Advanced Accounting: 440- Fundamentals of Advanced Accounting:

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Q1. On June 30, 2013, Wisconsin, Inc., issued $300,000 in debt and 15,000 new shares of its $10 par value stock to Badger Company owners in exchange for all of the outstanding shares of that company. Wisconsin shares had a fair value of $40 per share. Prior to the combination, the financial statements for Wisconsin and Badger for the six-month period ending June 30, 2013, were as follows:

Wisconsin Badger
Revenues $ (900,000 ) $ (300,000)
Expenses 660,000 200,000

Net income $(240,000 ) $ (100,000)

Retained earnings, 1/1 $(800,000 ) $(200,000)
Net income (240,000 ) (100,000)
Dividends paid 90,000 0

Retained earnings, 6/30 $(950,000 )$(300,000)

Cash $ 80,000 $ 110,000
Receivables and inventory 400,000 170,000
Patented technology (net) 900,000 300,000
Equipment (net) 700,000 600,000

Total assets $ 2,080,000 $ 1,180,000

Liabilities $ (500,000 ) $ (410,000)
Common stock (360,000 ) (200,000)
Additional paid-in capital (270,000 ) (270,000)
Retained earnings (950,000 ) (300,000)

Total liabilities and equities $(2,080,000 ) $(1,180,000)

Note: Parentheses indicate a credit balance.

Wisconsin also paid $30,000 to a broker for arranging the transaction. In addition, Wisconsin paid $40,000 in stock issuance costs. Badger’s equipment was actually worth $700,000, but its patented technology was valued at only $280,000.

What are the consolidated balances for the following accounts? (Input all amounts as positive values.)

Accounts Amounts
a. Net income $
b. Retained earnings, 1/1/13 $
c. Patented technology $
d. Goodwill $
e. Liabilities $
f. Common stock $
g. Additional paid-in capital $

Q2.

The following book and fair values were available for Westmont Company as of March 1.

Book Value Fair Value
Inventory $ 630,000 $ 600,000
Land 750,000 990,000
Buildings 1,700,000 2,000,000
Customer relationships 0 800,000
Accounts payable (80,000 ) (80,000 )
Common stock (2,000,000)
Additional paid-in capital(500,000)
Retained earnings 1/1 (360,000 )
Revenues (420,000 )
Expenses 280,000
Note: Parentheses indicate a credit balance.

Arturo Company pays $4,000,000 cash and issues 20,000 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $25,000 and Arturo pays $42,000 for legal fees to complete the transaction.

Prepare Arturo’s journal entry to record its acquisition of Westmont.

General Journal Debit Credit
To record acquisition of Westmont Company.

To record legal fees related to the combination. DR CR

To record payment of stock issuance costs. DR. CR

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