35,000 – $50,000 – $500,000)

(1,673,000)

Goodwill $ 127,000

Computation of additional paid-in capital

Number of shares issued 450,000

Issue price in excess of par value ($4 – $2) Total $900,000

Less: Deferred stock issue costs Increase in additional paid-in capital x $2

(22,000)

$878,000

1-24

P1-30 Business Combination with Goodwill

a. Journal entry to record acquisition of Sink Company net assets:

Cash 20,000

Accounts Receivable 35,000

Inventory 50,000

Patents 60,000

Buildings and Equipment 150,000

Goodwill 38,000

Accounts Payable 55,000

Notes Payable 120,000

Cash 178,000

b. Balance sheet immediately following acquisition:

Pancor Corporation and Sink Company

Combined Balance Sheet

February 1, 20X3

Cash $ 82,000 Accounts Payable $140,000

Accounts Receivable 175,000 Notes Payable 270,000

Inventory 220,000 Common Stock 200,000

Patents 140,000 Additional Paid-In

Buildings and Equipment 530,000 Capital 160,000

Less: Accumulated Retained Earnings 225,000

Depreciation (190,000)

Goodwill 38,000

$995,000 $995,000

c. Journal entry to record acquisition of Sink Company stock:

Investment in Sink Company Common Stock 178,000

Cash 178,000

$178,000

Computation of goodwill

Fair value of consideration given Fair value of net assets acquired

($20,000 + $35,000 + $50,000 + $60,000

+ $150,000 – $55,000 -$120,000) (140,000)

Goodwill $ 38,000

1-25

P1-31 Bargain Purchase

Journal entries to record acquisition of Sark Corporation net assets:

Acquisition Expense 5,000

Cash 5,000

Cash and Receivables 50,000

Inventory 150,000

Buildings and Equipment (net) 300,000

Patent 200,000

Accounts Payable 30,000

Cash 625,000

Gain on Bargain Purchase of Sark Corporation 45,000

Computation of gain

Fair value of consideration given $625,000

Fair value of net assets acquired

($700,000 – $30,000) (670,000)

Gain on bargain purchase $ 45,000

P1-32 Computation of Account Balances

a. Acquisition price of reporting unit

($7.60 x 100,000) $760,000

Fair value of net assets at acquisition

($810,000 – $190,000) (620,000)

Goodwill at acquisition $140,000

Goodwill at year-end (110,000)

Fair value of net assets at year-end $820,000

Fair value of assets at year-end Fair value of net assets at year-end Fair value of liabilities at year-end $950,000

(820,000)

$130,000

b. Maximum carrying value of reporting unit’s assets:

Carrying value of assets at year-end Less: Carrying value of liabilities at year-end (given) Carrying value of net assets at year-end Less: Fair value of the reporting unit’s net assets $ X

(70,000)

$ X – $70,000

$ (930,000)

Maximum carrying value of assets

X – $70,00 = $930,000

X = $1,000,000

P1-33 Goodwill Assigned to Multiple Reporting Units

1-26

a. $420,000

(400,000)

$ 20,000

A goodwill impairment of $95,000 ($20,000 + $50,000 + $25,000) must be

reported in the current period for Prover Company:

Computation of goodwill impairment:

Reporting unit A

Carrying value of reporting unit Less: Fair value of reporting unit Goodwill impairment at year-end Reporting unit B

Carrying value of reporting unit Less: Fair value of reporting unit Goodwill impairment at year-end $500,000

(440,000)

$ 60,000*

* Limited to the amount of goodwill on the reporting unit’s books ($50,000).

Reporting unit C

Carrying value of reporting unit Less: Fair value of reporting unit Goodwill impairment at year-end $290,000

(265,000)

$ 25,000

b. Goodwill to be reported by Prover Company:

Reporting Unit

A B C

Carrying value of goodwill $70,000 $50,000)* $40,000

Less: Impairment (20,000) (50,000)* (25,000)

Goodwill to be reported at year-end 50,000 0)* 15,000

* Limited to the amount of goodwill on the reporting unit’s books.

Total goodwill to be reported at year-end:

Reporting unit A $ 50,000

Reporting unit B 0

Reporting unit C 15,000

Total goodwill to be reported $65,000

1-27

P1-34 Journal Entries

Journal entries to record acquisition of Steel net assets:

(1) Acquisition Expense 19,000

Cash 19,000

Record finder’s fee and transfer costs.

(2) Deferred Stock Issue Costs 9,000

Cash 9,000

Record audit fees and stock registration fees.

(3) Cash 60,000

Accounts Receivable 100,000

Inventory 115,000

Land 70,000

Buildings and Equipment 350,000

Bond Discount 20,000

Goodwill 95,000

Accounts Payable 10,000

Bonds Payable 200,000

Common Stock 120,000

Additional Paid-In Capital 471,000

Deferred Stock Issue Costs 9,000

Record merger with Steel Company.

Computation of goodwill

Fair value of consideration given (12,000 x $50) $600,000

Fair value of net assets acquired ($695,000 – $10,000

– $180,000) (505,000)

Goodwill $ 95,000

Computation of additional paid-in capital

Number of shares issued 12,000

Issue price in excess of par value ($50 – $10) Total $480,000

Less: Deferred stock issue costs Increase in additional paid-in capital x $40

(9,000)

$471,000

1-28

P1-35 Purchase at More than Book Value

a. Journal entry to record acquisition of Stafford Industries net assets:

Cash 30,000

Accounts Receivable 60,000

Inventory 160,000

Land 30,000

Buildings and Equipment 350,000

Bond Discount 5,000

Goodwill 125,000

Accounts Payable 10,000

Bonds Payable 150,000

Common Stock 80,000

Additional Paid-In Capital 520,000

b. Balance sheet immediately following acquisition:

Pamrod Manufacturing and Stafford Industries

Combined Balance Sheet

January 1, 20X2

Cash $ 100,000 Accounts Payable $ 60,000

Accounts Receivable 160,000 Bonds Payable $450,000

Inventory 360,000 Less: Discount (5,000) 445,000

Land 80,000 Common Stock 280,000

Buildings and Equipment 950,000 Additional

Less: Accumulated Paid-In Capital 560,000

Depreciation (250,000) Retained Earnings 180,000

Goodwill 125,000

$1,525,000 $1,525,000

Computation of goodwill

Fair value of consideration given (4,000 x $150) $600,000

Fair value of net assets acquired ($630,000 – $10,000

– $145,000) (475,000)

Goodwill $125,000

1-29

P1-36 Business Combination

Journal entry to record acquisition of Shoot-Toot Tuba net assets:

Cash 300

Accounts Receivable 17,000

Inventory 35,000

Plant and Equipment 500,000

Other Assets 25,800

Goodwill 86,500

Allowance for Uncollectibles 1,400

Accounts Payable 8,200

Notes Payable 10,000

Mortgage Payable 50,000

Bonds Payable 100,000

Capital Stock ($10 par) 90,000

Premium on Capital Stock 405,000

Computation of fair value of net assets acquired

Cash $300

Accounts Receivable 17,000

Allowance for Uncollectible Accounts (1,400)

Inventory 35,000

Plant and Equipment 500,000

Other Assets 25,800

Accounts Payable (8,200)

Notes Payable (10,000)

Mortgage Payable (50,000)

Bonds Payable (100,000)

Fair value of net assets acquired $408,500

Computation of goodwill

Fair value of consideration given (9,000 x $55) Fair value of net assets acquired $495,000

(408,500)

Goodwill $86,500

1-30

P1-37 Combined Balance Sheet

a. Balance sheet:

Pumpworks and Seaworthy Rope Company

Combined Balance Sheet

January 1, 20X3

Cash and Receivables $110,000 Current Liabilities $ 100,000

Inventory 142,000 Capital Stock 214,000

Land 115,000 Capital in Excess

Plant and Equipment 540,000 of Par Value 216,000

Less: Accumulated Retained Earnings 240,000

Depreciation (150,000)

Goodwill 13,000

$770,000 $ 770,000

Computation of goodwill

Fair value of consideration given (700 x $300) Fair value of net assets acquired ($217,000 – $20,000) $210,000

(197,000)

Goodwill $13,000

b. (1) Stockholders’ equity with 1,100 shares issued:

Capital Stock [$200,000 + ($20 x 1,100 shares)] Capital in Excess of Par Value

[$20,000 + ($300 – $20) x 1,100 shares] Retained Earnings 240,000

$ 790,000

$ 222,000

328,000

(2) Stockholders’ equity with 1,800 shares issued:

Capital Stock [$200,000 + ($20 x 1,800 shares)] Capital in Excess of Par Value

[$20,000 + ($300 – $20) x 1,800 shares] Retained Earnings 240,000

$1,000,000

$ 236,000

524,000

(3) Stockholders’ equity with 3,000 shares issued:

Capital Stock [$200,000 + ($20 x 3,000 shares)] Capital in Excess of Par Value

[$20,000 + ($300 – $20) x 3,000 shares] Retained Earnings 240,000

$1,360,000

$ 260,000

860,000

1-31

P1-38 Incomplete Data Problem

a. 5,200 = ($126,000 – $100,000)/$5

b. $208,000 = ($126,000 + $247,000) – ($100,000 + $65,000)

c. $46,000 = $96,000 – $50,000

d. $130,000 = ($50,000 + $88,000 + $96,000 + $430,000 – $46,000 –

$220,000 – $6,000) – ($40,000 + $60,000 + $50,000 + $300,000 –

$32,000 – $150,000 – $6,000)

e. $78,000 = $208,000 – $130,000

f. $97,000 (as reported by Plend Corporation)

g. $13,000 = ($430,000 – $300,000)/10 years

P1-39 Incomplete Data Following Purchase

a. 14,000 = $70,000/$5

b. $8.00 = ($70,000 + $42,000)/14,000

c. 7,000 = ($117,000 – $96,000)/$3

d. $24,000 = $65,000 + $15,000 – $56,000

e. $364,000 = ($117,000 + $553,000 + $24,000) – ($96,000 + $234,000)

f. $110,000 = $320,000 – $210,000

g. $306,000 = ($15,000 + $30,000 + $110,000 + $293,000) –

($22,000 + $120,000)

h. $58,000 = $364,000 – $306,000

1-32

P1-40 Comprehensive Business Combination Problem

a. Journal entries on the books of Pintime Industries to record the combination:

Acquisition Expense 135,000

Cash 135,000

Deferred Stock Issue Costs 42,000

Cash 42,000

Cash 28,000

Accounts Receivable 251,500

Inventory 395,000

Long-Term Investments 175,000

Land 100,000

Rolling Stock 63,000

Plant and Equipment 2,500,000

Patents 500,000

Special Licenses 100,000

Discount on Equipment Trust Notes 5,000

Discount on Debentures 50,000

Goodwill 109,700

Current Payables 137,200

Mortgages Payable 500,000

Premium on Mortgages Payable 20,000

Equipment Trust Notes 100,000

Debentures Payable 1,000,000

Common Stock 180,000

Additional Paid-In Capital — Common 2,298,000

Deferred Stock Issue Costs 42,000

$2,520,000

Computation of goodwill

Value of stock issued ($14 x 180,000) Fair value of assets acquired Fair value of liabilities assumed $4,112,500

(1,702,200)

Fair value of net identifiable assets (2,410,300)

Goodwill $ 109,700

1-33

P1-40 (continued)

b. Journal entries on the books of SCC to record the combination:

Investment in Pintime Industries Stock 2,520,000

Allowance for Bad Debts 6,500

Accumulated Depreciation 614,000

Current Payables 137,200

Mortgages Payable 500,000

Equipment Trust Notes 100,000

Debentures Payable 1,000,000

Discount on Debentures Payable 40,000

Cash 28,000

Accounts Receivable 258,000

Inventory 381,000

Long-Term Investments 150,000

Land 55,000

Rolling Stock 130,000

Plant and Equipment 2,425,000

Patents 125,000

Special Licenses 95,800

Gain on Sale of Assets and Liabilities 1,189,900

Record sale of assets and liabilities.

Common Stock 7,500

Additional Paid-In Capital — Common Stock 4,500

Treasury Stock 12,000

Record retirement of Treasury Stock:*

$7,500 = $5 x 1,500 shares

$4,500 = $12,000 – $7,500

Common Stock 592,500

Additional Paid-In Capital — Common 495,500

Additional Paid-In Capital — Retirement

of Preferred 22,000

Retained Earnings 1,410,000

Investment in Pintime

Industries Stock 2,520,000

Record retirement of SCC stock and

distribution of Integrated Industries stock:

$592,500 = $600,000 – $7,500

$495,500 = $500,000 – $4,500

1,410,000 = $220,100 + $1,189,900

*Alternative approaches exist.

1-34

Solution Manual Advanced Financial Accounting Christensen Cottrell Budd 13th edition – Updated 2024

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