Cost accounting
|advanced accounting |Mid exam 2010/2011 |Islamic university – Gaza |
|Sunday 28-11-2010 |[pic] |College of commerce |
|one hour | |Accounting department |
|(30 marks) | | |
Name: …………………………………………………… Id.:…………………………
Question 1: (5 marks)
| |
|PPP Corporation purchased the net assets of SSS Inc on January 2, 2010 for $280,000 and also paid $10,000 in direct acquisition costs. |
|SSS's balance sheet on January 2, 2010 was as follows: |
| |
|Accounts receivable-net $ 90,000 Current liabilities $ 35,000 |
|Inventory 180,000 Long term debt 80,000 |
|Land 20,000 Common stock ($1 par) 10,000 |
|Building-net 30,000 Paid-in capital 215,000 |
|Equipment-net 40,000 Retained earnings 20,000 |
|Total assets $360,000 Total liab. & equity $360,000 |
| |
|Fair values agree with book values except for inventory, land, and equipment, that have fair values of $200,000, $25,000 and $35,000, |
|respectively. SSS has patent rights valued at $10,000. |
| |
|Required: |
| |
|Prepare PPP's general journal entry for the cash purchase of SSS's net assets. |
Question 2: (7 marks)
|On January 2, 2010 PPP Corporation issued 100,000 new shares of its $5 par value common stock valued at $19 a share for all of SSS Company’s outstanding|
|common shares in an acquisition. PPP paid $15,000 for registering and issuing securities and $10,000 for other direct costs of the business combination.|
|The fair value and book value of SSS's identifiable assets and liabilities were the same. Summarized balance sheet information for both companies just |
|before the acquisition on January 2, 2010 is as follows: |
| | | | | | |
| | | | | | |
| | |PPP | |SSS | |
|Cash | |$ 150,000 | |$ 120,000 | |
|Inventories | |320,000 | |400,000 | |
|Other current assets | |500,000 | |500,000 | |
|Land | |350,000 | |250,000 | |
|Plant assets-net | |4,000,000 | |1,500,000 | |
|Total Assets | |$5,320,000 | |$2,770,000 | |
| | | | | | |
|Accounts payable | |$1,000,000 | |$ 300,000 | |
|Notes payable | |1,300,000 | |660,000 | |
|Capital stock, $5 par | |2,000,000 | |500,000 | |
|Paid-in capital | |1,000,000 | |100,000 | |
|Retained Earnings | |20,000 | |1,210,000 | |
|Total Liabilities & Equities | |$5,320,000 | |$2,770,000 | |
| | | | | | |
Required:
Prepare a balance sheet for PPP Corporation immediately after the business combination.
PPP Corporation
Balance Sheet
January 1, 2010
Assets: Liabilities:
Cash Accounts payable
Inventory Notes payable
Other current assets Total liabilities
Total current assets
Land Equity:
Plant assets-net Common stock ($5 par)
Goodwill Paid-in capital
Total L.T. assets Retained earnings
Total equity
Total assets Total liab.& eq.
Question 3: (8 marks)
|PPP Corporation paid $200,000 cash for 40% of the voting common stock of SSS Inc. on January 1, 2010. Book value and fair value information|
|for Swamp on this date is as follows: |
| | | | | | | |
| | | | | | | |
| | | |Book | |Fair | |
| |Assets | |Values | |Values | |
| |Cash | |$ 60,000 | |$ 60,000 | |
| |Accounts receivable | |120,000 | |120,000 | |
| |Inventories | |80,000 | |100,000 | |
| |Equipment | |340,000 | |400,000 | |
| | | |$ 600,000 | |$ 680,000 | |
| | | | | | | |
| |Liabilities & Equities | | | | | |
| |Accounts payable | |$ 200,000 | |$ 200,000 | |
| |Note payable | |120,000 | |100,000 | |
| |Capital stock | |200,000 | | | |
| |Retained earnings | |80,000 | | | |
| | | |$ 600,000 | |$ 300,000 | |
| | | | | | | |
|Required: |
|Prepare an allocation schedule for PPP’s investment in SSS. |
Computation and Allocation of Difference Schedule
Parent Non- Entire
Share Controlling Value
Share
Purchase price and implied value ………… ……………… …………
Less: Book value of equity acquired:
Common stock ………… ……………… …………
Other contributed capital ………… ……………… …………
Retained earnings ………… ……………… …………
Total book value ………… ……………… …………
Difference between implied and book value
Inventory ………… ……………… …………
Equipment ………… ……………… …………
Notes payable ………… ……………… …………
……………. ………… ……………… …………
……………. ………… ……………… …………
Balance
Question 4: (10 marks)
|PPP Inc. acquired an 85% interest in SSS Corporation on January 2, 2010 for $38,000 cash when SSS had Capital Stock of $15,000 and Retained Earnings of |
|$25,000. SSS’s assets and liabilities had book values equal to their fair values except for inventory that was undervalued by $2,000. Balance sheets for|
|PPP and SSS on January 2, 2010, immediately after the business combination, are presented in the first two columns of the consolidated balance sheet |
|working papers. |
|PPP Corporation and Subsidiary |
|Consolidated Balance Sheet Working Papers |
|at January 1, 2010 |
| | | | |Eliminations |Balance | |
| | |PPP |Clock | |Sheet | |
| | | | | |Debit | |Credit | | |
|ASSETS: | | | | | | | | | |
|Cash |$ |68,000 |$ 4,000 | | | | | | |
|Accounts | | | | | | | | | |
|Receivable-net | |75,000 |9,000 | | | | | | |
| | | | | | | | | | |
|Inventories | |39,000 |10,000 | | | | | | |
|Plant assets- | | | | | | | | | |
|Net | |170,000 |35,000 | | | | | | |
|Investment in | | | | | | | | | |
|SSS | |38,000 | | | | | | | |
| | | | | | | | | | |
|Goodwill | | | | | | | | | |
| | | | | | | | | | |
|Total | | | | | | | | | |
|Assets |$ |390,000 |$58,000 | | | | | | |
| | | | | | | | | | |
|EQUITIES & LIB.: | | | | | | | | | |
|Payables |$ |120,000 |$18,000 | | | | | | |
| | | | | | | | | | |
|Capital stock | |100,000 |15,000 | | | | | | |
|Retained | | | | | | | | | |
|Earnings | |170,000 |25,000 | | | | | | |
|noncontrolling | | | | | | | | | |
|Interest | | | | | | | | | |
| | | | | | | | | | |
|Total equities & LIB. |$ |390,000 |$58,000 | | | | | | |
| | | | | | | | | | |
|Required: |
|Complete the consolidation balance sheet working papers for PPP and subsidiary at January 1, 2010. |
With best wishes
Mohammad Marwan Al Ashi
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