Complete P1-37 and P3-31

Journal Entries

On January 1, 20X3, PURE Products Corporation issued 12,000 shares of its $10 par value stock to acquire the
net assets of Light Steel Company. Underlying book value and fair value information for the balance sheet items
of Light Steel at the time of acquisition follow:

Book Fair
Balance Sheet Item value Value

cash $60,000 $60,000

Accounts Receivable 100,000 100,000

Inventory (LIFO basis) 60,000 115,000

Land 50,000 70,000

Buildings & Equipment 400,000 350,000

Less: Accumulated (150,000

Depreciation ) 0

$695,00
total Assets $520,000 0

Accounts Payable $10,000 $10,000

Bonds Payable 200,000 180,000

common Stock($5 par value) 150,000

Additional paid-in capital 70,000

Retained Earnings 90,000

Total Liabilities and Equities $520,000

Light Steel share were selling at $18 and PURE Products share were selling at $50 just before the merger
announcement. Additional cash payments made by PURE Products in completing the acquisition were

$10,00
finder's fee paid to firm that located light Steel 0

Audit fee for stock issued by Pure Products 3,000

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 Stock registration fee for new share of Pure Products 5,000

Legal fees paid to assist in transfer of net assets 9,000

cost of SEC registration of PURE Products shares 1,000

Required
Prepare all journal entries to record the business combination on PURE Products books.

Journal entries to record acquisition of Light Steel net assets:

1. Merger Expense 19,000

Cash 19,000
Record finder’s fee &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 & 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 Light Steel Company

Computation of goodwill
Fair value of consideration given (12,000 * $50) $600,000
Fair value of net assets acquired ($695,000 – 10,000 -180,000) (505,000)
Goodwill $95,000

Additional Paid-in – Capital

Number of shares issued 12,000
Issue price in excess of par value ($50-$10) 40
Total 480,000
Less: Deferred stock issue costs (9,000)
Increase in addition paid in capital 471,000

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 Problem 3-31

Parent Company and Consolidated Balances

Exacto Company reported the following net income and dividends for the years indicated:
Year Net Income dividends
20x5 $35,000 $12,000
20x6 45,000 20,000
20x7 30,000 14,000

True Corporation acquired 75 percent of Exacto’s common stock on January 1, 20X5. On that date, the fair
value of Exacto’s net assets was equal to the book value. True uses the equity method in accounting for its
ownership in Exacto and reported a balance of $259,800 in its investment account on December 31, 20X7.

Required

a. What amount did True pay when it purchased Exacto’s shares? b. What was the fair value of Exacto’s net
assets on January 1, 20X5? c. What amount was assigned to the NCI shareholders on January 1, 20X5? d. What
amount will be assigned to the NCI shareholders in the consolidated balance sheet pre-

pared at December 31, 20X7

a. Balance in investment account, December 31, 20X7 $ 259,800

Exacto net assets on date of acquisition $260,000

Cumulative earnings since acquisition 110,000

Cumulative dividends since acquisition (46,000)

Net assets on December 31, 20X7 $324,000

Proportion of stock held by True Corporation x .75

Book value of claim by True Corporation (243,000)

Unamortized differential December 31, 20X7 $ 16,800

Number of years remaining for amortization ÷ 7

Annual amortization $ 2,400

Total years of amortization x 10

Amount paid in excess of book value $ 24,000

b. $24,000 will be added to buildings and equipment each year.

c. $7,200 ($2,400 x 3 years) will be added to accumulated depreciation at December 31, 20X7.

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 d. $81,000 ($324,000 x .25) will be assigned to noncontrolling interest in the consolidated balance sheet
prepared at December 31, 20X7.

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