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Company Analysis of Haynes Inc

   

Added on  2020-04-21

14 Pages1918 Words298 Views
1.Haynes, Inc., obtained 100 percent of Turner Company’s common stock onJanuary 1, 2014, by issuing 9,000 shares of $10 par value common stock. Haynes’sshares had a $20 per share fair value. On that date, Turner reported a net bookvalue of $100,000. However, its equipment (with a five-year remaining life) wasovervalued by $5,000 in the company’s accounting records. Also, Turner haddeveloped a customer list with an assessed value of $30,000, although no value hadbeen recorded on Turner’s books. The customer list had an estimated remaininguseful life of 10 years. Turner’s land was undervalued by 10,000. Turner’s patent,which has 10 years of useful life remaining, was undervalued by 15,000.The following figures come from the individual accounting records of these twocompanies as of December 31, 2014HaynesRevenues$(700,000)Expenses460,000Investment incomeNotgivenDividends declared90,000 The pre-acquisition balance sheets of the two companies are presented below: HaynesTurnerCurrent Assets $100,000$ 50,000 Land$200,000$50,000Equipment$300,000$30,000 Patent$150,000$20,000Total Assets$750,000$150,000 Liabilities$350,000$50,000Common Stock$50,000$50,000Additional Paind-in Capital$150,000 Retained Earnings$200,000$50,000

a.What is balance of the investment account of Haynes right after this acquisition? Write down the relevant journal entries and the affected accounts (5 points).Ans: The balance of the investment account of Haynes right after the acquisition is $180,000 (90,000 shares @ $20 each)Investment in Turner Ltd.Dr.180,000 To Common StockCr.90,000 To Retained Earnings (1/1/14)Cr.90,000 (To record investment in Turner)b.What is the consolidated balance sheet numbers for Haynes and Turner on January 1, 2014? Please fill out the table below and write down the according journal entries (10 points)HaynesTurnerConsolidatedBalanceCurrent Assets $100,000$ 50,000 Land$200,000$50,000Equipment$300,000$30,000 Patent$150,000$20,000Total Assets$750,000$150,000 Liabilities$350,000$50,000Common Stock$50,000$50,000Additional Paind-in Capital150,000 Retained Earnings$200,000$50,000Ans: Consolidated Balance sheet Numbers as on January 1, 2014Particulars Haynes Turner Consolidated Balance Current Assets 100,000 50,000 180,000

Land 200,000 50,000 260,000 Equipment 300,000 30,000 325,000 Patent 150,000 20,000 185,000 Goodwill 30,000 Total Assets 750,000 150,000 980,000 Liabilities 350,000 50,000 400,000 Common Stock 50,000 50,000 140,000 Additional Paid-in Capital 150,000 150,000 Retained Earnings 200,000 50,000 290,000 Total Liabilities and equity 750,000 150,000 980,000 Journal Entries Goodwill (refer WN-1) Dr. 30,000Common Stock Dr. 50,000Retained Earnings Dr. 50,000Business Combination Valuation Reserve Dr. 50,000To Common stock Cr. 90,000To Retained Earnings Cr. 90,000(To record consolidation entry)WN-1 Acquisition Analysis as on 1/1/14Consideration Paid by Haynes 180,000Book value of Turner's assetsRecorded Book value 100,000 Less: Equipment Overvalued (5,000)Add: Customer List not recorded 30,000 Add: Land undervalued 10,000 Add: Patent undervalued 15,000 150,000 Goodwill on Acquisition 30,000c.What should be the investment income of Haynes 2014? (5 points)

Ans: The investment income of Haynes 2014 is as below:Net income of Turner 13,000 Less: Dividend declared (4,000) Less: Excess Amortisation (refer WN-2) (3,500) Net investment income - 2014 5,500 WN-2 Amortisation Value Undervalued / (overvalued) Life (years) Yearly amortisation Equipment (5,000)5 (1,000) Customer List 30,000 10 3,000 Patent 15,000 10 1,500 Net excess amortisation 3,500d.What should be the balance of investment account of Haynes for 2014? (5 points)Ans:Balance of investment account of Haynes for 2014 Fair value of consideration Paid by Haynes 180,000 Net investment income - 2014 5,500 185,500

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