Perform the following: (Note: Perform these items instead of the items listed as Required in the problem.)Complete a Book Value, Fair Value, Change schedule to determine the value of Goodwill. Prepare the journal entry Prince would use to record the acquisition. Prepare a consolidating trial balance (worksheet) as of the acquisition date (make sure to use proper report heading).
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Identifiable Intangibles and Goodwill Prince Corporation, a wholesale vehicle distributor, acquires all of the stock of Squire Service Corporation for one million shares of Prince stock, valued at $35 per share. Squire becomes a subsidiary of Prince. Professional fees connected with the acquisition are $1,200,000 and costs of registering and issuing the new shares are $600,000, both paid in cash.
Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. The balance sheets of Prince and Squire immediately prior to the acquisition are shown next.
Balance SheetsPrinceSquireCash$2,800,000$300,000Accounts receivable6,000,0002,700,000Parts inventory–5,200,000Vehicle inventory15,000,000–Equipment, net40,000,00017,600,000Total assets$63,800,000$25,800,000Current liabilities$5,000,000$3,100,000Long-term liabilities25,000,0008,600,000Stockholders’ equity33,800,00014,100,000Total liabilities and equity$63,800,000$25,800,000In reviewing Squire’s assets and liabilities, you determine the following:
On a discounted present value basis, the accounts receivable have a fair value of $2,600,000, and the long-term liabilities have a fair value of $8,000,000.
The current replacement cost of the parts inventory is $6,000,000.The current replacement cost of the equipment is $19,500,000.
Squire occupies its service facilities under an operating lease with ten years remaining. The rent is below current market levels, giving the lease an estimated fair value of $1,250,000.
Squire has long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term of the contracts is estimated at $2,000,000.
Squire has a skilled and experienced work force. You estimate that the cost to hire and train replacements would be $750,000.
Squire’s trade name is well-known among fleet owners and is estimated to have a fair value of $200,000.
For all answers below, enter your answers in thousands. For example, $1,000,000 is $1,000.