Advanced Accounting

Other

Paul, Inc. acquired 100% of Ernie’s Inc. net assets on January 1, 2009 for $300,000 in cash and paid 10,000 for acquisition cost. The following facts relate to the acquisitions:

Accounts Receivable

50,000

Inventory

80,000

Equipment, Net

50,000

Land and Building, Net

120,000

Total Assets

$300,000

Bonds Payable

90,000

Common stock

100,000

Retained earnings

110,000

Total Liabilities and Stockholders’ Equity

$300,000

Fair value of acquired net assets:

Accounts receivable

$50,000

Inventory

100,000

Equipment

30,000

Land and building

180,000

Customer list

30,000

Bonds payable

100,000

In 3–5 pages, complete the following:

  1. Determine and provide the proper accounting entry to record the subsidiary on Paul’s books on January 1, 2009 as if Ernie was dissolved.
  2. Determine and provide the proper accounting entry to record the subsidiary on Ernie’s books on January 1, 2009 as if Ernie was dissolved.
  3. While acquisitions are often friendly, there are numerous occasions when a party does not want to be acquired. Discuss possible defensive strategies that firms can implement to fend off a hostile takeover attempt.

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