Wollega University

Collage of Business and Economics

Department of Accounting
Advanced –II Assignment
1. Raha Company acquired all of Hayat,Inc.’s outstanding shares on December 31, 2011, for $495,000 cash.
Raha will operate hayat as a wholly owned subsidiary with a separate legal and accounting identity.
Although many of hayat’s book values approximate fair values, several of its accounts have fair values that
differ from book values. In addition, Hayat has internally developed assets that remain unrecorded on its
books. In deriving the acquisition price, Raha assessed Hayat’s fair and book value differences as follows:
Book Values Fair Values
Computer software . . . . . . . . . . . . . . . . . . . . . . $ 20,000 $ 70,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 30,000
Client contracts . . . . . . . . . . . . . . . . . . . . . . . . . –0– 100,000
In-process research and development . . . . . . . –0– 40,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . (60,000) (65,000)
At December 31, 2011, the following financial information is available for consolidation:
Pratt Spider
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,000 $ 18,000
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,000 52,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 90,000
Investment in Spider . . . . . . . . . . . . . . . . . . . . . 495,000 –0–
Computer software . . . . . . . . . . . . . . . . . . . . . . 210,000 20,000
Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . 595,000 130,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . 308,000 40,000
Client contracts . . . . . . . . . . . . . . . . . . . . . . . . . –0– –0–
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0– –0–
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,900,000 350,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 88,000 25,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 510,000 60,000
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 380,000 100,000
Additional paid-in capital . . . . . . . . . . . . . . . . . 170,000 25,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 752,000 140,000
Total liabilities and equities . . . . . . . . . . . . . . 1,900,000 350,000
Required: Prepare a consolidated balance sheet for Raha and Hayat as of December 31, 2011 .

2. Merrill acquires 100 percent of the outstanding voting shares of Harriss Company on January 1, 2008. To
obtain these shares, Merrill pays $200,000 in cash and issues 10,000 shares of its own $10 par value
common stock. On this date, Merrill’s stock has a fair value of $18 per share. Merrill also pays $10,000 to
a local investment company for arranging the acquisition. Merrill paid an additional $6,000 in stock
issuance costs. The book values for both Merrill and Harriss as of January 1, 2008, follow. The fair value
of each of Harriss’s accounts is also included. In addition, Harriss holds a fully amortized patent that still
retains a $30,000 value.
 Merrill, Inc. Harriss Company
Book Values Book Values Fair Values
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,000 $ 40,000 $ 40,000
Receivables . . . . . . . . . . . . . . . . . . . . . 160,000 90,000 80,000
Inventory . . . . . . . . . . . . . . . . . . . . . . 220,000 130,000 130,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 60,000 60,000
Buildings (net) . . . . . . . . . . . . . . . . . . 400,000 110,000 140,000
Equipment (net) . . . . . . . . . . . . . . . . . 120,000 50,000 50,000
Accounts payable . . . . . . . . . . . . . . . . (160,000) (30,000) (30,000)
Long-term liabilities . . . . . . . . . . . . . . (380,000) (170,000) (150,000)
Common stock . . . . . . . . . . . . . . . . . . (400,000) (40,000)
Retained earnings . . . . . . . . . . . . . . . . (360,000) (240,000)

Required:
a) Assume that this combination is a statutory merger so that Harriss’s accounts are to be transferred
to Merrill’s records with Harriss subsequently being dissolved as a legal corporation. Prepare the
journal entries for Merrill to record this merger.
b) Assume that no dissolution is to take place in connection with this combination. Rather, both companies
retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of
January 1, 2008.
3. Quincy Company purchased 80% of the common stock of Cooker Company for $700,000 plus direct
acquisition costs of $30,000. At the time of the purchase, Cooker Company had the following balance
sheet:

Assets Liabilities and Equity

Cash equivalents . . . . . . . . . . $ 120,000 Current liabilities . . . . . . . . . . . $ 200,000
Inventory . . . . . . . . . . . . . . . . 200,000 Bonds payable . . . . . . . . . . . . 400,000
Land . . . . . . . . . . . . . . . . . . 100,000 Common stock ($5 par) . . . . . . . 100,000
Building (net) . . . . . . . . . . . . . 450,000 Paid-in capital in excess of par . . 150,000
Equipment (net) . . . . . . . . . . . 230,000 Retained earnings . . . . . . . . . . 250,000
Total assets . . . . . . . . . . . . . $1,100,000 Total liabilities and equity . . . . $1,100,000
Fair values differ from book values for all assets other than cash equivalents. The fair values are as follows:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Based on the preceding facts,

Required: Prepare the elimination entries that would be made on a consolidated worksheet prepared on the
date of purchase.

4. On July 1, 20X6, Rose Company exchanged 18,000 of its $35 fair value ($10 par value) shares for all the
outstanding shares of Daisy Company. Rose paid direct acquisition costs of $20,000 and $5,000 in stock
issuance costs. The two companies had the following balance sheets on July
1, 20X6:
 Assets Rose Daisy
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 $ 70,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 60,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 40,000
Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 120,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430,000 110,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 $400,000
Liabilities and Equity
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 180,000 $ 60,000
Common stock ($10 par) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 200,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,000 140,000
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 $400,000
The following fair values differ from book values for Daisy’s assets:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000

Required:
a. Record the investment in Daisy Company and any other entry necessitated by the purchase.
b. Prepare a consolidated balance sheet for July 1, 20X6, immediately subsequent to the purchase

Assume that Rose Company exchanged 18,000 of its $35 fair value ($10 par value) shares for 160,000 of the
outstanding shares of Daisy Company.
Required
a. Record the investment in Daisy Company and any other entry necessitated by the purchase
b. Prepare a consolidated balance sheet for July 1, 20X6, immediately subsequent to the purchase