Chapter 1

ELECTRONIC SUPPLEMENT SOLUTIONS

Solution W1-1
The acquisition method follows traditional accounting. The net assets acquired in the business combination are
recorded based on their fair market value at the combination date. Under pooling, the net assets are recorded based
on their existing book values on the records of the combining companies.
Solution W1-2
If total paid-in capital of the combining companies exceeded the par or stated value of the outstanding shares of the
surviving company, the amount of excess becomes the additional paid-in capital of the surviving company, and the
total retained earnings of the combining companies becomes the retained earnings of the surviving company. If the
par or stated value of outstanding shares of the surviving exceeded the total paid-in capital of the combining
companies, the combined retained earnings is reduced by the excess and the surviving company has no additional
paid-in capital.
Solution W1-3
Under both pooling and the acquisition method, all costs of the combination are recorded as expenses of the
combined companies in the year of combination. Costs of registering and issuing securities are an exception. These
are charged against additional paid-in of the parent/acquirer.
Solution W1-4
1.

2.

2.

Solution W1-5
1.
Solution W1-6
1.

2.

3.

Solution W1-7
Net assets (+A)
Common stock (+SE)
APIC (+SE)
Retained earnings (+SE)

2,200

1,200
800

200

Expenses (E,-SE)
Cash (-A)

60
60

Solution W1-8
Net assets (+A)
Common stock (+SE)
Retained earnings (+SE)
Investment in Service Corporation (-A)

2,070
30

570

1,470

Solution W1-9
Pooled Balance Sheets
Tansy

Vatters

800,000 shares

1,000,000 shares

Current assets

15,000

4,000

19,000

19,000

Plant assets - net

40,000

6,000

46,000

46,000

55,000

10,000

65,000

65,000

Liabilities

10,000

3,000

13,000

13,000

Common stock

30,000

4,000

38,000

40,000

3,000

2,000

2,000

Retained earnings

12,000

1,000

12,000

12,000

Total equities

55,000

10,000

65,000

65,000

Total assets

APIC

Solution W1-10
1.

Net assets (+A)

800

Common stock (+SE)

APIC +-SE)
Retained earnings (+SE)
2.

Common stock (+SE)

Retained earnings (+SE)

350

150

300
Net assets (+A)

770

800

30

Solution W1-11
Net assets (+A)
Treasury stock (-SE)
Common stock (+SE)
APIC (+SE)
Retained earnings (+SE)

11,500
500
10,000

1,000

1,000

Solution W1-12
Part 1.
a.

Investment in EPA (+A)

Common stock (+SE)
APIC (+SE)
Retained earnings (+SE)

b.

18,300
13,000

4,000

1,300

Investment in Century (+A)

18,700
Common stock (+SE)
12,000
Retained earnings (+SE)
6,700
Note: Century=s Inventory and Retained Earnings would each have increased by $1,000 to reflect the change to
FIFO. The adjustment would have been made prior to recording the combination.

c.

Other expenses (E,-SE)

200

Cash (-A)

200

Part 2.
Patio
Assets
Cash
Receivables - net
Inventories
Investment in EPA
Investment in
Century
Land
Building - net
Equipment - net
Total assets
Liabilities & Equity
Accounts payable
Bonds payable
Capital stock
APIC
Retained earnings
Total equities

EPA

2,000
3,000
5,500
21,000

4,000
5,000
14,000
18,300
18,700
3,000
10,500
8,500
82,000

Eliminations
DR
CR POOLE
D
4,000
5,000
14,000
18,300
0
18,700
0
3,000
10,500
8,500
45,000

2,300
0
6,000
2,700
10,000
21,000

5,000
3,000
41,000
8,300
24,700
82,000

5,000
3,000
25,000
1,300
10,700
45,000

Century Combined

3,000
3,500
6,000

1,000
1,500
8,000

37,000

1,000
7,500
3,000
24,000

25,000
1,300
10,700
37,000

2,700
3,000
10,000
4,300
4,000
24,000

18,300
18,700

16,000
7,000
14,000
37,000 37,000

Solution W1-13
Pooling
Ainsley
Assets
Cash
3,000
Receivables - net
5,500
Inventories
6,000
Other current assets 1,500
Investment in Biker 7,000
Plant assets - net
16,000
Total assets
39,000
Liabilities & Equity
Accounts payable
5,000
Other liabilities
3,800
Capital stock
20,000
APIC
3,000
Retained earnings
7,200
Total equities
39,000

Biker

DR

5,000
12,000

Consolidate
d
4,000
7,500
9,500
2,000
7,000
0
21,000
44,000

1,800
3,200
3,000
1,200
2,800
12,000

6,800
7,000
20,000
3,000
7,200
44,000

1,000
2,000
3,500
500

3,000
1,200
2,800
7,000

Acquisition Method
Ainsley

Elimin.
CR

Biker

Assets
Cash
3,000
Receivables - net
5,500
Inventories
6,000
Other current assets 1,500
Investment in Biker 12,500
Goodwill
Plant assets - net
16,000
Total assets
44,500

5,000
12,000

Liabilities & Equity

Accounts payable
5,000
Other liabilities
3,800
Capital stock
20,000
APIC
10,500
Retained earnings
5,200
Total equities
44,500

1,800
3,200
3,000
1,200
2,800
12,000

1,000
2,000
3,500
500

DR

7,000

Elimin.
CR

500
100
2,300
2,400

200
3,000
1,200
2,800
12,500

Consolidate
d
4,000
7,500
10,000
2,100
12,500
0
2,300
23,400
49,300

12,500

6,800
6,800
20,000
10,500
5,200
49,300