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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 splitoff, thereby reducing the outstanding shares of the parent company.
Q1-3 The management of Enron appears to have 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.
(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.
(c) A stock acquisition occurs when one company acquires a majority of the common stock
of another company and the acquired company is not liquidated; both companies remain as
separate but related corporations.
Q1-5 Assets and liabilities transferred to a new wholly-owned subsidiary normally are
transferred at book value. In the event the value of an asset transferred to a newly created
entity has been impaired prior to the transfer and its fair value is less than the carrying value
on the transferring companys books, the transferring company should recognize an
impairment loss and the asset should then be transferred to the entity at the lower value.
Q1-6 The introduction of the concept of beneficial interest expands those situations in which
consolidation is required. Existing accounting standards have focused on the presence or
absence of equity ownership. Consolidation and equity method reporting have been required
when a company holds the required level of common stock of another entity. The beneficial
interest approach says that even when a company does not hold stock of another company,
consolidation should occur whenever it has a direct or indirect ability to make decisions
significantly affecting the results of activities of an entity or will absorb a majority of an entitys
expected losses or receive a majority of the entitys expected residual returns.
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Chapter 1

Q1-7* Under pooling of interests accounting, the book values of the acquired company
were carried forward rather than being revalued to fair values that often were higher than
book values, thereby avoiding increased depreciation charges on revalued fixed assets.
During most of the time pooling accounting was acceptable, goodwill was required to be
amortized, and, because no goodwill was recognized under pooling, those amortization
charges were avoided. The carrying forward of retained earnings of all combining companies
may, in some cases, have given management increased flexibility with respect to dividends.
Operating results of the combining companies were combined for the full year in which the
combination occurred, not just from the point of combination, resulting in more favorable
reported results in the year of the business combination. The pooling method hides the value
of the consideration given, shielding management from stockholder criticism in those cases
where management paid an excessive amount for the company acquired.
Q1-8* Purchase accounting normally results in increased dollar amounts reported in the
balance sheet. Recognition of the fair values of identifiable assets and liabilities acquired
typically results in larger dollar amounts being reported. In addition, goodwill is recorded as
an asset under purchase accounting, but not recognized in a pooling. Because retained
earnings are not carried forward in a purchase, retained earnings typically is lower; however,
recognition of the fair value of shares issued typically results in larger paid-in capital account
balances. Increased depreciation charges and the amortization or impairment of goodwill
generally result in lower reported net income when purchase treatment is used.
Q1-9 Goodwill arises when purchase accounting is used and the fair value of the
compensation given to acquire another company is greater than the fair value of its
identifiable net assets. Goodwill is recorded on the books of the acquiring company when the
net assets of the acquired company are transferred to the acquiring company and recorded
on the acquiring company's books. When the acquired company is operated as a separate
entity, the amount paid by the purchaser is included in the investment account and goodwill,
as such, is not recorded on the books of either company. In this case, goodwill is only
reported when the investment account of the parent is eliminated in the consolidation
process.
Q1-10 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.
Q1-11 None of the retained earnings of the subsidiary should be carried forward under
purchase treatment. Thus, consolidated retained earnings is limited to the balance reported
by the acquiring company.
Q1-12 Some companies have attempted to establish the corporate name as a symbol of
quality or product availability. An acquiring company may be fearful that customers will be
lost if the company is liquidated. Debt covenants are likely to require repayment of virtually all
existing debt if the acquired company is liquidated. The cost of issuing new debt may be
prohibitive. A parent-subsidiary relationship may be the only feasible means of proceeding if
it is impossible to acquire 100 percent ownership of an acquired company. When the
acquiring company does not plan to retain all operations of the acquired company, it may be
easier to dispose of the portions not wanted by leaving them in the existing corporate shell
and later disposing of the ownership of the company.

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Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

Q1-13 Negative goodwill is said to exist when a purchaser pays less than the fair value of
the identifiable net assets of another company in acquiring its ownership. This difference
normally is treated as a pro rata reduction of all of the acquired assets other than cash and
cash equivalents, trade receivables, inventory, financial instruments that are required by U.S.
generally accepted accounting principles (GAAP) to be carried on the balance sheet at fair
value, assets to be disposed of by sale, and deferred tax assets.
Q1-14 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 must be recognized if the carrying amount of the goodwill assigned to the reporting
unit is greater than the implied value of the carrying units goodwill. The implied value of the
reporting units goodwill is determined as the excess of the fair value of the reporting unit
over the fair value of its net assets excluding goodwill.
Q1-15 Additional paid-in capital reported following a business combination recorded as a
purchase 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.
Q1-16 A purchase is treated prospectively. None of the financial statement data of the
acquired company is included along with the financial statement data of the acquiring
company for periods prior to the business combination.
Q1-17 When purchase treatment is used, all costs incurred in purchasing the ownership of
another company are capitalized. These normally include items such as finder's fees, the
costs of title transfer, and legal fees associated with the purchase.
Q1-18 When the acquiring company issues shares of stock to complete a business
combination recorded as a purchase, 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 securities, listing fees,
and brokers' commissions should be treated as reductions of additional paid-in capital when
stock is issued. An adjustment to bond premium or bond discount is needed when bonds are
used to complete the purchase.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

SOLUTIONS TO CASES
C1-1 Reporting Alternatives and International Harmonization
a. In the past, when goodwill was capitalized, Indonesian companies were required to
systematically amortize the amount recorded, thereby reducing earnings, while companies in
other countries were not required to do so. Recent changes in accounting for goodwill have
substantially eliminated this objection.
b. Indonesian companies must be concerned about accounting standards in other countries
and about international standards (i.e., those issued by the International Accounting
Standards Committee). Companies operate in a global economy today; not only do they buy
and sell products and services in other countries, but they may raise capital and have
operations located in other countries. Such companies may have to meet foreign reporting
requirements, and these requirements may differ from Indonesian reporting standards. Thus,
many Indonesian companies, and not just the largest, may find foreign and international
reporting standards relevant if they are going to operate globally.

C1-2 Assignment of Acquisition Costs


MEMO
To:

Vice-President of Finance
PT Pusaka

From:
Re:

, Ak.
Recording Acquisition Costs of Business Combination

PT Pusaka incurred a variety of costs in acquiring the ownership of PT Caraka and


transferring the assets and liabilities of PT Caraka to PT Pusaka. I was asked to review the
relevant accounting literature and provide my recommendations on the appropriate treatment
of the costs incurred in the acquisition of PT Caraka.
The accounting standards applicable to the 2003 acquisition require that all of the direct
costs of purchasing another company be treated as part of the total cost of the acquired
company. The costs incurred in issuing common or preferred stock in a business
combination should be treated as a reduction of the otherwise determinable fair value of the
securities. [FASB 141, Par. 24]
A total of Rp720,000,000 was paid by PT Pusaka in completing its acquisition of PT Caraka.
The Rp200,000,000 finders fee and Rp90,000 of legal fees for transferring PT Carakas
assets and liabilities to PT Pusaka should be included in the purchase price of PT Caraka.
The Rp60,000,000 payment for stock registration and audit fees should be recorded as a
reduction of paid-in capital recorded when the PT Pusaka shares were issued to acquire the
shares of PT Caraka. The only cost potentially at issue is the Rp370,000,000 of legal fees
resulting from the litigation by the shareholders of PT Caraka. If this cost is considered to be
a direct cost, it should be included in the costs of acquiring PT Caraka. If, on the other hand,
it is considered an indirect or general expense, it should be charged to expense in 2003.
[FASB 141, Par. 24]
Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,
Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

C1-2 (continued)
While one might argue that the Rp370,000,000 was an indirect cost, it resulted directly from
the exchange of shares used to complete the business combination and should be included
in the amount assigned to the cost of acquiring ownership of PT Caraka. Of the total costs
incurred, Rp660,000,000 should be assigned to the purchase price of PT Caraka and
Rp60,000 recorded as a reduction of paid-in-capital.
You also requested a summary of proposed changes to the requirements established in
FASB 141. A report on the current status of the FASBs proposals can be found under
ABusiness Combinations: Purchase Method Procedures, at the FASB website
(www.fasb.org/project/bc_purchmethod.shtml). The current proposal will permit only those
costs related to the business combination and paid to third parties to be included as part of
the exchange transaction. All other costs will be expensed. [FASB Project Update]
Under the proposed standard, if PT Pusaka were to incur a total of Rp720,000,000 in costs
when it acquires PT Caraka, the full amount would be recorded as an expense.
Primary citation
FASB 141, Par. 24
FASB Project Update
C1-3 Leveraged Buyouts
a. A leveraged buyout 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 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
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 companys 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
Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,
Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

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.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1-6

Chapter 1

SOLUTIONS TO EXERCISES
E1-1 Multiple-Choice Questions on Complex Organizations
1. b
2. d
3. a
4. b
5. d

E1-2 Multiple-Choice Questions on Recording Business Combinations


[AICPA Adapted]
1. a
2. c
3. d
4. d
5. d
6. b

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


1. d
2. d
3. c
4. c
5. d

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

E1-4 Multiple-Choice Questions Involving Account Balances


1. c
2. c
3. b
4. b
5. b

E1-5 Asset Transfer to Subsidiary


a. Journal entry recorded by PT Temaram for transfer of assets to PT Terang:
Investment in PT Terang Common Stock
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Cash
Inventory
Land
Buildings
Equipment

408,000,000
24,000,000
36,000,000
21,000,000
37,000,000
80,000,000
240,000,000
90,000,000

b. Journal entry recorded by PT Terang for receipt of assets from PT Temaram:


Cash
Inventory
Land
Buildings
Equipment
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Common Stock
Additional Paid-In Capital

21,000,000
37,000,000
80,000,000
240,000,000
90,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1-8

24,000,000
36,000,000
60,000,000
348,000,000

Chapter 1

E1-6 Creation of New Subsidiary


a. Journal entry recorded by PT Lentera for transfer of assets to PT Mahameru:
Investment in PT Mahameru Common Stock
Allowance for Uncollectible Accounts Receivable
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment

498,000,000
7,000,000
35,000,000
60,000,000
40,000,000
75,000,000
50,000,000
35,000,000
160,000,000
240,000,000

b. Journal entry recorded by PT Mahameru for receipt of assets from PT Lentera:


Cash
Accounts Receivable
Inventory
Land
Buildings
Equipment
Allowance for Uncollectible
Accounts Receivable
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Common Stock
Additional Paid-In Capital

40,000,000
75,000,000
50,000,000
35,000,000
160,000,000
240,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1-9

7,000,000
35,000,000
60,000,000
120,000,000
378,000,000

Chapter 1

E1-7 Balance Sheet Totals of Parent Company


a. Journal entry recorded by PT Fajar for transfer of assets and accounts payable to PT
Kelana:
Investment in PT Kelana Common Stock
Accumulated Depreciation
Accounts Payable
Cash
Accounts Receivable
Inventory
Land
Depreciable Assets

66,000,000
28,000,000
22,000,000
15,000,000
24,000,000
9,000,000
3,000,000
65,000,000

b. Journal entry recorded by PT Kelana for receipt of assets and accounts payable from PT
Fajar:
Cash
Accounts Receivable
Inventory
Land
Depreciable Assets
Accumulated Depreciation
Accounts Payable
Common Stock
Additional Paid-In Capital

15,000,000
24,000,000
9,000,000
3,000,000
65,000,000
28,000,000
22,000,000
48,000,000
18,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

E1-8 Stock Acquisition


Journal entry to record the purchase of PT Tenggara, shares:
Investment in PT Tenggara, Common Stock
Common Stock
Additional Paid-In Capital
Rp986,000,000 = Rp58,000 x 17,000 shares
Rp425,000,000 = Rp25,000 x 17,000 shares
Rp561,000,000 = (Rp58,000 - Rp25,000) x 17,000
shares

986,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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425,000,000
561,000,000

Chapter 1

E1-9 Balances Reported Following Combination


a. Stock Outstanding: Rp200,000,000 + (Rp10,000 x 8,000 shares)

Rp280,000,000

b. Cash and Receivables: Rp150,000,000 + Rp40,000,000

190,000,000

c.

185,000,000

Land: Rp100,000,000 + Rp85,000,000

d. Buildings and Equipment (net): Rp300,000,000 + Rp230,000,000


e. Goodwill: (Rp50,000 x 8,000) - Rp355,000,000
f.

530,000,000
45,000,000

Additional Paid-In Capital:


Rp20,000,000 + [(Rp50,000 - Rp10,000) x 8,000]

340,000,000

g. Retained Earnings

330,000,000

E1-10 Goodwill Recognition


Journal entry to record acquisition of PT Sempurna net assets:
Cash and Receivables
Inventory
Land
Plant and Equipment
Patent
Goodwill
Accounts Payable
Cash

40,000,000
150,000,000
30,000,000
350,000,000
130,000,000
55,000,000
85,000,000
670,000,000

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Chapter 1

E1-11 Negative Goodwill


Journal entry to record acquisition of PT Mufakat net assets:
Cash and Receivables
Inventory
Land
Plant and Equipment
Discount on Bonds Payable
Accounts Payable
Bonds Payable

50,000,000
200,000,000
91,000,00
273,000,000
16,000,000
50,000,000
580,000,000

Computation of negative goodwill


Purchase price
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Negative goodwill

Rp564,000,000
Rp650,000,000
(50,000,000)
600,000,000
Rp 36,000,000

Assignment of negative goodwill to noncurrent assets


Asset
Land
Plant and Equipment

Fair Value
Rp100,000,000
300,000,000
Rp400,000,000

Reduction for
Negative Goodwill*
Rp36,000,000 x
(100/400)
Rp36,000,000 x
(300/400)

*Based on relative fair values.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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Assigned
Valuation
Rp 91,000,000
273,000,000
Rp364,000,000

Chapter 1

E1-12 Impairment of Goodwill


a. Goodwill of Rp80,000,000 will be reported. The fair value of the reporting unit
(Rp340,000,000) is greater than the carrying amount of the investment
(Rp290,000,000) and the goodwill does not need to be tested for impairment.
b. Goodwill of Rp35,000,000 will be reported (fair value of reporting unit of
Rp280,000,000 - fair value of net assets of Rp245,000,000). An impairment loss
of Rp45,000,000 (Rp80,000,000 - Rp35,000,000) will be recognized.
c. Goodwill of Rp15,000,000 will be reported (fair value of reporting unit of
Rp260,000,000 - fair value of net assets of Rp245,000,000). An impairment loss
of Rp65,000,000 (Rp80,000,000 - Rp15,000,000) will be recognized.

E1-13 Assignment of Goodwill


a. No impairment loss will be recognized. The fair value of the reporting unit
(Rp530,000,000) is greater than the carrying value of the investment
(Rp500,000,000) and goodwill does not need to be tested for impairment.
b. An impairment of goodwill of Rp15,000,000 will be recognized. The implied value of
goodwill is Rp45,000,000 (Rp485,000,000 - Rp440,000,000), which represents a
Rp15,000,000 decrease from the original Rp60,000,000.
c. An impairment of goodwill of Rp50,000,000 will be recognized. The implied value of
goodwill is Rp10,000,000 (Rp450,000,000 - Rp440,000,000), which represents a
Rp50,000,000 decrease from the original Rp60,000,000.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


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Chapter 1

E1-14 Goodwill Assigned to Reporting Units


Goodwill of Rp158,000,000 (Rp60,000,000 + Rp48,000,000 + Rp0 + Rp50,000,000)
should be reported, computed as follows:
Reporting Unit A: Goodwill of Rp60,000,000 should be reported. The implied value
of goodwill is Rp90,000,000 (Rp690,000,000 - Rp600,000,000) and the carrying
amount of goodwill is Rp60,000,000.
Reporting Unit B: Goodwill of Rp48,000,000 should be reported. The fair value of
the reporting unit (Rp335,000,000) is greater than the carrying value of the
investment (Rp330,000,000).
Reporting Unit C: No goodwill should be reported. The fair value of the net assets
(Rp400,000,000) exceeds the fair value of the reporting unit (Rp370,000,000).
Reporting Unit D: Goodwill of Rp50,000,000 should be reported. The fair value of
the reporting unit (Rp585,000,000) is greater than the carrying value of the
investment (Rp520,000,000).

E1-15 Goodwill Measurement


a. Goodwill of Rp150,000,000 will be reported. The fair value of the reporting unit
(Rp580,000,000) is greater than the carrying value of the investment
(Rp550,000,000) and goodwill does not need to be tested for impairment.
b. Goodwill of Rp50,000,000 will be reported. The implied value of goodwill is
Rp50,000,000 (fair value of reporting unit of Rp540,000 - fair value of net assets
of Rp490,00,0000). Thus, an impairment of goodwill of Rp100,000
(Rp150,000,000 - Rp50,000,000) must be recognized.
c. Goodwill of Rp10,000,000 will be reported. The implied value of goodwill is
Rp10,000,000 (fair value of reporting unit of Rp500,000,000 - fair value of net
assets of Rp490,000,000). Thus, an impairment loss of Rp140,000,000
(Rp150,000,000 - Rp10,000,000) must be recognized.
d. No goodwill will be reported. The fair value of the net assets (Rp490,000,000)
exceeds the fair value of the reporting unit (Rp460,000,000). Thus, the implied
value of goodwill is Rp0 and an impairment loss of Rp150,000,000
(Rp150,000,000 - Rp0) must be recognized.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
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Chapter 1

E1-16 Computation of Fair Value


Amount paid
Book value of assets
Book value of liabilities
Book value of net assets
Adjustment for research and development costs
Adjusted book value
Fair value of patent rights
Goodwill recorded
Fair value increment of buildings and equipment
Book value of buildings and equipment
Fair value of buildings and equipment

Rp517,000,000
Rp624,000,000
(356,000,000)
Rp268,000,000
(40,000,000)
Rp228,000,000
120,000,000
93,000,000

(441,000,000)
Rp 76,000,000
341,000,000
Rp417,000,000

E1-17 Computation of Shares Issued and Goodwill


a. 15,600 shares were issued, computed as follows:
Par value of shares outstanding following merger
Paid-in capital following merger
Total par value and paid-in capital
Par value of shares outstanding before merger
Paid-in capital before merger

Rp327,600,000
650,800,000
Rp978,400,000
Rp218,400,000
370,000,000

Increase in par value and paid-in capital


Divide by price per share
Number of shares issued

(588,400,000)
Rp390,000,000

Rp25,000
15,600

b. The par value is Rp7,000, computed as follows:


Increase in par value of shares outstanding
(Rp327,600,000 - Rp218,400,000)
Divide by number of shares issued
Par value

Rp109,200,000
15,600
Rp
7,000

c. Goodwill of Rp34,000,000 was recorded, computed as follows:


Increase in par value and paid-in capital
Fair value of net assets (Rp476,000,000 Rp120,000,000)
Goodwill

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Advanced Financial AccountingAn Indonesian Perspective
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Rp390,000,000
(356,000,000)
Rp 34,000

Chapter 1

E1-18 Combined Balance Sheet


a. Purchase balance sheet based on Rp60,000 market price:
PT Adam and PT Bentara
Combined Balance Sheet
January 1, 20X2
Cash and Receivables
Inventory
Buildings and Equipment
Less: Accumulated
Depreciation
Goodwill

Accounts Payable
Notes Payable
Common Stock
Additional Paid-In
Capital
(250,000,000)
75,000,000 Retained Earnings
Rp1,365,000,000
Rp 240,000,000
460,000,000
840,000,000

Rp 125,000,000
235,000,000
244,000,000
556,000,000
205,000,000
Rp1,365,000,000

Computation of goodwill
Total purchase price (Rp60 x 8,000 shares)
Fair value of net identifiable assets
(Rp490,000 - Rp85,000)
Goodwill

Rp480,000,000
(405,000,000)
Rp 75,000,000

b. Purchase balance sheet based on Rp48,000 market price:


PT Adam and PT Bentara
Combined Balance Sheet
January 1, 20X2
Cash and Receivables
Inventory
Buildings and Equipment
Less: Accumulated
Depreciation

Accounts Payable
Notes Payable
Common Stock
Additional Paid-In
Capital
(250,000,000)
Retained Earnings
Rp1,269,000,000
Rp 240,000,000
460,000,000
819,000,000

Rp 125,000,000
235,000,000
244,000,000
460,000,000
205,000,000
Rp1,269,000,000

Assignment of negative goodwill to noncurrent assets


Fair value of buildings and equipment
Fair value of total assets acquired
Less: Fair value of liabilities assumed
Fair value of net assets acquired
Value of shares issued in acquisition
Negative goodwill assigned against noncurrent
assets
Valuation of Best's noncurrent assets included in
balance sheet

Rp240,000,000
Rp490,000,000
(85,000,000)
Rp405,000,000
(384,000,000)

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 17

(21,000,000)
Rp219,000,000

Chapter 1

E1-19 Recording a Business Combination


a.

Deferred Merger Costs


Deferred Stock Issue Costs
Cash

54,000,000
29,000,000
83,000,000

Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Goodwill (1)
Accounts Payable
Bonds Payable
Bond Premium
Common Stock
Additional Paid-In Capital (2)
Deferred Merger Costs
Deferred Stock Issue Costs

70,000,000
110,000,000
200,000,000
100,000,000
350,000,000
84,000,000
195,000,000
100,000,000
5,000,000
320,000,000
211,000,000
54,000,000
29,000,000

(1) Computation of goodwill:


Market value of shares issued
(Rp14,000 x 40,000)
Merger costs
Purchase price
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Goodwill

Rp560,000,000
54,000,000
Rp614,000,000
Rp830,000,000
(300,000,000)
(530,000,000)
Rp84,000,000

(2) Computation of additional paid-in capital:


Market value of shares issued
(Rp14,000 x 40,000)
Par value of shares issued (Rp8,000 x
40,000)
Additional paid-in capital from issuing shares
Stock issue costs
Additional paid-in capital recorded

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 18

Rp560,000,000
(320,000,000)
Rp240,000,000
(29,000,000)
Rp211,000,000

Chapter 1

E1-19 (continued)
b.

Deferred Merger Costs


Deferred Stock Issue Costs
Cash

54,000,000
29,000,000
83,000,000

Cash
Accounts Receivable
Inventory
Land (3)
Buildings and Equipment (3)
Accounts Payable
Bonds Payable
Bond Premium
Preferred Stock (Rp10 x 8,000)
Additional Paid-In Capital (4)
Deferred Merger Costs
Deferred Stock Issue Costs

70,000,000
110,000,000
200,000,000
83,111,000
290,889,000
195,000,000
100,000,000
5,000,000
80,000,000
291,000,000
54,000,000
29,000,000

(3) Computation of negative goodwill:


Market value of shares issued
(Rp50,000 x 8,000)
Merger costs
Purchase price
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net assets acquired
Negative goodwill

Rp400,000,000
54,000,000
Rp454,000,000
Rp830,000,000
(300,000,000)
(530,000,000)
Rp76,000,000

Assignment of negative goodwill:


Item
Land

Fair Value
Rp100,000,000

Buildings and Equip.

350,000,000
Rp450,000,000

Reduction for
Negative Goodwill*
Rp76,000,000 x
(100/450)
Rp76,000,000 x
(350/450)

(4) Market value of shares issued (Rp50,000 x 8,000)


Par value of shares issued (Rp10,000 x 8,000)
Additional paid-in capital from issuing shares
Stock issue costs
Additional paid-in capital recorded

Assigned
Valuation
Rp83,111,000
290,889,000
Rp374,000,000
Rp400,000,000
(80,000,000)
Rp320,000,000
(29,000,000)
Rp291,000,000

E1-20 Reporting Income


20X2:

Net income
Earnings per share

=
=

Rp6,028,000 [Rp2,500,000 + Rp3,528,000]


Rp5.48 [Rp6,028,000 / (1,000,000 + 100,000)]

20X1:

Net income

Rp4,460,000 [previously reported]

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 19

Chapter 1

Earnings per share

Rp4.46 [Rp4,460,000 / 1,000,000]

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 20

Chapter 1

SOLUTIONS TO PROBLEMS
P1-21 Assets and Accounts Payable Transferred to Subsidiary
a. Journal entry recorded by PT Tabanan for its transfer of
assets and accounts payable to PT Catur:
Investment in PT Catur Common Stock
Accounts Payable
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Cash
Inventory
Land
Buildings
Equipment

320,000,000
45,000,000
40,000,000
10,000,000
25,000,000
70,000,000
60,000,000
170,000,000
90,000,000

b. Journal entry recorded by PT Catur for receipt of assets


and accounts payable from PT Tabanan:
Cash
Inventory
Land
Buildings
Equipment
Accounts Payable
Accumulated Depreciation Buildings
Accumulated Depreciation Equipment
Common Stock
Additional Paid-In Capital

25,000,000
70,000,000
60,000,000
170,000,000
90,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 21

45,000,000
40,000,000
10,000,000
180,000,000
140,000,000

Chapter 1

P1-22 Creation of New Subsidiary


a. Journal entry recorded by PT Elang Perkasa for transfer of assets
and accounts payable to PT Sindangsari:
Investment in PT Sindangsari Common Stock
Allowance for Uncollectible Accounts Receivable
Accumulated Depreciation
Accounts Payable
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment

400,000,000
5,000,000
40,000,000
10,000,000
30,000,000
45,000,000
60,000,000
20,000,000
300,000,000

b. Journal entry recorded by PT Sindangsari for receipt of assets and


accounts payable from PT Elang Perkasa:
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Allowance for Uncollectible Accounts Receivable
Accumulated Depreciation
Accounts Payable
Common Stock
Additional Paid-In Capital

30,000,000
45,000,000
60,000,000
20,000,000
300,000,000
5,000,000
40,000,000
10,000,000
50,000,000
350,000,000

P1-23 Incomplete Data on Creation of Subsidiary


a. The book value of assets transferred was Rp152,000,000 (Rp3,000,000 + Rp16,000,000
+ Rp27,000,000 + Rp9,000,000 + Rp70,000,000 + Rp60,000,000 - Rp21,000,000 Rp12,000,000).
b. PT Jari-jari would report its investment in PT Baharu equal to the book value of net
assets transferred of Rp138,000,000 (Rp152,000,000 - Rp14,000,000).
c. 8,000 shares (Rp40,000,000/Rp5,000).
d. Total assets declined by Rp14,000,000 (book value of assets transferred of
Rp152,000,000 - investment in PT Baharu of Rp138,000,000).
e. No effect. The shares outstanding reported by PT Jari-jari are not affected by the creation
of PT Baharu.

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 22

Chapter 1

P1-24 Journal Entries to Record a Business Combination


Journal entries to record acquisition of PT Taufik net assets:
(1) Deferred Merger Costs
Cash
Record payment of legal fees.

14,000,000

(2) Deferred Stock Issue Costs


Cash
Record costs of issuing stock.

28,000,000

(3) Cash and Receivables


Inventory
Buildings and Equipment
Goodwill
Accounts Payable
Notes Payable
Common Stock
Additional Paid-In Capital
Deferred Merger Costs
Deferred Stock Issue Costs
Record purchase of PT Taufik.

28,000,000
122,000,000
470,000,000
26,000,000

14,000,000

28,000,000

41,000,000
63,000,000
96,000,000
404,000,000
14,000,000
28,000,000

Computation of goodwill
Values of shares issued (Rp22,000 x 24,000)
Legal fees
Total purchase price
Fair value of net assets acquired
(Rp620,000,000 - Rp104,000,000)
Goodwill

Rp528,000,000
14,000,000
Rp542,000,000
(516,000,000)
Rp26,000,000

Computation of additional paid-in capital


Number of shares issued
Issue price in excess of par value (Rp22,000 - Rp4,000)
Total
Less: Deferred stock issue costs
Increase in additional paid-in capital

24,000,000
x
Rp18,000
Rp432,000,000
(28,000,000)
Rp404,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 23

Chapter 1

P1-25 Recording Business Combinations


a. 400,000 shares issued:
Deferred Merger Costs
Deferred Stock Issue Costs
Cash

38,000,000
22,000,000
60,000,000

Cash and Equivalents


Accounts Receivable
Inventory
Land (1)
Buildings (1)
Equipment (1)
Accounts Payable
Short-Term Notes Payable
Bonds Payable
Common Stock Rp2 Par
Additional Paid-In Capital (2)
Deferred Merger Costs
Deferred Stock Issue Costs

41,000,000
73,000,000
144,000,000
196,500,000
1,473,750,000
294,750,000
35,000,000
50,000,000
500,000,000
800,000,000
778,000,000
38,000,000
22,000,000

(1) Negative goodwill:


Total purchase price:
Value of stock issued (Rp4,000 x 400,000)
Merger costs
Total purchase price
Fair value of net assets acquired
(Rp41,000,000 + Rp73,000,000 + Rp144,000,000
+ Rp200,000,000 + Rp1,500,000,000 + Rp300,000,000
- Rp35,000,000 - Rp50,000,000 - Rp500,000,000)
Negative goodwill
Allocation of negative goodwill:
Land
Rp 200,000,000
Buildings
1,500,000,000
Equipment
300,000,000
Rp2,000,000,000
Land
Buildings
Equipment

Rp
200,000,000
1,500,000,000

300,000,000

/
/
/

Rp2,000,000,000
Rp2,000,000,000
Rp2,000,000,000

Rp1,600,000,000
38,000,000
Rp1,638,000,000

(1,673,000,000)
Rp (35,000,000)
=
=
=

.10
.75
. 15
1.00

(Rp35,000,000 x =
Rp
.10)
196,500,000
(Rp35,000,000 x = 1,473,750,000
.75)
(Rp35,000,000 x =
294,750,000
.15)

(2) Additional paid-in capital: Rp778,000,000 = Rp800,000,000 - Rp22,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 24

Chapter 1

P1-25 (continued)
b. 900,000 shares issued:
Deferred Merger Costs
Deferred Stock Issue Costs
Cash

38,000,000
22,000,000
60,000,000

Cash and Equivalents


Accounts Receivable
Inventory
Land
Buildings
Equipment
Goodwill (1)
Accounts Payable
Short-Term Notes Payable
Bonds Payable
Common Stock Rp2 Par
Additional Paid-In Capital (2)
Deferred Merger Costs
Deferred Stock Issue Costs

41,000,000
73,000,000
144,000,000
200,000,000
1,500,000,000
300,000,000
1,965,000,000
35,000,000
50,000,000
500,000,000
1,800,000,000
1,778,000,000
38,000,000
22,000,000

(1) Goodwill:
Total purchase price:
Value of stock issued (Rp4,000 x 900,000)
Merger costs
Total purchase price
Fair value of net assets acquired
(Rp41,000,000 + Rp73,000,000 + Rp144,000,000 +
Rp200,000,000
+ Rp1,500,000,000 + Rp300,000,000 - Rp35,000,000
- Rp50,000,000 - Rp500,000,000)
Goodwill
(2) Additional paid-in capital:
Rp1,778,000,000 = [(Rp4,000 - Rp2,000) x 900,000] Rp22,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 25

Rp3,600,000,000
38,000,000
Rp3,638,000,000

(1,673,000,000)
Rp1,965,000,000

Chapter 1

P1-26 Business Combination with Goodwill


a. Journal entry to record acquisition of PT Zahari net assets:
Cash
Accounts Receivable
Inventory
Patents
Buildings and Equipment
Goodwill
Accounts Payable
Notes Payable
Cash

20,000,000
35,000,000
50,000,000
60,000,000
150,000,000
38,000,000
55,00,0000
120,000,000
178,000,000

b. Balance sheet immediately following acquisition:


PT Jangkarku and PT Zahari
Combined Balance Sheet
February 1, 20X3
Cash
Accounts Receivable
Inventory
Patents
Buildings and Equipment
Less: Accumulated
Depreciation
Goodwill

Rp 82,000,000
175,000,000
220,000,000
140,000,000
530,000,000

Accounts Payable
Notes Payable
Common Stock
Additional Paid-In
Capital
Retained Earnings

(190,000,000)
38,000,000
Rp995,000,000

Rp140,000,000
270,000,000
200,000,000
160,000,000
225,000,000
Rp995,000,000

c. Journal entry to record acquisition of PT Zahari stock:


Investment in PT Zahari Common Stock
Cash

178,000,000

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 26

178,000,000

Chapter 1

P1-27 Negative Goodwill


Journal entries to record acquisition of PT Lahardo net assets:
Deferred Merger Costs
Cash

5,000,000
5,000,000

Cash
Inventory
Buildings and Equipment (net)
Patent
Accounts Payable
Cash
Deferred Merger Costs

50,000,000
150,000,000
240,000,000
160,000,000
30,000,000
565,000,000
5,000,000

Computation of negative goodwill


Purchase price
Fair value of net assets acquired
(Rp700,000 - Rp30,000)
Negative goodwill

Rp570,000,000
(670,000,000)
Rp100,000,000

Assignment of negative goodwill to noncurrent assets


Item
Buildings and Equipment

Fair Value
Rp300,000,
000

Patent
200,000,00
0
Rp500,000,
000

Reduction for Negative


Goodwill
Rp100,000,000 x
(300/500)
Rp100,000,000 x
(200/500)

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 27

Assigned
Valuation
Rp240,000,00
0
160,000,000
Rp400,000,00
0

Chapter 1

P1-28 Computation of Account Balances


a.

Liabilities reported by the Aspira Division at yearend:


Rp930,000,000

Fair value of reporting unit at year-end


Purchase price of reporting unit
(Rp7,600 x 100,000)
Fair value of net assets at acquisition
(Rp810,000,000 - Rp190,000,000)
Goodwill at acquisition
Impairment in current year
Goodwill at year-end
Fair value of net assets at year-end

Rp760,000,000
(620,000,000)
Rp140,000,000
(30,000,000)
(110,000,000)
Rp820,000,000
Rp950,000,000
(820,000,000)
Rp130,000,000

Fair value of assets at year-end


Fair value of net assets at year-end
Fair value of liabilities at year-end
b. Required fair value of reporting unit:
Fair value of assets at year-end
Fair value of liabilities at year-end (given)
Fair value of net assets at year-end
Original goodwill balance
Required fair value of reporting unit to avoid recognition of
impairment of goodwill

Solutions Manual Adaptasi Baker / Lembke / King / Jeffrey,


Advanced Financial AccountingAn Indonesian Perspective
1 - 28

Rp 950,000,000
(70,000,000)
Rp 880,000,000
140,000,000
Rp1,020,000,000

Chapter 1

P1-34 Goodwill Assigned to Multiple Reporting Units


a. Goodwill to be reported by PT Rojali:
A
Rp70,000
,000
90,000,0
00
70,000,0
00

Carrying value of goodwill


Implied goodwill at year-end
Goodwill to be reported at year-end

Reporting Unit
B
Rp80,000,000
50,000,000
50,000,000

Total goodwill to be reported at year-end:


Reporting unit A
Reporting unit B
Reporting unit C
Total goodwill to be reported

C
Rp40,00
0,000
75,000,
000
40,000,
000

Rp 70,000,000
50,000,000
40,000,000
Rp160,000,000

Computation of implied goodwill


Reporting unit A
Fair value of reporting unit

Rp400,000,0
00

Fair value of identifiable assets

Rp350,000,
000
(40,000,00
0)

Fair value of accounts payable

(310,000,00
0)
Rp
90,000,000

Fair value of net assets


Implied goodwill at year-end
Reporting unit B
Fair value of reporting unit
Fair value of identifiable assets
Fair value of accounts payable
Fair value of net assets
Implied goodwill at year-end

Rp450,000,000
(60,000,000)

Reporting unit C
Fair value of reporting unit
Fair value of identifiable assets
Fair value of accounts payable
Fair value of net assets
Implied goodwill at year-end

Rp200,000,000
(10,000,000)

Rp440,000,000
(390,000,000)
Rp 50,000,000
Rp265,000,000
(190,000,000)
Rp 75,000,000

b. Goodwill impairment of Rp30,000,000 (Rp80,000,000 - Rp50,000,000) must be


reported in the current period for reporting unit B.

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


1 - 29

Chapter 1

P1-30 Journal Entries


Journal entries to record acquisition of PT Baja Ringan net assets under purchase
treatment:
(1) Deferred Merger Costs
Cash
Record finder's fee and transfer costs.
(2) Deferred Stock Issue Costs
Cash
Record audit fees and stock registration fees.
(3) Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Bond Discount
Goodwill
Accounts Payable
Bonds Payable
Common Stock
Additional Paid-In Capital
Deferred Merger Costs
Deferred Stock Issue Costs
Record purchase-type merger with PT Baja Ringan.

19,000,000
19,000,000
9,000,000
9,000,000
60,000,000
100,000,000
115,000,000
70,000,000
350,000,000
20,000,000
114,000,000
10,000,000
200,000,000
120,000,000
471,000,000
19,000,000
9,000,000

Computation of goodwill
Value of shares issued (Rp50,000 x 12,000)
Finder's fee
Legal fees for asset transfer
Fair value of net assets acquired
Goodwill

Rp600,000,000
10,000,000
9,000,000
Rp619,000,000
(505,000,000)
Rp114,000,000

Additional Paid-In Capital


Rp471,000,000 = [(Rp50,000 - Rp10,000) x 12,000] Rp9,000,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


1 - 30

Chapter 1

P1-31 Purchase at More than Book Value


a. Journal entry to record acquisition of PT Sitakarya net
assets:
Cash
Accounts Receivable
Inventory
Land
Buildings and Equipment
Bond Discount
Goodwill
Accounts Payable
Bonds Payable
Common Stock
Additional Paid-In Capital

30,000,000
60,000,000
160,000,000
30,000,000
350,000,000
5,000,000
125,000,000
10,000,000
150,000,000
80,000,000
520,000,000

b. Balance sheet immediately following acquisition:


PT Randhika and PT Sitakarya
Combined Balance Sheet
January 1, 20X2
Rp 100,000,000

Cash
Accounts
Receivable
Inventory
Land

160,000,000
360,000,000
80,000,000

Buildings and
Equipment
Less: Accumulated
Depreciation
Goodwill

Accounts
Payable
Bonds Payable

Rp
60,000,000
Rp450,000,000

Less: Discount
Common
Stock

(5,000,000)

Additional
Paid-In
Capital
Retained
(250,000,000) Earnings
125,000,000
Rp1,525,000,000

445,000,000
280,000,000

950,000,000

560,000,000
180,000,000
Rp1,525,000,000

P1-32 Business Combination


Journal entry to record acquisition of PT Tut-Tut net assets:
Cash
Accounts Receivable
Inventory
Plant and Equipment
Other Assets
Goodwill
Allowance for Uncollectibles
Accounts Payable
Notes Payable

300,000
17,000,000
35,000,000
500,000,000
25,800,000
86,500,000
1,400,000
8,200,000
10,000,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


1 - 31

Chapter 1

Mortgage Payable
Bonds Payable
Capital Stock (Rp10 par)
Premium on Capital Stock

50,000,000
100,000,000
90,000,000
405,000,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


1 - 32

Chapter 1

P1-33 Combined Balance Sheet


a. Purchase balance sheet:
PT Budiman dan PT Sejahtera Bangsaku
Combined Balance Sheet
January 1, 20X3
Cash and Receivables
Inventory
Land
Plant and Equipment
Less: Accumulated
Depreciation
Goodwill

b.

Rp110,000,000 Current Liabilities


142,000,000 Capital Stock
115,000,000 Capital in Excess
540,000,000
of Par Value
Retained Earnings
(150,000,000)
13,000,000
Rp770,000,000

100,000,000
214,000,000

Rp

216,000,000
240,000,000
Rp

770,000,000

(1) Stockholders' equity with 1,100 shares issued


Capital Stock [Rp200,000,000 + (Rp20,000 x 1,100 shares)]
Capital in Excess of Par Value
[Rp20,000,000 + (Rp300,000 - Rp20,000) x 1,100 shares]
Retained Earnings

Rp

222,000,000

Rp

328,000,000
240,000,000
790,000,000

(2) Stockholders' equity with 1,800 shares issued


Capital Stock [Rp200,000,000 + (Rp20,000 x 1,800 shares)]
Capital in Excess of Par Value
[Rp20,000 + (Rp300 - Rp20) x 1,800 shares]
Retained Earnings

Rp
236,000,000
524,000,000
240,000,000
Rp1,000,000,000

(3) Stockholders' equity with 3,000 shares issued


Capital Stock [Rp200,000,000 + (Rp20,000 x 3,000 shares)]
Capital in Excess of Par Value
[Rp20,000,000 + (Rp300,000 - Rp20,000) x 3,000 shares]
Retained Earnings

Rp 260,000,000
860,000,000
240,000,000
Rp1,360,000,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


1 - 33

Chapter 1

P1-34 Incomplete Data Problem


a. Rp5,200 = (Rp126,000,000 - Rp100,000,000)/Rp5,000
b. Rp208,000,000 = (Rp126,000,000 + Rp247,000,000) - (Rp100,000,000 + Rp65,000,000)
c. Rp46,000,000 = Rp96,000,000 - Rp50,000,000
d. Rp130,000,000 = (Rp50,000,000 + Rp88,000,000 + Rp96,000,000 + Rp430,000,000 Rp46,000,000 Rp220,000,000 - Rp6,000,000) - (Rp40,000,000 + Rp60,000,000 + Rp50,000,000 +
Rp300,000,000 Rp32,000,000 - Rp150,000,000 - Rp6,000,000)
e. Rp78,000,000 = Rp208,000,000 - Rp130,000,000
f. Rp97,000,000 (as reported by PT Endang)
g. Rp13,000,000 = (Rp430,000,000 - Rp300,000,000)/10 years

P1-35 Incomplete Data Following Purchase


a. Rp14,000 = Rp70,000,000/Rp5,000
b. Rp8,000 = (Rp70,000,000 + Rp42,000,000)/14,000
c. Rp7,000 = (Rp117,000,000 - Rp96,000,000)/Rp3,000
d. Rp364,000,000 = (Rp117,000,000 + Rp577,000,000) - (Rp96,000,000 + Rp234,000,000)
e. Rp24,000,000 = Rp65,000,000 + Rp15,000,000 - Rp56,000,000
f. Rp110,000,000 = Rp320,000,000 - Rp210,000,000
g. Rp306,000,000 = (Rp15,000,000 + Rp30,000,000 + Rp110,000,000 + Rp293,000,000) (Rp22,000,000 + Rp120,000,000)
h. Rp82,000,000 = Rp364,000,000 + Rp24,000,000 - Rp306,000,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


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Chapter 1

P1-36 Comprehensive Business Combination Problem


a. Journal entries on the books of PT Integrasi Industri to record the combination:
Deferred Merger Costs
Cash

135,000,000
135,000,000

Deferred Stock Issue Costs


Cash

42,000,000
42,000,000

Cash
Accounts Receivable
Inventory
Long-Term Investments
Land
Rolling Stock
Plant and Equipment
Patents
Special Licenses
Discount on Equipment Trust Notes
Discount on Debentures
Goodwill
Allowance for Bad Debts
Current Payables
Mortgages Payable
Premium on Mortgages Payable
Equipment Trust Notes
Debentures Payable
Common Stock
Additional Paid-In Capital Common
Deferred Merger Costs
Deferred Stock Issue Costs

28,000,000
258,000,000
395,000,000
175,000,000
100,000,000
63,000,000
2,500,000,000
500,000,000
100,000,000
5,000,000
50,000,000
244,700,000
6,500,000
137,200,000
500,000,000
20,000,000
100,000,000
1,000,000,000
180,000,000
2,298,000,000
135,000,000
42,000,000

Computation of goodwill
Value of stock issued (Rp14,000 x 180,000)
Direct merger costs
Total purchase price
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of net identifiable assets
Goodwill

Rp2,520,000,000
135,000,000
Rp2,655,000,000
Rp4,112,500,000
(1,702,200,000)
(2,410,300,000)
Rp 244,700,000

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


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Chapter 1

P1-36 (continued)
b. Journal entries on the books of PT Hidrologi Kimia to record the combination:
Investment in PT Integrasi Industri Stock
Allowance for Bad Debts
Accumulated Depreciation
Current Payables
Mortgages Payable
Equipment Trust Notes
Debentures Payable
Discount on Bonds Payable
Cash
Accounts Receivable
Inventory
Long-Term Investments
Land
Rolling Stock
Plant and Equipment
Patents
Special Licenses
Gain on Sale of Assets and Liabilities
Record sale of assets and liabilities.
Common Stock
Additional Paid-In Capital Common Stock
Treasury Stock
Record retirement of Treasury Stock:*
Rp7,500,000 = Rp5,000 x 1,500 shares
Rp4,500,000 = Rp12,000,000 - Rp7,500,000
Common Stock
Additional Paid-In Capital Common
Additional Paid-In Capital Retirement
of Preferred
Retained Earnings
Investment in PT Integrasi Industri Stock
Record retirement of PT Hidrologi Kimia stock and
distribution of PT Integrasi Industri stock:
Rp592,500,000 = Rp600,000,000 - Rp7,500,000
Rp495,500 = Rp500,000 - Rp4,500
1,410,000,000 = Rp220,100,000 + Rp1,189,900,000

2,520,000,000
6,500,000
614,000,000
137,200,000
500,000,000
100,000,000
1,000,000,000
40,000,000
28,000,000
258,000,000
381,000,000
150,000,000
55,000,000
130,000,000
2,425,000,000
125,000,000
95,800,000
1,189,900,000
7,500,000
4,500,000
12,000,000

592,500,000
495,500,000
22,000,000
1,410,000,000
2,520,000,000

*Alternative approaches exist.

Solutions Manual Baker / Lembke / King / Jeffrey, Advanced Financial Accounting, 7e


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