Sample Problem: NET ASSET ACQUISITION

Answer Key

Alpha to Bravo
Cash 185,000
Shares (198,500 x P40) 7,940,000
Total Consideration 8,125,000
Fair Value of Net Assets Acquired
Assets 10,250,000
Liabilities 2,775,000 7,475,000
Goodwill 650,000

Alpha to Charlie
Cash 72,000
Shares (54,350 x P40) 2,174,000
Total Consideration 2,246,000
Fair Value of Net Assets Acquired
Assets 3,057,500
Liabilities 800,000 2,257,500
Gain on Bargain Purchase (11,500)

Journal Entries on Books of Alpha Corp.

*Acquisition of Bravo Co.

Cash 6,500,000
Receivables 1,950,000
Other Assets 1,800,000
Goodwill 650,000
Liabilities 2,775,000
Cash 185,000
Share Capital 5,955,000
Share Premium 1,985,000

*Acquisition of Charlie Inc.

Cash 2,300,000
Receivables 400,000
Other Assets 357,500
Liabilities 800,000
Cash 72,000
Share Capital 1,630,500
Share Premium 543,500
Gain on Bargain Purchase 11,500
Acquisition Expense 296,250
Share Premium 925,000
Accounts Payable 1,221,250

Expenses (296,250)
Gain on Bargain Purchase 11,500
Net decrease in retained earnings of Alpha Corp. (284,750)

Share Capital – B 5,955,000

Share Capital – C 1,630,500
Share Premium – B 1,985,000
Share Premium – C 543,500
Share Premium (stock issue costs) (925,000)
Change in Retained Earnings (284,750)
Net increase in shareholders’ equity of Alpha Corp. 8,904,250

Assets – B 10,250,000
Assets – C 3,057,500
Cash paid to B (185,000)
Cash paid to C (72,000)
Net increase in identifiable assets of Alpha Corp. 13,050,500