Advanced Accounting Exercises on Chapter Three

1. Green Company is considering acquiring the assets of Gold Company by assuming Gold’s liabilities and by
making cash payment. Gold Company has the following balance sheet on the date of acquisition:
Gold Company
Balance Sheet
December 31, 1994
Assets: Liabilities and Equity:
Accounts Receivable..................................100,000 Total Liabilities.................................... 200,000
Inventory....................................................100,000 Capital Stock (Br10 Par)...................... 100,000
Land...........................................................100,000 Additional PIC..................................... 200,000
Building (Net)............................................220,000 Retained Earnings............................... 300,000
Equipment (Net)........................................280,000
Total Asset.................................................800,000 Total Liabilities and Equity.................. 800,000
Appraisal indicates that the inventory is undervalued by Br 25,000; building is undervalued by Br 80,000; the
equipment is overstated by Br 30,000; and the liability is overstated by Br 10,000. Determine the Goodwill that is
recognized if Green Company pays Br 900,000 cash for the net assets of Gold Company.
2. On December 31, Year 1, META Company (the combinee) was merged into SAXON Corporation (the combinor
or surviving company). Both companies used the same accounting principles for assets, liabilities, revenue, and
expenses and both had a December 31 fiscal year. SAXON exchanged 150,000 shares of its Br 10 par common stock
(Current Fair Value Br 25 a share) for all 100,000 issued and outstanding shares of META’s no-par, Br 10 stated value
common stock. In addition, Saxon paid the following out-of-pocket costs associated with the business combination:
Accounting fees:
For investigation of META Company as prospective combinee......................................Br 5,000
For SEC registration statement for Saxon common stock.................................................. 60,000
Legal Fees:
For the business combination............................................................................................. 10,000
For SEC registration statement for Saxon common stock.................................................. 50,000
Finder’s fee................................................................................................................................... 51,250
Printing charges for securities and SEC registration statement...................................................... 23,000
SEC registration statement fee....................................................................................................... 750
Total out –of- pocket costs of business combination..................................................................... 200,000
There was no contingent consideration in the merger contract. Immediately prior to the merger, META Company’s
condensed balance sheet was as follows:
META COMPANY (Combinee)
Balance sheet (Prior to Business Combination)
December 31, Year 1
Assets:
Current assets Br1,000,000
Plant assets (net) 3,000,000
Other assets 600,000
Total 4,600,000
Liabilities & Stockholder Equity:
Current liabilities 500,000
Long-term debt 1,000,000
Common stock, no par Br 10 stated value 1,000,000
Paid in capital 700,000
Retained Earnings 1,400,000
Total 4,600,000
3. Grant Company has been looking to expand its operations and has decided to acquire the assets of TURNER
Company and MURPHY Company. GRANT Company will issue 25,000 shares of its Br 10 par common stock to
acquire the net assets of Turner Company and will issue 12,000 shares to acquire the net asset of Murphy Company.
The Balance Sheet of the acquired companies (combinees) is as follows:

1
 Turner Murphy
Company Company
Assets: In Birr In Birr
Accounts Receivables........................................................ 200,000 80,000
Inventory........................................................................... 150,000 85,000
Land.................................................................................. 150,000 50,000
Building............................................................................. 500,000 300,000
Accumulated Depreciation................................................ (150,000) (110,000)
Total Assets....................................................................... 850,000 405,000
..........................................................................................
..........................................................................................
..........................................................................................
Liabilities and SH Equity:
Current liabilities............................................................... 160,000 55,000
Bonds payable................................................................... 100,000 100,000
Common Stock (Br 10 par).............................................. 300,000 100,000
Retained earnings.............................................................. 290,000 150,000
Total liabilities and equity................................................. 850,000 405,000
The following current fair values (CFV) are agreed upon by the BODs of the combinees companies and Grant
Company while the others have the same book values and current fair values:
Turner Murphy
Company Company
Inventory........................................................................... 200,000 100,000
Land.................................................................................. 200,000 60,000
Building (net).................................................................... 400,000 350,000
Bonds payable................................................................... 80,000 95,000
Grant’s stock is currently traded at Br 40 per share. Grant will incur Br 5,000 direct acquisition cost in Turner
Company and Br 4,000 of direct acquisition cost in Murphy Company. Grant also incurred Br 13,000 other indirect
cost of acquisition and Br 15,000 registration and issue cost.
Required: Record the acquisition cost on the books of Grant Company using Purchase Accounting principles.
4. On December 31, Year 1, Davis Corporation acquired the net assets of Fairmont Corporation for Br 400,000
cash, in a purchase-type business combination. Davis paid legal fees of Br 40,000 in connection with the combination.
The condensed balance sheet of Fairmont prior to the business combination, with related current fair value data, is
presented below:
FAIRMONT CORPORATION (Combinee)
Balance Sheet (Prior to Combination)
December 31, Year 1
Carrying Market
Amounts Values
Assets:
Current assets................................................................................ Br190,000 Br 200,000
Investment in marketable securities............................................... 50,000 60,000
Plant assets (net)............................................................................ 870,000 900,000
Intangible assets (net).................................................................... 90,000 100,000
Total assets.................................................................................... 1,200,000 1,260,000
Liabilities &Stockholders' Equity:
Current Liabilities......................................................................... 240,000 240,000
Long-term debt.............................................................................. 500,000 520,000
Total Liabilities............................................................................. 740,000 760,000
Common stock, Br 1 par ............................................................... 600,000
Deficit (Dr. balance in Retained earnings).................................... (140,000)
Total stockholders' equity.............................................................. 460,000
Total liabilities & stockholders' equity.............................. 1,200,000
5. On January 31, 2004, EDGET Corporation acquired for Br five hundred forty thousands (540,000) cash all the net
assets except cash of HIBRET Company and paid Br 60,000 to a law firm for legal services in connection with the
business combination. The balance sheet of HIBRET Company on January 31, 2004 was as follows:

2
 HIBRET Company
Balance Sheet
January 31, 2004

Assets: Liabilities and Shareholders’ Equity

Cash ............................................... 40,000 Liabilities...................................... 620,000
Other Current Assets...................... 280,000 Common Stock.............................................. 250,000
Plant Assets (net)............................ 760,000 Retained Earning............................................
330,000
Intangible Assets ........................... 120,000
Total Assets ................................... 1,200,000 Total Liab. & SHEs........................................
1,200,000
The present value of HIBRET Company’s liabilities on January 31, 2004 was Br 620,000, the current fair values of its
non-cash assets were as follows on January 31, 2004:
Other current assets.................................................................300,000
Plant Assets.............................................................................874,000
Intangible Assets..................................................................... 76,000
Instruction: Prepare journal entries for EDGET Corporation on January 31, 2004 to record the acquisition of net
assets of HIBRET Company’s except cash.
6. The balance sheet and the current fair values of EXCEL Corporation on March 31, 2002 were as follows:
EXCEL Corporation
Balance Sheet
March 31, 2002
Assets Liabilities and Shareholders’ Equity

BV CFV BV CFV

Other Current Assets......................................

500,000 575,000 Current liabilities...........................................
300,000 300,000
Plant Assets (net).............. 1,000,000 1,200,000 Liabilities ..................................... 400,000 450,000
Patent (net).................................
100,000 50,000 Common Stock (10 par).................................
100,000
Retained Earning............................................
800,000
Total Assets..............................
1,600,000 Total Liab. & SHEs........................................
1,600,000
On April 1, 2002, VALUE Corporation issued 50,000 shares of its no-par, no stated value common stock (CFV Br 14 a
share) and Br 225,000 cash for the net assets of EXCEL Corporation in a purchase type business combination. Of the
Br 125,000 out-of-pocket costs paid by VALUE Corporation on April 14, 2002, Br 50,000 were legal fees and finder’s
fees related to the business combination and the remaining related to the issuance of common stock.
Required: prepare journal entries for VALUE Corporation on March 31, 2002 to record the business combination with
EXCEL Corporation
7. MOON Corporation agreed to purchase net assets of SUN Corporation. Just prior to the acquisition, SUN’s
Balance Sheet is as follows:
SUN Corporation
Balance Sheet
January 31, 2001
Assets: Liabilities and Shareholders’ Equity:
Accounts Receivable......................................
200,000 Current Liabilities..........................................
80,000
Inventory........................................................
270,000 Mortgage Payable..........................................
250,000
Equipment (net).............................................
100,000 Common Stock (Br 10 par)............................
100,000
_______ Retained Earnings..........................................
140,000
Total Assets ..................................................
570,000 Total Liab. & SHEs........................................
570,000
The market values agree with Book Values except for the equipment which has an estimated market value of Br
40,000. MOON Corporation paid Br 10,000 for direct acquisition costs and Br 15,000 for indirect acquisition cost to
consummate the transaction. Record the purchase on the MOON Corporation assuming the cash paid to SUN
Corporation is:
1. Br 180,000 2. Br 140,000

3
8. On December 31, 2006, Alpha Corporation issued 18,000 shares of its Br 2 par (current fair value of Br 10 per
share) common stock for all the outstanding common stock of Beta
Corporation in a statutory merger. Out-of-pocket costs of the business combination paid by Alpha on December 31,
2006 are:
Direct costs of the business combination ....................................... Br 22,000
Cost of registering and issuing common stock................................ 15,000
Total out-of-pocket costs of business combination ........................ Br 37,000
Beta had the following balance sheet on December 31, 2006:
Beta Corporation
Balance Sheet
December 31, 2006
Book Market
Value Value
Assets: In Birr In Birr
Inventories......................................................................................... 96,000 110,000
Other current assets........................................................................... 52,000 52,000
Plant assets (net)................................................................................ 172,00 195,000
Total assets........................................................................................ 320,000 357,000
Liabilities & Stockholders' Equity:
Liabilities........................................................................................... 175,000 175,000
Common Stock, Br 5 par................................................................... 20,000
Additional paid-in capital.................................................................. 50,000
Retained earnings.............................................................................. 75,000
Total liabilities & Stockholders' equity.............................................. 320,000

Additional Information: a special copyright was not previously recorded on Beta’s records. The copyright has a
current fair market value of Br 2,000. Beta had also Goodwill from previous business combinations that amounts Br
5,000 on the date of business combination.
Required: Record the business combination under purchasing accounting. Show the calculation that backs up the
entries

4
5