Chapter 05 Modern Advanced Accounting Answers

CHAPTER 5
BUSINESS COMBINATIONS
The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
Pr. 51
Pr. 52
Pr. 53
Pr. 54
Pr. 55
Pr. 56
Pr. 57
Pr. 58
Pr. 59
Pr. 510
Pr. 511
La Salle Corporation (15 minutes, easy)

Journal entries for business combination (acquisition of net assets except cash), with bargainpurchase excess.
Lionel Corporation (20 minutes, easy)
Journal entries for business combination (acquisition of net assets) involving issuance of
bonds, with goodwill recognized.
Wabash Corporation (20 minutes, easy)
Given journal entries for a statutory merger business combination involving issuance of bonds,
prepare journal entries assuming the issuance of common stock.
Combinor Corporation (20 minutes, easy)
Journal entries for business combination involving the acquisition of net assets, with goodwill
recognized.
Consol Corporation (20 minutes, medium)
Journal entries for statutory consolidation, with goodwill recognized.
Silva Corporation (30 minutes, medium)
From condensed balance sheets of surviving corporation prior to and subsequent to a statutory
merger, reconstruct the issuer's journal entries for the business combination.
Solomon Corporation (30 minutes medium)
Prepare journal entries for statutory merger, under assumption of a business combination
involving a bargain-purchase excess. Intercompany receivable and payable are involved.
Value Corporation (20 minutes, easy)
Accounting for business combination involving acquisition of combinee's net assets. Bargainpurchase excess must be allocated in accordance with FASB Statement No. 141, Business
Combinations.
Stave Corporation (50 minutes, medium)
Journal entries for statutory merger business combination that involves recognition of
goodwill.
Coolidge Corporation (40 minutes, medium)
Accounting for a business combination involving acquisition of net assets, contingent
consideration, and bargain-purchase excess. Computation of and accounting for additional
shares of common stock issued to settle contingent consideration.
Solo Corporation (80 minutes, strong)
Computation of historical and projected net income and basic earnings per share for merger
business combination. Pro forma combined balance sheet following business combination.
ANSWERS TO REVIEW QUESTIONS

1.
2.
A business combination occurs when an entity acquires net assets that constitute a business or
acquires interests of one or more other entities and obtains control over the entity or entities.
A statutory merger is a business combination that is consummated in accordance with applicable
state law. In a merger, one corporationthe survivoracquires all the outstanding common
stock of one or more other corporations, which are then liquidated. A statutory consolidation is
The McGraw-Hill Companies, Inc., 2006

178
Modern Advanced Accounting, 10/e
3.
4.
5.
6.
7.
8.
9.
10.
similar to a merger in that it is consummated in accordance with applicable state law and involves
the acquisition of two or more corporations' outstanding common stock. However, the survivor in a
consolidation is a new corporation rather than an existing one.
One or both of the following methods are used to determine an appropriate price to pay in a
business combination:
Capitalization of expected average earnings of the combinee at a desired rate of return
Determination of current fair value of the combinee's net assets (including goodwill)
The constituent company that issues cash, other assets, or debt instruments in a business
combination is the combinor. In a business combination involving the issuance of common stock,
the combinor generally is the constituent company whose former common stockholder interests
either retain or receive the larger portion of the voting rights of the combined enterprise.
The following out-of-pocket costs are included in the determination of the total cost of the
combinee:
(a) Printing costs of proxy statement mailed to combinor's stockholders
(b) Legal fees for negotiating the merger
(f) CPA firm's fees for advice on income tax aspects of the merger
The following out-of-pocket costs are offset against paid-in capital in excess of par of combinor
common stock issued in the merger:
(c) CPA firm's fees for auditing financial statements in SEC registration statement covering shares
of common stock issued in the merger
(d) Printing costs for common stock certificates issued in the merger
(e) Legal fees for SEC registration statement covering shares of common stock issued in the
merger
Goodwill is the value assigned to the expectation of above-average or superior earnings from the
identifiable assets of a combinee. In accounting for a business combination, goodwill is the excess
of the total cost of the combinee over the current fair values assignable to its identifiable net assets.
Negative goodwill is a residual deferred credit in a business combination in which the cost of the
combinee is less than the current fair values assignable to the combinee's identifiable net assets.
The deficiency first is allocated pro rata to specified assets; any amount remaining after reducing
the values of these assets to zero is recognized as an extraordinary gain.
Contingent consideration is additional cash, other assets, or securities that may be issuable in the
future contingent on specified future events or transactions, such as a specified level of earnings, or
a designated market price for a debt or an equity security issued to effect the business combination.
The total cost of a combinee in a business combination is allocated first to the identifiable assets
acquired and liabilities assumed, based on their current fair values. Any excess of total cost over
the amounts assigned is recognized as goodwill. Any excess of amounts assigned over total cost is
applied pro rata to reduce the amounts otherwise assignable to certain assets specified by the
FASB.
Preacquisition contingencies are contingent assets (other than potential income tax benefits of a
loss carryforward), contingent liabilities, or contingent impairments of assets that existed prior to
completion of a business combination.
The following combinee intangible assets other than goodwill are given accounting recognition in a
business combination: Assets arising from contractual or legal rights, such as patents, copyrights,
and franchises. Other assets that are separable from the combinee entity and can be sold, licensed,
exchanged, and the like, such as customer lists and unpatented technology.
SOLUTIONS TO EXERCISES
Ex. 51
1.
2.
3.
4.
c
b
b
c
5.
6.
7.
8.
d
a
b
e

179
Ex. 52
Journal entries for Sal Corporation, Jan. 31, 2005:

Investment in Mel Company Common Stock (35,000 x $20)
Common Stock (35,000 x $1)
Paid-in Capital in Excess of Par
Investment in Mel Company Common Stock
Cash
35,000
665,000
40,000
70,000
110,000
Current Assets
Other Assets
Goodwill
Current Liabilities
Long-Term Debt
Investment in Mel Company Common Stock
Ex. 53
700,000
120,000
850,000
90,000
80,000
240,000
740,000
Computation of amount of goodwill in the business combination of Master Corporation and

Geo Company, Mar. 31, 2005:
Total cost to Master of Geo's net assets except cash
($700,000 + $100,000)
Less: Current fair value of Geo's identifiable net assets:
Other current assets
Plant Assets
Current liabilities
Long-term debt
Amount of goodwill
Solutions Manual, Chapter 5
$800,000
$140,000
920,000
(80,000)
(190,000)
790,000
$ 10,000

180
Ex. 54
Ex. 55
Journal entries for Combinor Company, Jan. 31, 2005:

Investment in Net Assets of Combinee Company
Discount on 6% Bonds Payable
6% Bonds Payable
625,257
74,743

Bond Issue Costs
Cash
80,000
110,000
Current Assets
Plant Assets
Other Assets
Goodwill
Current Liabilities
Long-Term Debt
Journal entries for Combinor Company, Mar. 31, 2005:
320,000
680,000
120,000
85,257
Investment in Net Assets of Combinee Company (100,000 x $5)

500,000

Cash
Current Assets
Plant Assets
Other Assets
Goodwill
Current Liabilities
Long-Term Debt
Ex. 56
700,000
190,000
200,000
300,000
705,257
100,000
400,000
70,000
50,000
120,000
260,000
480,000
150,000
20,000
80,000
260,000
570,000
Journal entries for Byers Corporation, May 31, 2005:

Investment in Net Assets of Sellers Company
Cash
560,000

Cash
60,000
Other Current Assets

Plant Assets
Intangible Assets
Goodwill
Liabilities

181
560,000
60,000
300,000
780,000
130,000
30,000
620,000
620,000
Ex. 57
Ex. 58
Journal entries for Acquirer Corporation, Sept. 26, 2005:

Investment in Net Assets of Disposer Company
Cash
160,000

Cash
10,000
160,000
10,000

Plant Assets [$150,000 ($10,000 x 15/20)]
Intangible Assets [$50,000 ($10,000 x 5/20)]
Discount on Long-Term Debt ($60,000 $50,000)
Current Liabilities
Long-Term Debt
Journal entries for Combinor Company, Dec. 31, 2005:
Investment in Combinee Company Common Stock
(100,000 x $5)
100,000
400,000
70,000
50,000
120,000
Current Assets
Plant Assets
Other Assets
Goodwill
Current Liabilities
Long-Term Debt
Journal entries for Combinor Company, Sept. 24, 2005:
(100,000 x $30)
200,000
400,000
140,000
170,000
80,000
260,000
570,000
3,000,000
100,000
2,900,000

Cash
130,000
50,000
180,000
Current Assets
Plant Assets
Other Assets
Research and Development Expense
Goodwill
Current Liabilities
Long-Term Debt
90,000
60,000
170,000
500,000

Cash
Ex. 59
120,000
142,500
47,500
10,000
200,000
700,000
100,000
400,000
2,130,000
100,000
300,000
3,130,000

182
Ex. 510
Journal entries for Bragg Corporation, Feb. 28, 2005:

Investment in Nestor Company Common Stock
(600,000 x $2)
Cash
Current Assets
Plant Assets
Other Assets
Goodwill
Current Liabilities
Long-Term Debt
Premium on Long-term Debt
Ex. 511
600,000
600,000
8,000
8,000
520,000
1,050,000
310,000
108,000
300,000
400,000
80,000
1,208,000
Journal entries for Sorrel Corporation, Dec. 31, 2005:

Investment in Maxim Company Common Stock
(800,000 x $3)
Cash
Current Assets
Plant Assets
Other Assets
Goodwill
Current Liabilities
Ex. 512
1,200,000
2,400,000
800,000
1,600,000
30,000
40,000
70,000
500,000
1,500,000
200,000
530,000
300,000
2,430,000
Journal entries for Combinor Corporation, Aug. 31, 2005:

Investment in Combinee Common Stock
(100,000 x $20)
Investment in Combinee Common Stock
Cash
Current Assets
Plant Assets
Goodwill
Current Liabilities
Long-term Debt

183
2,000,000
100,000
1,900,000
100,000
150,000
250,000
600,000
2,800,000
100,000
400,000
1,000,000
2,100,000
Ex. 513
Ex. 514
a. Sullivan Corporation separate net income for 2005

Add: Mears Division net income, two months ended Dec. 31,
2005
Sullivan total net income for 2005
$ 500,000
b. Sullivan Corporation net income for 2005

Weighted-average number of shares of Sullivan common stock
outstanding during 2005:
200,000 shares x 1 year
50,000 shares x 1/6 year
Sullivan basic earnings per share for 2005 ($550,000
208,333)
$ 550,000
c. Sullivan Corporation separate retained earnings, Dec. 31, 2005

Add: Mears Division net income, two months ended Dec. 31,
2005
Sullivan retained earnings, Dec. 31, 2005
Journal entry for Tucker Corporation, Dec. 31, 2006:
Paid-in Capital in Excess of Par (60,000 x $2)
Common Stock to be Issued for Contingent Consideration
To record additional shares of common stock to be issued under
terms of Dec. 31, 2005, acquisition of net assets of Loring
Company, as follows:
Required value of common stock issued in acquisition
$1,600,000
Less: Market value of common stock, Dec. 31, 2006
(100,000 x $10)
1,000,000
Market value of additional common stock to be issued
$ 600,000
Number of additional shares of common stock to be
60,000
issued ($600,000 $10)
50,000
$ 550,000
200,000
8,333
208,333
$2.64
$1,080,000
50,000
$1,130,000
120,000
120,000
CASES
Case 51
Case 52
Solamente Corporation's accounting for the out-of-pocket costs of the business combination
with Mika Company does not comply with generally accepted accounting principles. Direct
out-of-pocket costs incurred by a combinor in a combination are included in the total cost of
the combinee. Legal fees and other out-of-pocket costs of the combination paid by Mika on
behalf of Solamente should have been recognized as an account receivable by Mika and an
account payable by Solamente; legal and other expenditures on its own behalf with respect to
the combination with Solamente should have been recognized as expenses by Mika.
TO: The Board of Directors, Software Company
FROM: ___________________________________________, Controller
DATE: ________________________
SUBJECT: Possible Recognition of Goodwill in Proposed Acquisition of Part of a Product
Line of Midge Company
Goodwill is not to be recognized in the subject proposed acquisition, despite projections that
the acquisition cost will exceed the current fair value of identifiable net assets to be acquired.
Goodwill is recognized only in the acquisition of an entire entity in a business combination; it
traditionally is associated with the acquired entitys superior earnings compared with other
enterprises in the industry. If the portion of the acquisition cost that exceeds the current fair
value of the Midge Company identifiable net assets to be acquired cannot be assigned to
sometimes-overlooked intangible assets such as an agreement not to compete or a customer

184
Case 53
Case 54
Case 55
list, it must be recognized as a loss of the accounting period in which the acquisition of the
assets is completed.
The journal entry prepared by Shane Corporations controller to record the transaction
involving Merlo Company is incorrect in its recognition of common stock to be issued, because
the contingency had not been resolved on the date of the business combination. A consequence
of this error is the inappropriate recognition of goodwill and the overstatement of one or more
assets other than goodwill. Likewise, the journal entry to record the transaction involving
Merlo Industries inappropriately recognizes contingent consideration: the payable to George
Merlo amount. Even if it were appropriate to record such payable, the $250,000 amount would
have to be discounted to its present value on February 28, 2005, at an appropriate fair interest
rate. Again, the goodwill of $150,000 should not have been recognized, and one or more assets
should be written down for the $100,000 bargain purchase excess ($350,000 $250,000 =
$100,000).
One other point should be noted with respect to the controller's journal entry for the Merlo
Industries, Inc., transaction. The controller should consider whether George Merlo's agreement
not to compete with Shane Corporation is an intangible asset with a current fair value on the
date of the combination. If so, part of the $250,000 cost should be debited to the Non-Compete
Agreement ledger account and amortized over the five-year term of the agreement.
In the business combination of Frank Electronics, Inc., and Lester Enterprises, Inc., Frank
Electronics clearly is the combinor. After the issuance of 12,000 shares of Lester Enterprises
common stock, Robert Frank would own 54.5% [12,000 (10,000 + 12,000) = 0.545] of
Lester Enterprises outstanding common stock. The 5,000 shares of Lester Enterprises
unissued common stock to which George Lester had subscribed are not outstanding; further,
many accountants believe that the balance of the Common Stock Subscriptions Receivable
account should be offset against the balance of the Common Stock Subscribed account; for
Lester Enterprises, Inc.; this would result in zero paid-in capital from stock subscriptions.
Accordingly, even though Lester Enterprises, Inc., is the survivor in the proposed merger with
Frank Electronics, Inc., the latter is the combinor, and its net assets must be recognized at
carrying value in the post-merger balance sheet of Lester Enterprises.
A further problem in the merger as proposed was the assignment of a $40 per share fair value
for the 12,000 shares of Lester Enterprises common stock to be issued to Robert Frank.
Because Lester Enterprises is a shell corporation with no operating assets, the fair value of
the 12,000 shares to be issued to Robert Frank should not exceed the $9.50 [($80,000 +
$11,000 + $4,000) 10,000 = $9.50] carrying amount (book value) per share of the 10,000
shares of outstanding common stock of Lester Enterprises, Inc. This issue is moot, however,
given that Frank Electronics, not Lester Enterprises, is the combinor in the merger of the two
corporations.
Students who agree with the FASBs conclusion that core goodwill meets the FASBs definition
of asset might be persuaded by the analysis of the components of core goodwill (as defined in
paragraph B105 of FASB Statement No. 141. Few accountants would quarrel with a
definition of goodwill that encompassed the fair value of the going concern element of the
combinees existing business and the fair values of the expected synergies and other benefits of
the business combination. Students who disagree with the FASBs conclusion that core
goodwill meets the FASBs definition of asset might not be persuaded that the FASBs
discussion of probable future economic benefits of goodwill in paragraphs B111 through B114
of FASB Statement No. 141 clearly supports the conclusion that goodwill has such benefits.
Thus, FASB Statement No. 141 likely will not still the controversy of recognition of goodwill
as an asset.

185
15 Minutes, Easy
La Salle Corporation
Pr. 51
La Salle Corporation
Journal Entries
20 05
Jan
31 Investment in Net Assets of De Soto Company
Cash
To record acquisition of net assets of De Soto Company
31 Investment in Net Assets of De Soto Company
Cash
To record payment of costs incurred in acquisition of
net assets of De Soto Company.
31 Other Current Assets
Plant assets [$874,000 ($30,000 x 0.92)]
Intangible Assets [$76,000 ($30,000 x 0.08)]
Liabilities
Investment in Net Assets of De Soto Company
($540,000 + $60,000)
To allocate total cost of net assets acquired to
identifiable net assets, with excess of current fair value
of the net assets over total cost prorated to noncurrent
assets in the ratio of 874:76, or 92%:8%. (Income
tax effects are disregarded.)
5 4 0 0 0 0
5 4 0 0 0 0
6 0 0 0 0
6 0 0 0 0
3 0 0 0 0 0
8 4 6 4 0 0
7 3 6 0 0
6 2 0 0 0 0
6 0 0 0 0 0

186
20 Minutes, Easy
Lionel Corporation
Pr. 52
Lionel Corporation
Journal Entries
20 05
Aug
31 Investment in Net Assets of Cooper Company
[($1,000,000 x 0.258419) + ($50,000 x 10.594014)]
Discount on Bonds Payable
Bonds Payable
To record acquisition of net assets of Cooper Co.
31 Bond Issue Costs
Investment in Net Assets of Cooper Company
Cash
net assets of Cooper Company.
31 Current Assets
Plant Assets
Intangible Assets
Goodwill
Current Liabilities
Long-Term Debt
Investment in Net Assets of Cooper Co.
($788,120 + $40,000)
To allocate total cost of net assets investment to
identifiable assets and liabilities, with remainder to
goodwill. Amount of goodwill is computed as follows:
Total cost of investment
$828,120
Less: Current fair value of
identifiable net assets
($1,010,000 $270,000)
740,000
Amount of goodwill
$ 88,120
(income tax effects are disregarded.)

187
7 8 8 1 2 0
2 1 1 8 8 0
1 0 0 0 0 0 0
6 0 0 0 0
4 0 0 0 0
1 0 0 0 0 0
2 2 0
7 0 0
9 0
1 0
8 8
0
0
0
0
1
0
0
0
0
2
0
0
0
0
0
8 0 0 0 0
2 0 0 0 0 0
8 2 8 1 2 0
20 Minutes, Easy
Wabash Corporation
Pr. 53
Wabash Corporation
Journal Entries
20 05
Dec
31 Investment in Indiana Company
Common Stock (1,000,000 x $10)
Common Stock
31 Investment in Indiana Company Common Stock
Common Stock
Cash
31 Current Assets
Plant Assets [$9,900,000 ($10,250,000
$10,150,000)]
Current Liabilities
Investment in Indiana Company
Common Stock
10 0 0 0 0 0 0
10 0 0 0 0 0 0
1 5 0 0 0 0
5 0 0 0 0
2 0 0 0 0 0
3 7 0 0 0 0 0
9 8 0 0 0 0 0
3 3 5 0 0 0 0
10 1 5 0 0 0 0

188
20 Minutes, Easy
Combinor Corporation
Pr. 54
Combinor Corporation
Journal Entries
20 05
Oct
31 Investment in Net Assets of Combinee Company
(100,000 x $13)
To record acquisition of net assets of Combinee Company
31 Investment in Net Assets of Combinee Company
Cash
net assets of Combinee Company. Legal, accounting,
and finders fees in connection with the acquisition are
recorded as an investment cost; other out-of-pocket
costs are recorded as a reduction in the proceeds from
issuance of common stock.
31 Cash
Plant Assets (net)
Goodwill ($1,480,000 $1,140,000)
Current Liabilities
Long-Term Debt
Investment in Net Assets of Combinee Co.
($1,300,000 + $180,000)
identifiable assets and liabilities, with remainder to
goodwill. (Income tax effects are disregarded.)

189
1 3 0 0 0 0 0
1 0 0 0 0 0 0
3 0 0 0 0 0
1 8 0 0 0 0
1 2 0 0 0 0
3 0 0 0 0 0
6 0
5 0 0
1 0 0 0
1 0
3 4 0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1 8 0 0 0 0
2 5 0 0 0 0
1 4 8 0 0 0 0
20 Minutes, Easy
Consol Corporation
Pr. 55
Consol Corporation
Journal Entries
20 05
July
31 Investment in Conner Company and Capsol Company
To record statutory consolidation of Conner Company
and Capsol Company.
31 Assets ($800,000 + $670,000)
Goodwill ($1,050,000 $870,000)
Liabilities ($300,000 + $300,000)
Investment in Conner Co. and Capsol Company
Common Stock
To allocate total cost of investment in Conner Company
and Capsol Company to identifiable assets and liabilities,
with remainder to goodwill. Assets and liabilities of
Capsol (the combinor) are recorded at carrying
amounts; assets and liabilities of Conner (the
combinee) are recorded at current fair value. (Income
tax effects are disregarded.)
1 0 5 0 0 0 0
7 5 0 0 0 0
3 0 0 0 0 0
1 4 7 0 0 0 0
1 8 0 0 0 0
6 0 0 0 0 0
1 0 5 0 0 0 0

190
30 Minutes, Medium
Silva Corporation
Pr. 56
Silva Corporation
Journal Entries
20 05
Mar
1 Investment in Marvel Company Common Stock
Common Stock ($700,000 $400,000)
Additional Paid-in Capital
1 Investment in Marvel Company Common Stock
($50,000 $20,000)
Additional Paid-in Capital [$860,000 $310,000)
$570,000]
Cash
1 Current Assets [($850,000 $500,000) +
$50,000 cash paid]
Plant Assets ($1,800,000 - $1,000,000)
Current Liabilities ($600,000 - $350,000)
Premium on Long-term Debt ($150,000
$100,000)
Investment in Marvel Company Common Stock
($870,000 + $30,000)

191
8 7 0 0 0 0
3 0 0 0 0 0
5 7 0 0 0 0
3 0 0 0 0
2 0 0 0 0
5 0 0 0 0
4 0 0 0 0 0
8 0 0 0 0 0
2 5 0 0 0 0
5 0 0 0 0
9 0 0 0 0 0
30 Minutes, Medium
Solomon Corporation
Pr. 57
Solomon Corporation
Journal Entries
20 05
Oct
31 Investment in Midland Company Common Stock
(20,000 x $20)
To record merger with Midland Company.
31 Investment in Midland Company Common Stock
Cash
To record payment of costs incurred in merger with
Midland Company. Direct costs of the combination are
recorded as an investment cost; costs of registering
and issuing common stock are recorded as a
reduction in the proceeds received from issuance of
common stock.
31 Inventories
Plant Assets (net)
Goodwill ($420,870 $370,000)
Receivable from Midland Company
Other Liabilities
Investment in Midland Company Common
Stock ($400,000 + $20,870)
To allocate total cost of Midland Company investment
to identifiable assets and liabilities, with the remainder
to goodwill, and to offset receivable from Midland
against Midlands related payable. (Income tax effects
are disregarded.)
4 0 0 0 0 0
2 0 0 0 0
3 8 0 0 0 0
2 0 8 7 0
3 1 1 3 0
5 2 0 0 0
1 7
8
4 2
5
0
0
0
0
0
0
0
8
0
0
0
7
0
0
0
0
7 5 0 0 0
2 2 5 0 0 0
4 2 0 8 7 0

192
20 Minutes, Easy
Value Corporation
Pr. 58
Value Corporation
Journal Entries
20 05
Apr
1 Investment in Net Assets of Edgar Company
[(50,000 x $14) + $225,000]
Cash
To record issuance of cash and 50,000 shares of
common stock for net assets of Edgar Company.
1 Investment in Net Assets of Edgar Company (accounting, legal, and finders fees)
Common Stock (issue costs)
Cash
To record payment of out-of-pocket costs incurred in
acquisition of net assets of Edgar Company.
1 Current Assets
Plant Assets (net) ($1,200,000 $96,000)
Patent (net) ($50,000 $4,000)
Current Liabilities
Long-Term Debt
Premium on Long-Term Debt
Investment in Net Assets of Edgar Company
($925,000 + $50,000)
identifiable assets and liabilities, with $100,000*
excess of current fair value of the net assets over
total cost prorated to noncurrent assets in ratio of
$1,200,000:$50,000, or 96%:4%. (Income tax effects
are disregarded.)
*Current fair value of Edgars identifiable
net assets [($575,000 + $1,200,000 +
$50,000) ($300,000 + $450,000)]
Less: Total cost of Values investment
($925,000 + $50,000)
Excess of current fair value of net assets
over total cost

193
9 2 5 0 0 0
2 2 5 0 0 0
7 0 0 0 0 0
5 0 0 0 0
7 5 0 0 0
1 2 5 0 0 0
5 7 5 0 0 0
1 1 0 4 0 0 0
4 6 0 0 0
3 0 0 0 0 0
4 0 0 0 0 0
5 0 0 0 0
9 7 5 0 0 0
$1,075,000
975,000
$ 100,000
50 Minutes, Medium
Stave Corporation
Pr. 59
Stave Corporation
Journal Entries
20 05
Apr
30 Investment in Molo Company Common Stock
Cash
10% Bonds Payable
To record merger with Molo Company as a purchase.
30 Investment in Molo Company Common Stock
Bond Issue Costs
Cash
merger with Molo Company.
30 Current Assets
Plant Assets
Patents (net)
Goodwill ($20,015,000 $15,660,000)
Liabilities
Investment in Molo Company Common Stock
($20,000,000 + $15,000)
To allocate total cost of Molo Company investment
to identifiable assets and liabilities, with remainder to
goodwill. (Income tax effects are disregarded.)
20 0 0 0 0 0 0
3 1 0 0 0 0 0
16 9 0 0 0 0 0
1 5 0 0 0
1 0 0 0 0
2 5 0 0 0
3 4 0
14 0 0
3 6
4 3 5
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
0
2 1 0 0 0 0 0
20 0 1 5 0 0 0

194
40 Minutes, Medium
Coolidge Corporation
Pr. 510
Journal Entries
a.
20 05
Sept
30 Investment in Net Assets of Hoover Company
[(50,000 x $20) + $850,000]
Cash
To record issuance of cash and 50,000 shares of
common stock for net assets of Hoover Company.
30 Investment in Net Assets of Hoover Company
($35,000 + $15,000)
Cash
acquisition of net assets of Hoover Company.
30 Trade Accounts Receivable (net)
Inventories
Short-Term Prepayments
Investment in Truman Company Common Stock
Land ($650,000 $32,000)
Other Plant Assets (net) ($1,250,000 $62,500)
Patent (net) ($100,000 $5,000)
Current Liabilities
Long-Term Debt
Investment in Net Assets of Hoover Company
($1,850,000 + $50,000)
identifiable assets and liabilities, with $100,000 excess
of current fair value of the net assets over total cost
prorated to noncurrent assets, other than investment
in marketable securities, in ratio of $650,000:
$1,250,000:$100,000 or 32 %:62 %:5%.

195
1 8 5 0 0 0 0
5 0 0 0 0 0
5 0 0 0 0 0
8 5 0 0 0 0
5 0 0 0 0
7 5 3 5 0
1 2 5 3 5 0
3 0 0
6 8 0
2 0
1 8 0
6 1 7
1 1 8 7
9 5
2 0
0
0
0
0
5
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
7 0 0 0 0 0
5 0 0 0 0 0
1 9 0 0 0 0 0
Coolidge Corporation (concluded)
Pr. 510
Journal Entries
b.
20 06
Sept
30 Paid-in Capital in Excess of Par
To record issuance of additional shares of common
stock in settlement of contingent consideration
provision of business combination with Hoover Co.,
as follows:
Agreed market value of common stock,
Sept. 30, 2006 (50,000 x $20)
$1,000,000
Less: Market value, Sept. 30,
2006, of shares of common stock
issued Sept. 30, 2005 (50,000 x $16)
800,000
Market value of additional shares of
common stock to be issued
$ 200,000
Market value per share, Sept. 30, 2006
$
16
Additional whole shares of common
stock to be issued ($200,000 $16)
12,500
1 2 5 0 0 0
1 2 5 0 0 0
80 Minutes, Strong
Solo Corporation
Pr. 511
a.
Solo Corporation
Net Income and Earnings per Share
For Year Ended October 31, 2003
Solo Corporation net income
Number of shares of common stock outstanding
Basic earnings per share ($180,000 60,000)
b.
Solo Corporation
Net Income and Earnings per Share
For Year Ending October 31, 2006
Solo Corporation net income:
Year ended Oct. 31, 2006 (same for 2005)
Interest expense ($200,000 x 0.15)
Mono Company net income:
Year ended Oct. 31, 2006 (same for 2005)
Adjustments for purchased assets:
Cost of goods sold ($230,000 $200,000)
Depreciation ($40,000 5)
Leasehold amortization ($20,000 4)
Goodwill impairment loss
Combined net income
Number of shares of common stock outstanding (60,000 +
15,000)
Basic earnings per share ($197,000 75,000)
$ 1 8 0 0 0 0
6 0 0 0 0
$ 3 00
$ 1 8 0 0 0 0
( 3 0 0 0 0 )
$
$ 1 5 0 0 0 0
9 0 0 0 0
( 3 0 0 0 0 )
( 8 0 0 0 )
( 5 0 0 0 )
- 0 -
4 7 0 0 0
$ 1 9 7 0 0 0
7 5 0 0 0
$ 2 63

196
Solo Corporation
Pr. 511
Solo Corporation
Pro Forma Combined Balance Sheets
c.
October 31, 2005
Currents assets
Assets
($688,000 + $30,000 $100,000)
Plant assets (net) ($2,500,000 + $100,000)
6 1 8 0 0 0
2 6 0 0 0 0 0
Other assets
($300,000 + $120,000)
4 2 0 0 0 0
Goodwill
($605,000 $550,000)
5 5 0 0 0
Total assets
Current liabilities
$3 6 9 3 0 0 0
Liabilities & Stockholders Equity
($400,000 + $100,000)
5 0 0 0 0 0
Long-term debt
($1,800,000 + $200,000)
Common stock
(75,000 x $10)
7 5 0 0 0 0
Paid-in capital in excess of par
($100,000 + $150,000 $7,000)
2 4 3 0 0 0
Retained earnings
($200,000 no adjustment necessary)
Total liabilities & stockholders equity

197
2 0 0 0 0 0 0
2 0 0 0 0 0
$3 6 9 3 0 0 0

Chapter 05 Modern Advanced Accounting Answers

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CHAPTER 5

La Salle Corporation (15 minutes, easy)

ANSWERS TO REVIEW QUESTIONS

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Journal entries for Sal Corporation, Jan. 31, 2005:

Computation of amount of goodwill in the business combination of Master Corporation and

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

Journal entries for Combinor Company, Jan. 31, 2005:

Investment in Net Assets of Combinee Company

Investment in Net Assets of Combinee Company (100,000 x $5)

Investment in Net Assets of Combinee Company

Journal entries for Byers Corporation, May 31, 2005:

Investment in Net Assets of Sellers Company

Other Current Assets

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Journal entries for Acquirer Corporation, Sept. 26, 2005:

Investment in Net Assets of Disposer Company

Other Current Assets

Investment in Combinee Company Common Stock

Solutions Manual, Chapter 5

Investment in Combinee Company Common Stock

The McGraw-Hill Companies, Inc., 2006

Journal entries for Bragg Corporation, Feb. 28, 2005:

Journal entries for Sorrel Corporation, Dec. 31, 2005:

Journal entries for Combinor Corporation, Aug. 31, 2005:

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

a. Sullivan Corporation separate net income for 2005

b. Sullivan Corporation net income for 2005

c. Sullivan Corporation separate retained earnings, Dec. 31, 2005

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

The McGraw-Hill Companies, Inc., 2006

Modern Advanced Accounting, 10/e

Coolidge Corporation (concluded)

Solutions Manual, Chapter 5

The McGraw-Hill Companies, Inc., 2006

October 31, 2005

Plant assets (net) ($2,500,000 + $100,000)