Question

During the current year, Brewer Company acquired all of the outstanding common stock of miller Inc. paying $12,000,000 cash. The book values and fair values of Miller's assets and liabilities acquired are listed below: Book Value Fair Value Accounts receivable $1,800,000 $1,625,000 Inventories 2,700,000 4,000,000 Property Plant and Equipment 9,000,000 11,625,000 Accounts payable 3,000,000 3,000,000 Bonds payable 4,500,000 4,125,000 Required: Prepare the journal entry to record the acquisition by Brewer Company.

Answer 1

Answer:

See the explanation below:

Explanation:

The merged details are first sorted as follows:

Details                                        Book Value ($)            Fair Value ($)

Accounts receivable                     1,800,000                   1,625,000

Inventories                                     2,700,000                  4,000,000

Property Plant and Equipment     9,000,000                 11,625,000

Accounts payable                          3,000,000                 3,000,000

Bonds payable                               4,500,000                  4,125,000

The calculation will now be done using the fair value as follows:

Total fair value of assets = $1,625,000 + 4,000,000 + 11,625,000 = $17,250,000

Total fair value of liabilities = $3,000,000 + 4,125,000 = $7,125,000

Fair Value of Miller Inc. Equity = $17,250,000 - $7,125,000 = $10,125,000

Goodwill from the acquisition = $12,000,000 - $10,125,000 = $1,875,000

The journal entries will look as follows:

Details                                          Dr ($)                      Cr ($)          

Goodwill                                   1,875,000

Miller Inc. Equity acquired      10,125,000

Cash                                                                         12,000,000

To record the acquisition Miller Inc.