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Chap012S 111.doc
Chap012S_111.doc
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Chap012S 111.doc-Chapter 12 - Supplement A Chapter
Chap012S_111.doc-Chapter 12 - Supplement A Chapter
Chap012S 111.doc-Chapter 12 - Suppl...
Chap012S_111.doc-Chapter 12 - Supplement A Chapter
Page 8
Chapter 12 - Supplement A:
PROBLEM
P12A-1
Analyzing Goodwill and Reporting the Consolidated Balance Sheet
On January 4, 2011, Big Company acquired all 8,000 outstanding shares of Small Company for $12 cash per
share. Immediately after the acquisition, the balance sheets reflected the following:
Balance Sheets at January 4, 2011
Big
Compan
y
Small
Company
Cash
$
22,000
$23,000
Investment in Small Company
96,000
Property and equipment (net)
132,000
65,000*
Total assets
$250,000
$88,000
Liabilities
$
27,000
$12,000
Common stock (par $5)
120,000
40,000
Retained earnings
103,000
36,000
Total liabilities and stockholders’ equity
$250,000
$88,000
*
Determined by Big Company to have a fair value of $74,000 at date of
acquisition.
All other assets and liabilities had book values equal to fair values.
Required:
1.
Give the journal entry that Big Company made to record the acquisition.
2.
Analyze the acquisition to determine the amount of goodwill purchased.
3.
Should Small Company’s assets be included on the consolidated balance sheet at book value or fair value?
Explain.
4.
Prepare a consolidated balance sheet immediately after acquisition. (
Hint:
Consider your answer to
requirement 3.)
12S-8
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