Exercise 1-2
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Cash
Inventory
Land
Buildings
Equipment
Current liabilities
Bonds payable
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Exercise 1-3
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Equipment for resale
Land
Building
Current liabilities
Bonds payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Exercise 1-4
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Equipment
Current liabilities
Mortgage payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Exercise 1-7
Value Analysis
Current assets 100,000
Equipment 200,000
Building 270,000
Less current liabilities (60,000)
Fair Value of Net Assets 510,000
Purchase consideration 950,000
Less Fair Value of Net Assets 510,000
excess of total cost over fair value of net assets is 440,000
excess of total cost over fair value of net assets is 440,000
Less Deferred tax asset (300,000*30%) 90,000
Good will 350,000
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Current assets 100,000
Equipment 200,000
Building 270,000
Current Liabilities 60,000
Deferred Tax Asset 90,000
Good will 350,000
Cash 950,000
Exercise 1A-1
Calculation of Earnings in Excess of Normal
Average Operating Income
2,006
2,007
2,008
2,009
2,010
Total
Normal return on assets
Accounts Receivable
Inventory
Land
Building
Equipment
Others
Total
Normal Return
Annual Excess Earnings
A.
C
Problem 1-1
Purchase Price of $550,000
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Other current assets
Equipment
Trademark
Current liabilities
Bonds payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Purchase Price of $350,000
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Other current assets
Equipment
Trademark
Current liabilities
Bonds payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-2
Vicker
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Land
Building
Current liabilities
Bonds payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Kendal
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Land
Building
Current liabilities
Bonds payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-3
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Cash equivalents
Accounts receivable
Inventory
Depreciable fixed assets
Current liabilities
Long-term liabilities
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Pro Forma Income
Combined Income
Sales
Less:
Cost of Goods Sold
Other Expenses
Depreciation
Net Income
Problem 1-4
Purchased by issuing stock
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Land
Building
Accounts payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Purchased for cash
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Land
Building
Accounts payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-5
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Investments
Accounts receivable
Inventory
Prepaid insurance
Land
Machinery and equipment
Current Liabilities
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-6
Value Analysis
Total Price Paid
Total Fair Value of Net Assets
Notes receivable
Accounts receivable
Inventory
Other current assets
Investments
Land
Building
Equipment
Patents
Trade names
Accounts payable
Current Payroll and benefit-related liabilities
Debt maturing in one year
Long -term debt
Long-term Payroll and benefit-related liabilities
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-7
Value Analysis
Total Price Paid
Cash
Stock
Other
Total Price Paid
Total Fair Value of Net Assets
Notes receivable
Inventory
Prepaid expenses
Investments
Land
Building
Equipment
Vehicles
Franchise
Accounts payable
Taxes Payable
Interest Payable
Bonds Payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-8
Value Analysis
Total Price Paid
Cash
Stock
Other
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Other current assets
Equipment
Vehicles
Accounts payable
Accrued liabilities
Notes payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Problem 1-9
Name of Acquiring Company: Faber Enterprises
Name of Acquired Company: Ann’s Tool Company
Income Statement
For the Year Ending December 31, 2011
Faber 6 Mo. Ann’s Adjustments Combined
Income
Income Statement Accounts EnterprisesTool Co. Debit Credit Statement
Sales Revenue (550,000) (70,000)
Cost of Goods Sold 200,000 25,000
Gross Profit (350,000) (45,000)
Selling Expenses 125,000 15,000
Administrative Expenses 150,000 22,500
Depreciation Expense—
Faber 13,800
Depreciation Expense— 3,750
Ann’s Tool
Amortization Expense—
Faber 5,600
Amortization Expense— 1,000
Ann’s Tool
Total Operating Expenses 294,400 42,250
Net Operating Income (55,600) (2,750)
Nonoperating Revenues and
Expenses
Interest Expense 2,000
Interest Income (7,000)
Dividend Income (4,000)
Total Nonoperating Revenues
and Expenses
Income Before Taxes (66,600) (750)
Provision for Income Taxes 19,980 225
Net Income (46,620) (525)
Prepare the formal statement below:
Problem 1-10
Value Analysis
Total Price Paid
Stock
Total Price Paid
Total Fair Value of Net Assets
Accounts receivable
Inventory
Prepaid expenses
Investments
Land
Building
Equipment
Patent
Copyright
Accounts payable
Interest payable
Long-term notes payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Worksheet for Pro Forma Income Statement
Income Statement Accounts Garman Iris Adjustments
Key Debit Key
Sales revenue (350,000) (125,000)
Cost of goods sold 147,000 55,000
Gross profit (203,000) (70,000)
Selling expenses 100,000 20,000
Administrative expenses 50,000 30,000
Acquisition Expense
Depreciation expense 12,500 8,600
Amortization expense 1 ,000 3,900
Total operating expenses 163,500 62,500
Operating income (39,500) (7,500)
Nonoperating revenues and expenses:
Interest expense 3,000
Investment income (12,000) (4,500)
Income before taxes (51,500) (9,000)
Provision for income taxes (40% rate) 20,600 3,600
Net income (30,900) (5,400)
Pro-
Formal
Combined
stments Income
Credit
Problem 1-13
Value Analysis
Total Price Paid
Stock
Total Price Paid
Total Fair Value of Net Assets
Cash
Accounts receivable
Investment in marketable securities
Land
Building
Equipment
Accounts payable
Income taxes payable
Others
Total Fair Value of Net Assets
Goodwill
Gain on Purchase of Business
Entry
Account Name Debit Credit
Disclosure
Entry to record contingent consideration
