By Floyd A Beams; et al
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Because of the additional complications of accounting for parent–subsidiary operations, the remainder of this chapter is limited to business combinations in which a single acquiring entity receives the net assets of the other combining companies. Subsequent chapters cover parentsubsidiary operations and the preparation of consolidated financial statements. LEARNING OBJECTIVE 4 Recording Fair Values in an Acquisition The first step in recording an acquisition is to determine the fair values of all identifiable tangible and intangible assets acquired and liabilities assumed in the combination.
Computer software and mask works # c. Unpatented technology * d.  COST AND FAIR VALUE COMPARED After assigning fair values to all identifiable assets acquired and liabilities assumed, we compare the investment cost with the total fair value of identifiable assets less liabilities. If the investment cost exceeds net fair value, we first assign it to identifiable net assets according to their fair values and then assign the excess to goodwill. In some business combinations, the total fair value of identifiable assets acquired over liabilities assumed may exceed the cost of the acquired company.
In addition, Pan pays $60,000 for registering and issuing the 36,000 shares and $140,000 for the other direct costs of the business combination, in which Sis Corporation is dissolved. Summary balance sheet information for the companies immediately before the merger is as follows (in thousands): Pan Book Value Sis Book Value Sis Fair Value Cash Inventories Other current assets Plant assets—net Total assets $700 240 60 520 $1,520 $ 80 160 40 360 $640 $ 80 200 40 560 $880 Current liabilities Other liabilities Common stock, $10 par Retained earnings Total liabilities and owners’ equity $320 160 840 200 $1,520 $ 60 100 400 80 $640 $ 60 80 R E Q U I R E D : Prepare all journal entries on Pan’s books to account for the acquisition.