# Question & Answer: Moon Company is contemplating the acquisition of Yount, Inc., on January 1, 2015. If Moon acquires Yount, it will pay \$730,000 in c…..

Moon Company is contemplating the acquisition of Yount, Inc., on January 1, 2015. If Moon acquires Yount, it will pay \$730,000 in cash to Yount and acquisition costs of \$20,000. The January 1, 2015, balance sheet of Yount, Inc., is anticipated to be as follows: Fair values agree with book values except for the inventory and the depreciable fixed assets, which have fair values of \$70,000 and \$400,000, respectively. Your projections of the combined operations for 2015 are as follows: Depreciation on Yount fixed assets is straight-line using a 20-year life with no salvage value. 1. Prepare a value analysis for the acquisition and record the acquisition. 2. Prepare a pro forma income statement for the combined firm for 2015. Show supporting calculations for consolidated income. Ignore tax issues.

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Question & Answer: Moon Company is contemplating the acquisition of Yount, Inc., on January 1, 2015. If Moon acquires Yount, it will pay \$730,000 in c…..
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calculate excess of the fair value over the cost of the assets is goodwill

First of all, we need to calculate excess of the fair value over the cost of the assets as under

Good will

=Purchase consideration – Value of the net identifiable assets

=730,000-495,000

=\$235,000

Excess of the fair value over the cost of the assets or goodwill =\$235,000

a)

Journal Entry

 Date Description Debit \$ Credit \$ Jan-1-2015 Cash and cash Equivalents 100,000 .Are 120,000 Inventory 70,000 Depreciable FA 400,000 Goodwill (as calculated above) 235,000 Current Assets 30,000 Long term Liability 165,000 Cash Purchase consideration paid) 730,000 ( Being entry for purchase of net Assets)

we have given that yoaunt acquisition cost is \$20,000 so entry for it is as under

 Date Description Debit \$ Credit \$ Jan-1-2015 Acquisition expanses 20,000 Cash 20,000 ( Being entry for recording acquisition cost)

Inventory is valued at \$70,000 so increase in inventory

=70,000 -50,000

=\$20,000

this increase in the inventory is added to the cost of goods sold

the cost of goods sold

=120,000+20,000

=140,000

The total cost of goods sold =\$140,000

we have given that Depreciable Fixed Assets =\$400,000 and its useful life=20 years so calculation of the yearly depreciation is as under

depreciation

=\$400,000/ 20

=\$20,000 deprecation per year

 Performa Income statement for the year2015 Particular Amount \$ Amount \$ Sales 200,000 Less: Cost of goods sold (as calculated above) 140,000 Other Expanses (as given in the question) 25,000 Depreciation (as calculated above) 20,000 Total Expanses 185,000 Net income (200,000-185,000) 15,000