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Problems_Week 1

The document outlines various accounting problems related to intercorporate acquisitions, investments, and combinations, including journal entries for business combinations, equity-method entries, and balance sheet preparations. It presents specific scenarios involving Blue Company, Netherite Corp, Arabasta Inc., Power Company, PT Borobudur, and PT Minggu, detailing their financial transactions and required accounting entries. Each problem requires the preparation of journal entries and balance sheets based on the provided financial data and acquisition methods.

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Andi Setyo Wicaksono
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© © All Rights Reserved
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6 views

Problems_Week 1

The document outlines various accounting problems related to intercorporate acquisitions, investments, and combinations, including journal entries for business combinations, equity-method entries, and balance sheet preparations. It presents specific scenarios involving Blue Company, Netherite Corp, Arabasta Inc., Power Company, PT Borobudur, and PT Minggu, detailing their financial transactions and required accounting entries. Each problem requires the preparation of journal entries and balance sheets based on the provided financial data and acquisition methods.

Uploaded by

Andi Setyo Wicaksono
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Advance Financial Accounting 1

Week 1
Intercorporate Acquisition and Investment in Other Entities and Concept of Control
Teaching Assistant Team

PROBLEM 1: Journal Entries to Record a Business Combination


On January 1, 2024, Blue Company acquired all Green Corporation’s assets and liabilities by issuing
28,000 shares of its $5 par value common stock. At that date, Blue shares were selling at $20 per
shares. Historical cost and fair value balance sheet data for Green at the time of acquisition were as
follows (in $):

Balance Sheet Item Historical Cost Fair Value


Cash and Receivables 28,000 35,000
Inventory 68,000 100,000
Building and Equipment 700,000 450,000
Less: Accumulated Depreciation (298,000)
Total Assets 498,000 585,000
Account Payables 45,000 45,000
Notes Payable 69,000 65,000
Common Stock ($10 par value) 164,000
Retained Earnings 220,000
Total Liabilities and Equities 498,000

Blue paid legal fees for the transfer of assets and liabilities of $20,000. Blue also paid audit fees of
$25,000 and listing application fees of $10,000, both related to the issuance of new shares
Required: Prepare the journal entries made by Blue to record the business combination.

PROBLEM 2: Accounting for intercorporate investments in common stock

Netherite Corp acquired 40% of Diamond Company’s common stock for $180,000 on January 1, 2024.
Diamond reported net income of $100,000 and paid dividend of $25,000 for 2024. At December 31,
2024, Netherite determined the fair value of its investment in Diamond Company to be $194,000.
Required:
a. Prepare the journal entries on Netherites books for the acquisition of Diamond on January 1,
2024, as well as any normal equity-method entry(ies) related to the investment in Diamond
Company
b. Give the journal entries on Netherite’s books if Netherite’s uses fair value method for its
investment in Diamond Company
c. Calculate the balance of Investment in Diamond account on Netherite’s books under each
method
PROBLEM 3: Combined Balance Sheet
Arabasta Inc. and Baratie Rope Company agreed to merge on January 1, 202X. On the date of the
merger agreement, the companies reported the following data (in $):
Arabasta Baratie Rope Company
Balance Sheet Item
Book Value Fair Value Book Value Fair Value
Cash and Receivables 90,000 90,000 20,000 20,000
Inventory 100,000 150,000 30,000 42,000
Land 100,000 140,000 10,000 15,000
Plant & Equipment 400,000 300,000 200,000 140,000
Less: Acc. Depreciation (150,000) (80,000)
Total Assets 540,000 680,000 180,000 217,000
Current Liabilities 80,000 80,000 20,000 20,000
Common Stock 200,000 20,000
Additional Paid in Capital 20,000 5,000
Retained Earnings 240,000 135,000
Total Liabilities & 540,000 180,000
Equities
Arabasta has 10,000 shares of its $20 par value shares outstanding on Januari 1, 202X, and Baratie
has 4,000 shares of %5 par value stock outstanding. The market value of the shares are $350 and
$50, respectively.
Required:
a. Arabasta issues 700 shares of stock in exchange for all of Baratie’s net assets. Prepare a
balance sheet for the combined entity immediately following the merger
b. Prepare the stockholders’ equity section of the combined company’s balance sheet,
assuming Arabasta acquires all of Baratie’s net assets by issuing:
1. 1,500 shares of common
2. 2,000 shares of common
3. 3,200 shares of common

PROBLEM 4 : Bargain Purchase


Power Company purchased Sark Corporation’s net assets on January 3, 20X2, for $625,000 cash. In
addition, Power incurred $5,000 of direct costs in consummating the combination. At the time of
acquisition, Sark reported the following historical cost and current market data:

Required :
Give the journal entry or entries with which Power recorded its acquisition of Sark’s net assets.
PROBLEM 5 : Direct Cost
PT Borobudur acquired 100% of the outstanding common stock of PT Prambanan for $3.000.000 cash
and 25.000 shares of its own common stock ($2 par value), which was trading at $30 per share at the
acquisition date. In acquisition process, PT Borobudur paid Legal Fees ($40.000), Travel Expense
($10,000), Accounting fee ($15000). They also paid paid audit fees of $25,000 (to fullfill listing
requirement) and BEI listing application fees of $10,000. Prior to consummation date, $80.000 had
been paid and charged to deffered charges account pending consummation of the aquisition. The
remaining has not been paid or accrued.
Required :
(1) Prepare journal entry to record the acquisition above.
(2) Prepare the journal entry to record the direct cost.

Problem 6 : Combination Effected through the Acquisition of Net Assets


PT Minggu acquires all of the assets and assumes all of the liability of PT Sabtu in a statutory merger
by issuing 20,000 shares of $5 par common stock to sub. The shares issued have a total market value
price $35 per share. PT Minggu incurs legal and appraisal fees of $50,000 in connection with the
combination. PT Minggu also incurs stock issue costs of $25,000 in connection with the combination.
The book values and fair values of PT Sabtu individual assets and liabilities on the date combination
are follows :

Required : By using acquisition method please makes entries recorded in both side whether by
acquiring company or acquired company?

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