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    Father: acquisition method, consolidated balances

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    4-32 Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2009, for $680,000 cash. At the acquisition date, Sam's total fair value was assessed at $850,000 although Sam's book value was only $600,000. Also, several individual items on Sam's financial records had fair values that differed from their book values as follows:

    Book Value Fair Value
    Land................................................... 60,000 225,000
    Building and equipment
    (10-year remaining life) ...... 275,000 250,000
    Copyright (20-year life)......................... 100,000 200,000
    Notes payable (due in 8 years)............ (130,000) (120,000)
    For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2009, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet).
    Father Sam
    Revenues.............................................. (1,360,000) (540,000)
    Cost of Goods sold............................... 700,000 385,000
    Depreciation expense.......................... 260,000 10,000
    Amortization expense.......................... -0- 5,000
    Interest expense................................... 44,000 5,000
    Equity in income of Sam...................... (105,000) -0-
    Net income.............................. (461,000) (135,000)
    Retained earnings, 1/1/09.................. (1,265,000) (440,000)
    Net income (above)............................ (461,000) (135,000)
    Dividends paid..................................... 260,000 65,000
    Retained earnings, 12/31/09............ (1,466,000) (510,000)
    Current assets...................................... 965,000 528,000
    Investment in Sam................................. 733,000 -0-
    Land........................................................... 292,000 60,000
    Buildings and Equipment (Net)........... 877,000 265,000
    Copyright............................................... -0- 95,000
    Total assets.............................. 2,867,000 948,000
    Accounts payable................................. (191,000) (148,00)
    Notes payable...................................... (460,000) (130,000)
    Common stock................................... (300,000) (100,000)
    Additional Paid-in-capital..................... (450,000) (60,000)
    Retained earnings (above)..................... (1,466,000) (510,000)
    Total liabilities and equities... (2,867,000) (948,000)

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    https://brainmass.com/business/mergers-and-acquisitions/father-acquisition-method-compute-consolidated-balances-for-a-business-combination-271281

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    The solution examines acquisition methods and consolidated balances.

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