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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.
Expert Answer
Answer:
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 | |
